Thank you. Good morning, everybody. As always, I'll go through the investment presentation that has been loaded And I'll call out the page numbers as I move through the deck. And I'll start then on page 3, which contains some of the highlights for the quarter. It was a tough quarter for CEPI.
The markets for graphic papers were weaker than we had expected. And as a consequence of that, we had to take production downtime. That was approximately 85,000 tons of graphic paper. The impact on EBITDA of that downtime was, $23,000,000. However, that enabled us to normalize our inventory levels, because of the lower demand.
And we are in a better position from an inventory perspective as we move forward. Dissolving pulp volumes were good. Post the debottlenecking projects that were completed in South Africa. And then for the specialities and packaging, mix performance, some good markets, particularly containerboard down in South Africa. And then some of the speciality grades in Europe, but others being more challenging.
At the same time, we were going through a ramp up process following the comparisons of Somerset and Maastricht. And obviously, that naturally has an impact on profitability as you optimize the machine and moving between the grades. As a consequence of all that, just some of the key numbers on and you see them on the page. EBITDA was down 11%, and net debt ended the quarter at $16,800,000. In terms of the ratios themselves, the leverage ratio 2.1.
And I always remind you that we work around a 2 times target. And, obviously, the lower profitability is briefly push back through that limit, but we're always disciplined to maintain it at those levels. The EBITDA margin following the profits down at 12.4%. Turning to Page 4, which is, earnings bridge between 2018 2019. And obviously, the big story here is that costs were higher, predominantly related to, the pulp side of it but not just pulp other of our raw materials as well.
In order to offset that, as you know, we've gone through a series of selling price increases, over the course of the last 12 months. That been, has been good for us. However, it has had an impact on downstream demand at the same time as, the global economy, particularly in Europe has been slower. The volumes obviously benefiting from the higher dissolving pulp, offset by the production downtime that we took. The exchange rates both the dollar sorry, the both the euro and the rand weakened against the dollar.
And the net impact of all of that was 7 $1,000,000 on our earnings. Contribution split, the EBITDA, and continues to tell the story that we've that we've been going through for some time that, dissolving pulp now being the largest segment. Printing and writing papers will come down further. Obviously, we've got the ramps up, ramp ups at Somerset and Maastricht, So that will lower those further. And packaging and specialty grades will continue to grow.
Moving to Slide 6. The, maturity profile of a debt. We did make a little adjustment there because the repayment of the 2022 bonus, which were refinanced during the quarter that occurred, just after the quarter end. So we just adjusted for that to reflect the true picture as it currently stands. And, you see it, it does look good and we have no immediate pressures.
And the bond issue itself was very successful. We now with the lowest rate that we've actually ever achieved. Slide 7 has our CapEx profile, and you will have seen obviously, the 2019 number before. The big projects contributing to the $550,000,000 are the the commencement of the expansion at Saiccor, the 110,000 tons. We got the conversion at Lanaken from mechanical, coated mechanical to coated woodfree.
And then other projects include the, at cloquet we expanded our capacity for dissolving pulp there by 30,000 tons. Glad to say that that's now been successfully completed, and now we have that additional capacity available. And then the other kind of big project we've had, over the last few months is the and you would you are down at Saiccor to enable us to, invest for the growth that's coming in. And again, that's now behind us as well. 2020 estimated CapEx is 490,000,000 dollars.
And the big, the big project contained in that obviously aside from the maintenance CapEx is the, is the Saiccor expansion, which will be completed towards the end of the 2020 financial year. Turning to the segments themselves in the markets and moving to Slide 9. It's fair to say that the, graphic papers market has been tough. During the quarter, we saw declines of between 8% 13%, particularly tough on the real site. Whether it's coated woodfree reels or on mechanical reels.
And if you look across all the grew between 8% 13% down both in U. S. And Europe. So that did put pressure on us. As we look forward, there is expected to be significant capacity coming out from competitors over the course of the next 18 months.
And that's both in U. S. And in Europe we estimate between 15% 20% of capacity. So that is going to relieve significant pressure on the operating rates for the graphic paper business. At the same time, we ourselves as we ramp up on packaging, will take further capacity out as well.
So that will help. On selling prices, following the increases of last year, we've actually seen stable selling price increases through the Q2. Pulp prices, have started falling over the few months, but bear in mind that they're obviously coming from historical highs and we're still higher, than a year ago. So that did put further pressure on the business. Going forward, we will, as always, an ongoing focus on costs to maintain margins We've obviously got the conversions that have been completed, which will enable us to take capacity out of the segment.
And We will monitor, clearly if markets continue to be tough and the declines continues to be tough, then we need to look at more assets and whether those are conversions or closures, we need to monitor the situation. However, we do believe that with the significant capacity coming out that I mentioned earlier, that will relieve the pressure. The other major focus, and it's the thing that we've been exposed to as we've gone through this cycle is pulp integration. And that is a focus of our attention. We do have projects internally that enable us to boost it a little bit.
But beyond that, we continue to look at that as a key long term strategic driver. Turning to specialities and packaging. The, we have seen other comparisons coming into the market. But at the same time, we have seen smaller packaging and specialty producers exit. And those tended to be the non integrated players and obviously they were facing the cost pressures of the higher pulp price.
Demand continues to grow across the, across the segments. And we are strongly encouraged by the long term prospects and the that the feedback that we're hearing from brand owners in terms of their push for paper based packaging solutions. A lot of that's driven by the changing legislation and consumer preference and the shift towards e commerce. Selling prices did rise What I should point out here is that the pulp integration in this segment for Sappi is lower than the overall pulp integration. So those pulp increases had more of an impact on packaging relative to graphic paper.
So obviously equally as prices come down, we will benefit from, from that more in this segment. Our strategy is to ramp up those conversions. And just to point out that they do take time that you have to go through a very careful coordinated process with customers to get accreditation. It does mean that you are moving back and forth between grades, different SKUs, testing new products, it has an impact on profitability. And if you recall, the same thing happened in Alfeld when we converted, a few years back.
And that's what we're experiencing once again with Maastricht and Somerset. I stress to you that the long term prospects for this business, we are still very positive and I would also point out if we hadn't done those conversions, then we would have had to take potentially more downtime on the graphic side because we would have had we would have had to fill those machines, with an alternative product. And pulp integration Open integration is an important aspect. Sorry. Is there someone else on the line that you can go on mute?
The turning to the regions themselves, SEPI Europe, the, As I've said, the graphic paper markets were weak. We had to take 46,000 tons of downtime. The good news is that that enabled us to destock and move forward, with, better inventory levels. So we've taken our pain. And we would not anticipate the same levels of, downtime in the future quarters.
Selling prices, were higher. Obviously, as we offset the higher costs that came through. As I said, pulp prices reduced, but remain elevated. The Packaging And Specialty segments, a little bit of mixed performance, but a lot of that was linked to the kind of economic activity that we saw in Europe. And the main product category we saw that was in, was in self adhesive.
However, having said that, we have started to see, things improve in recent times. The other thing I, you know, I should mention is that we've got the Lanaken conversion underway at the moment. It's moving from out of coated mechanical to coated wood. That's the worst segment for, graphic papers, not just in Europe globally. So that will help us.
And then obviously as we map, we ramp up at Maastricht, over the next couple of years, we in addition to what we've got now, we could be adding, or taking out of graphic papers 130,000 tons out of coated woodfree. Then moving out of, moving on to page 12, sappy North America, the, Again, many of the points are similar that graphic paper markets under pressure We did see increased imports. I would stress that we are part of that, and that's part of our biggest strategy, you know, when we converted at Somerset, we knew that we wanted to keep as much of the business as possible. So we are part of the increased import coming through there. The, legacy packaging and paper book volumes are growing and the ramp up Somerset continues.
But as I mentioned earlier, the product mix is not yet optimal. That takes a little bit of time and we are making significant process at progress each each month and volumes are picking up nicely. The and then obviously the the region benefited from good dissolving pulp sales volumes. And again, like what I said to you on, Maastricht for Europe, Somerset will ramp up further. And ultimately, there's another 350,000 tons that would shift away from graphic paper to packaging and help reposition Sappi as we move forward.
Turning to dissolving pulp on page 13. The, markets have been good. Demand was strong. Unfortunately, VSF capacity has grown at a faster pace than demand. And that's meant that VSF operating rates have been under pressure and put VSF pricing lower than it was.
At the same time, There is new dissolving pulp capacity coming into the market, but we believe that the demand is more been large enough to, to, to take up that demand. Selling prices, as I said, declining And on the cost side, obviously, much of this business is done in South Africa and wood prices have been a little bit higher. So that, that did push up costs a little bit for South Africa, during the quarter. The strategy, and I've mentioned this many times, we continue to do everything we can internally grow volumes. We have now, had small deep bottlenecking projects at cloquet at Marsh sorry, at goodwana and Saiccor, all adding volumes.
We've got the next 110,000 tons down in Saiccor. Which will be available for the 2021 financial year. We look at external opportunities, but we're not going to overpay for us and I've said that to you in the past. So we'll monitor the we'll monitor the situation, but there's we don't see any immediate opportunity to be dissolving pulp volumes externally. The big story there, as you will imagine, in the textile sector is sustainability becomes ever more important as the downstream brand owners are pushing for visibility on the supply chain.
Turning to South Africa, good performance in South Africa. The numbers you see on the left are the dollar numbers and, just in rents. EBITDA was up 18% year on year. So another good quarter, strong dissolving pulp sales volumes, obviously, benefiting from the projects that we've recently done Packaging. Packaging was lowered, but it was really a timing difference based on the timing of seasonal demand.
So we had an excellent first quarter a little bit lower in the second quarter, but overall, the business is doing extremely well. And we think going forward, there are further growth prospects there. The selling price increases did help us offset some of the costs And obviously, the rent was weaker, so it boosted us as well. Turning to the pillars of our strategy and they're outlined again on page 15. Taking each one in turn, firstly, page 16, ongoing focus on costs.
And I think we've done a tremendous job over the years. And, we've committed in 2019 to take a further $60,000,000 out and we're on track to achieve that as well. So ongoing focus on continuous improvement across all our mills. The big story there and it's been evidenced by what has happened is this pulp integration and we look at our mills in the U. S.
And in Europe to see whether there are we can, undertake some debottlenecking projects, which will improve pulp integration. The, the cycle expansion that we talked about, obviously, we're focusing on the sales side, but it will lead to lower variable costs as well. Pleased to say that the Gratkorn paper mill upgrade that we talked about earlier in the year. That was successfully completed on time, and the mill is operating nicely. Following the, the work that was undertaken.
Then moving to Page 17, the the rationalizing of their training businesses. And it's probably with what we've experienced in the last in the last quarter or 2, it emphasizes why this needs to continue as an important focus point for us. We obviously as we, move through the ramp up phase following the conversions, that will help relieve the pressure. And then at the same time, all those capacities that are coming out, And in Europe, you're talking, we estimate somewhere between around the 1,500,000 ton mark and in the U. S.
Upwards of 500,000 tons. That's you look at the capacity in those marketplaces, we're talking 15% to 20%. That's going to make a significant difference and push operating rates well up into the high 90s. In more short term, as I said, we did take downtime at the mills to lower inventories and derisk the business. The other thing I would say is if the markets continue to decline, obviously competitors taking capacity up we will continue to monitor ourselves.
And if it were to continue on an ongoing basis, then we obviously have to consider whether we have to take further capacity out, whether it's through conversions or closures, we will monitor that on an ongoing basis. On to the balance sheet. And, as I said, committed to the 2 times leverage. I'm very pleased with the bond issuance that we successfully did during the quarter. Then investing in areas of where we believe we had strong growth.
I want to come back to the overall strategy. This has been an ongoing process to derisk CEPI and reposition it for growth. We have been taking significant capacity out of graphic paper over a number of years. We've been converting and we've been making the business in a stronger position for future growth and to derisk. So, yes, there has been some short term challenges in the graphic paper markets, but that doesn't change our own our long term strategy and we continue to believe that it's the right one.
And we've made significant progress and we will continue to do that. In terms of the segments themselves, obviously, all the debottlenecking projects has gone extremely well. We're very excited about the additional volumes that Saiccor will give us, in South Africa, the packaging business, as I said, very strong. And we think there are opportunities to grow it further by some investments in Botswana and together. And also down in South Africa, as you know, timber supply has is a constraint And we continue to, look for opportunities to push the supply.
And then lot of good work being done on the, on the bio materials site, and we think in time there'll be future opportunities there. And obviously, the conversions of the board grades, the ramp up of that needs to accelerate. Turning to the short term outlook, we, the demand for dissolving pulp continues to be healthy. We will have the impact of the lower prices. As you know, that our contracted prices work a quarter in arrears, so you will have the impact on Q3.
We know that. However, the longer term and medium term prospects for dissolving pulp are very good and we we are confident about the pricing as we move forward and beyond. The Packages and Specialty segment, strong demand there, We're ramping up and the business is in a strong place. Products being well received and excellent quality. Yes, graphic made paper markets are weak.
However, with all the capacity that's coming out and including the conversions that we're doing, the operating rates will increase significantly in the in the near future. CapEx for the rest of the year is $370,000,000, mainly the projects that I've talked about. And because of the short term process, for the financial year, we're seeing that the second half of the year will be down on last year. So that's the deck itself. I'm now going to hand you back to the operator for questions.
Thank you very you. The first question comes from Brian Morgan of RMB Morgan Stanley.
Hi, guys. Thanks very much for the call. If you could just chat about this demand and decline in in graphic paper. Maybe a toughest question, but just to give us a feel, you know, that 8% decline rate that you see in Europe and 13% decline rate that you see in North America, if you were to, if you were to, maybe pin it down a little bit further. What portion would you say is general economic malaise?
And what portion would you say is, is price elasticity that you spoke about in the write up?
Yes, it's a good question. And we have done a lot of work internally on this. We estimate that the, the real trend line is down about 5%. Of the difference, we we've we've attributed half of the difference to the price elasticity issue that you referred to and the and the other half of the difference to the economic slowdown. That's our estimates based on the analysis that we've done.
And then carrying on from that, so do you what trend decline do you do you forecast in your planning?
Yes, Brian, it has been 5%. And obviously, that's why when we talked at the beginning of the year, we put out the outlook statement as it was. I think with the, as we go forward, and I think that's what your question relates to. We are using a 5 to 6% decline over the next, 3 or 4 years.
Okay. And if the this if the decline rates are are worse than that, what what I Could you give us an idea of your, of your, a marginal for error? Just what are your, what are your degrees of freedom here? I think that's a better term.
Okay. Well, look, it's if you look at the capacity that's coming out, obviously operating rates are in the high 80s. If you take the capacity out that I talked about earlier from our competitors and ourselves, then the operating rates are going to be in the high 90s. That gives you breathing space for a little bit of time. And, yeah, probably buys you some time.
If things were to be continued to be worse than 5% or 6%, then clearly we need to look at our own assets. And whether we need to take out further capacity, whether it's through conversions or closures, we would need to do that.
Okay, cool. That's fine. And if I can just ask, on the U. S, with the the Somerset conversion. When when do you expect, you you said that you said in in saying the write up that, that you've achieved customer approvals for the, for the SBS.
Could you give us an idea of when you would expect to start running that kind of higher price point, Pat, on that, on that machine?
Okay. Thanks. Mark's here with me. I'm going to just pass it to Mark.
Okay. Thanks, Steve. Hi, Brian. Yeah, we're, we're ramping up. The machine is, getting qualified with quite a few customers.
It's, we expect as we move through the rest of this year, we'll see that mix start to change. We do have some very large and some very successful, food service board customers. And that is actually where the machine is running the most right now, but the folding carton customers are coming along. And we would expect, as we get into the end of this year and going into next, it will probably be about fifty-fifty. And as we go into this time next year, we would be 75 or seventy-thirty with the folding folding carton customers to the food service because the capacity of the machine is is quite large and we have plenty of room to service both those segments.
Okay, that's great. Thanks very much guys.
The next question comes from James Twyman of Present.
Yes. Thank you. The first one is just on dissolving pulp. What your view is on pricing over the next 3 to 6 months We've seen obviously a lot of weakness recently. But the premium to paper pulp seems to be at record levels.
So just some idea of where you see that especially in terms of the Chinese market?
Yes. I will I'll give you a little bit of feedback and I'll hand you to Mohammad who runs our dissolving pulp business, to elaborate further. But from our perspective, yes, prices have come off. You are right. The current differential to paper pulp prices as as narrow as it's been for some time.
So being down at $200 or less, As you know, the breakeven is $300. We, we don't think it will go much further lower than it is currently. And as we look out to next year and beyond and you look at the supply demand balance, both in the paper pulp markets, and in dissolving pulp markets. We continue to be confident about the prospects for pricing. We the fact that the price gap at the moment between the two grades is as narrow as is, We think that creates further potential upside as well.
Mohammed, I don't know if you want to expand anything further.
Yes, Steve. I would just add that, if you look at if you look at structure is very high is, they're reliant on imported wood and that cost continues to go up because supply is starting to be constrained for the right reasons. And 2, if you look at pricing in terms of where it is at the moment, it's now at a point where those high cost modes in China are in trouble. So I also don't expect pricing to go much, much lower than really the demand. James?
Yes, thank you very much. If I could follow-up just on one other thing. In the European coated paper market, you haven't really taken a lot of capacity out. You've taken it out more in magazine, and sort of hoping that the store closure helps things out, which I'm sure it will. But if that takes quite a long time to happen and demand remains weak, is there the opportunity to actually start looking into the next stage of conversion sort of sooner rather than later?
And if so, how much would that cost you do you think?
I'll hand you to Barry now just to expand a little bit further. But yes, look, it's something that we monitor on an ongoing basis. We monitor our competitors. And based on, what we hear and what we see, we do think significant capacity will come out in the near future, which will help us, and help the market balance. Look, obviously, the conversions are part of that process of taking capacity out.
And what we've done in Maastricht is part of that. And then obviously, a couple of years ago, we did NYMEG and then took that out of the marketplace. There's been significant capacity come out and obviously more to come from from the competitors. Barry, do you want to just add to that?
Just one thing, Steve, and that is this if anything, the woodfree coated market for Sappi is the one where we we do better. It's a natural strength. And so it tends to be the case that's customers are beginning to sort of swerve towards Sappi as a safe haven as other people get out of the market. So operating rates in coated woodfree and because of woodfree segment, particularly the sheet segments, are higher. So, as we begin to shift massive more and more from graphics to specialities that tends to sort of equal out the capacities for Sappi.
And so it will be a while yet before we, we have to consider any any further action. It will depend on just what does happen. I always think that if there is an economic effect on the, demand, then, you know, that will pass. It's nasty while it's happening, but it will it will pass. So then we will go back to what Steve was talking about sort of 5% reduction.
Thank you very much. Thanks.
The next question comes from Lars Kjberg of Credit Suisse. Thank
you. Just a few questions from me. Could you comment where you are today in terms of how much SBS you are producing at Somerset And where do you expect that to be in, I guess, to fiscal 2020? And also if you can have any view or share your view on what it means for your dissolving wood pulp business, if China goes ahead to remove the duties as they've been discussed from various countries, well, including, I guess, the benefit would be for you for the cloquet business, but overall for you as a company, what that really means, if anything? And also how you when you talk about integration of pulp or increase the degree of integration, is that simply because you're shrinking your paper business or is that really some initiatives to drive up your own pulp production?
Okay. In terms of the, SBS, as Mark's indicated to you, there are other there are other grades on the machine. The by the end of this financial year, the total, packaging and grades on the machine we estimate is about 130,000 tons, Mark. Your question I think was to the end of 2020, Yes. So 250,000 by the end of 2020.
Second question on duties. And bear in mind, we you're right. We we haven't been selling from from cloquet into China. So the removal of the duties are theoretically would create an opportunity. But, bear in mind that we, a large proportion of our volumes is committed to long term customers.
So I don't really think it's going to have much impact on Sappi either way. The pulp integration, yeah, the smaller projects, particularly in Europe, because that's where we're pulp integration is at its lowest. We're I think we're about 51% at the moment. Barry, maybe just talk about some of those smaller opportunities.
Yes, Steve. We have possibilities to move our, integration rates to just over 60% with relatively low capital extensions both in Nanaq and and in alien and in Alfred and in Stockstadt. Beyond that, you would need to do something bigger possibly at, at at Gladcorn. To get us up to around about 70% and that's kind of where we feel the comfort rate is.
Yes, just to emphasize Barry's point, well, we want to get it up to 60 as near as possible. And then obviously, we'll evaluate that Gratkorn project and see what that entails.
Steve, you mentioned tail end of 2017. You came up with this brilliant word called Chexit as China exited from export markets. Have you seen any change or any return on the Chinese in any market as pulp prices have come down? Is that a factor in seeing European export coming down quite appreciably in spite of a big increase to the U. S?
No, we haven't really seen that happen. Not as as of yet. Obviously, it's a dynamic environment and, yeah, we're monitoring the situation, but not not as of yet. Okay.
Final question for me. Interesting to hear your comments about strong packaging demand, etcetera, when most packaging companies aren't necessarily saying the same. So I'm just where do you see that strength and what sort of segments would that be in specifically?
Yes, look, and obviously a big part of that is actually in South Africa. We've done tremendously well on our containerboard, site down in South Africa, and that business makes excellent margins, and continues to grow. And as I've said in my in the day, we think there are further opportunities. In the, and I think that's when you're talking containerboard itself. On the, on the paperboard side, both in, Europe and, in the U.
S, yes, we're ramping up. But, you know, as we talk to our downstream customers, there is a drive for paper based solutions. And that's what's giving us the confidence, that we can ramp up quickly on the, following the conversions Barry, anything more you want to add there, Barry?
Well, just one thing on the lightweight side, it's true that there has been a number of bankruptcies in Europe, and that has tended to have the same sort of factors in graphics, but, customers are going for safe havens. So they come to a financially strong company with multi sites, and that sappy comes very quickly into their picture. And so they shift volumes to us from, suppliers that, that that are no longer there. That's clearly helping our operating rate.
That makes sense. Thank you.
The next question comes from Ross Kricker of JP Morgan. Thanks everyone.
Just on specialties, even if you assume you're making around 1% EBITDA margin say on the new volumes, I'm just it still looks like there's quite a significant decline in what should maybe call the organic part of that business. So just wondering if you could maybe just talk about the real key drivers behind
The margin in the specialty packaging side?
Yes. I mean, you chatted about a few things, but just for the real key reasons because it's quite a big it looks like quite a big move down.
The pulp integration percentage that Barry and I were referring to earlier in Europe, is 51. However, for, the packaging and specialty side, it's only 30%. You know, if you look across the mills there. And so it has had a much higher impact Then as you look globally across the group, because we've been going through this accreditation phase with customers, you're not selling at full pricing. It's called second quality.
It's it's not that it's a weaker quality than ultimately, but as you bring on board new customers and as you are demonstrating to them the consistency of your product, the reliability of your service, all of those things. You don't get the optimized selling prices. That does ramp up over a period of time. And then there's the mix issue as well. And Mark talked about that.
We're still ramping up on the SBS site, and that's higher priced product than the other great. Very much anything you want to add
I think you've covered it well, Steve.
I think you've covered it well. There is a mix of different customers in the SPS side of Somerset and that mix will change as we get more and more qualification.
Okay. Thanks a
lot. Sorry, Ross. Just one other thing you have to remember as well. When you're testing the product, you're using machine time. You're carrying fixed costs associated with testing that product.
So you are not getting the margin. And this is exactly what we saw when, when we experienced, all felt as well. So ultimately, as you ramp up and the capacity grows and you have more and more customers on the machine, you're not switching between so many different grades and so many different products. And you're getting full prices for your product and the product mix is improving. All of those things help the profitability.
Thanks, Steve. That makes sense. Thank you.
The next question comes from Alexander Berglund of Bank of America Merrill Lynch.
Thank you very much. I just wanted to get a little bit more color on kind of the, on your calling kind of 2 down year on year, just kind of the drivers. I mean, you spoke about obviously dissolving wood price, pulp prices down and then also in the on the volume on the on the graphic paper side, but it feels like kind of on and correct me if I'm wrong, but if I look at kind of on prices, at least kind of where we are on spot, I mean, you're probably still looking at prices up a bit on coated woodfree, H on H sorry, year on year report for H2. And then folding box board a bit up. If you look at the U.
S. Kind of on the SPS side, and obviously you kind of you're still kind of improving your product there. But you not haven't seen too much kind of weakness there either if you look on your year on year basis. And then finally, I mean, on the paper power side, hardwood saw wood. I mean, you've been talking a lot about how there's been a big cost headwind from you.
Now like now has come down quite a lot, if you look at spot prices just now. So I'm just trying to kind of understand the different drivers for H2 being lower. And then on top of that, like if I may, I mean, in your bridge where you look at in your presentation, you said you had 76,000,000 negative headwind from variable and then delivery cost. Just kind of of that, how much of that, if you can comment has been from the pulp prices?
On the dissolving pulp, it's common knowledge what the spot prices in the marketplace are. And they are currently Mohammed at 8:48. That's correct. At the, you know, the probably come off 40 dollars, $50 in the over the course of the last few months. Our business is price quarterly in arrears.
So we didn't have the impact of that lower selling price in Q2. It's going to be in Q3. That is a big, big part of it, of why we talked down terms of graphic paper, yes, we, you know, we did have the, the weaker market. And we did take significant downtime. However, there is some downtime in Q3 as well.
So you've got to take that into account. The paper pulp prices, bear in mind there's a bit of a lag there. We sit with inventories and, that's going to work its way through the system. So typically, in terms of its impact on the P and L, you're probably talking a month or 2 behind. So you don't get all these benefits immediately.
It's it's it progressively, gets better The final question was on your variable costs and how much Yeah,
how much of that was
How much of that was pulp? The majority of that is, since
then, yeah, the majority of that is pulp, we had some increased in wood costs and some slight increases in the energy costs, but the bulk of that is pulp.
Okay. So then it's fair to it's fair to assume down, I know, be it with a bit of lag, but given kind of that prices are reversing now that that is kind of the extent of reversal you should get on the variable cost side?
Yes. Obviously, over time, cognizant of the fact that there is, there is a time lag, that I referred to earlier. But yes, I mean theoretically if the prices went back to their labels they were 12 months ago, then you would get much of that back.
But yes, so I understand kind of when you give that outlook, do you so do you expect prices to stay at spot for the rest of the year or do you expect any further decrease in other grades And also do you expect an increase in the paper pulp prices?
Look, in the short term, we do think paper pulp prices will come down a little bit further. So we do think that that will help the business. Longer term, who knows? I talked earlier about the supply demand dynamics, and we think the market for pulp generally, whether it be paper pulp or dissolving pulp longer term means that prices are going to be relatively high. But In the immediate short term, we do think this, paper pulp prices will continue to come down.
Okay. Thank you very much.
The next question comes from Sinon Kieran of Minnick Vanco.
Good afternoon. In terms of the outlook when you say for the full year, you expect it to be down year over year. I'm guessing you want to leave it at that, but is there any further comments you can give us as a magnitude of that?
No, not really. I mean, if if we thought it was going to be materially done, we would have said materially done.
Okay. That's helpful. And in terms of the 1,500,000 ton of capacity that you expect to be taken out of the European market. That's purely coated with free?
Yes.
And but you don't have any from SAP.
Obviously, on, a mechanical, there's also capacity coming out on that side as well. And we estimate that could be as close to a 1,000,000 tons
So for mechanical, you expect 1,000,000 tons.
And thought it would be about 1 a half.
Okay. And that in that 1 a half, you don't have any from sappy, do you?
Well, as I said earlier, the Maastricht, the Maastricht ramp up, that will take about 130 over the next couple of years out.
Okay. Right. And this 1.45 1,000,000 tons. That's over a 6,000,000 ton market. Is that right?
Yes. A bit more than that. I think it's 6,800,000 tons.
Okay. Okay. And in terms of your capital structure, obviously just recently done a transaction. But just to confirm, you don't have any plans to come back to the markets for the remainder of 2019?
No, no, not at this stage.
Great. Thank you very much.
Sorry, just one thing. Sorry, that coaching would be marked, I said 6.86.4. 1,000,000 tons.
Okay. So out of the 6,400,000 tons?
Yes. Yes.
Okay, great. Thank you.
Nicholas Remi of Health Management. Hello, Nicholas. Your line is open for questions. You can go ahead.
Hi, guys. Sorry. Thanks for the call. Just regarding the National Energy regulators announcements, about the electricity price hike of 9.41 percent in April, and how this is to be followed by a further increase of 8.1% in 2020 5.2% in, 2021. How do you expect, this is going to impact your operations and do you plan on offsetting this increase?
Okay, thanks. I'll give that to Alex.
So about 65% self sufficient in those own generation. We also sell into the grid. I don't think that this is going to have material impact because as we also are doing further projects in terms of increasing own generation.
Okay, great. Thanks. And also, what do you what's your expected, working cap over the next two quarters? I'm sorry if you've already answered that.
We expect it to come down by, between 50,000,000 and about 70,000,000 dollars or for the levels that we had at the end of March.
Great. Thanks very much.
Would like to hand the conference back over to Mr. Steve Binney for closing remarks. Thank you.
Thank you, everybody. Thanks for joining us on the call, and we look forward to discussing our results with you at the end of Q3.