Good day, ladies
and gentlemen, and welcome to the Sappi Q2 2015 Results Telecom Fund All participants are now in Please also note that this conference is being recorded. I would now like to turn the conference over to Mr. Steve Binnie. Please go ahead sir.
Thank you and good morning and good afternoon to everybody. I'm going to go through the investor presentation slide deck. And I'll as I go through each of the slides, I'll call out the slide number to make it easier for you. Firstly, starting on Slide 4, it has some of our highlights for the quarter. Firstly, profit for the period was $56,000,000.
That's up from $32,000,000 for the same quarter last year. And that's a rise of 75%. Earnings per share, excluding special items, was US0.11 dollars compared with US0.05 dollars. EBITDA, excluding special items, $172,000,000, that's in line with what we achieved last year, the $171,000,000 last year. Made significant progress on reducing our debt.
And the number came in at $1916,000,000 at the end of quarter. And compared to the same time last year, that was $2,248,000,000. Big highlight for us during the quarter was the successful refinancing of the 2018 2019 bonds, which will significantly lower our interest costs as we move forward. Turning to slide 5, that has the historical EBITDA and operating profit trends by quarter And you can see that typically Q2 is a relatively stronger quarter. Q3 is, is less.
And that's mainly because of the fact that we tend to schedule a number of our larger annual maintenance shuts at our mills during that Q3 and we put that in our outlook statement later, you'll see that that will be the same for this quarter. And then the most important quarter for us and the one in which we generate the most cash is Q4, and that will be the same for this financial year as well. On Slide 6, we have a EBITDA earnings bridge between 14 15. And I'll just talk to some of the key items relative to last year. Firstly, sales volumes were down.
The main reasons for that, firstly, related to the fact that at our cloquet mill in the U. S. As you know, we have the ability to switch between dissolving pulp and craft pulp. And during this quarter, there was a shift back to volumes to make craft pulp and that lowered the overall sales volumes. We also had the impact of the U.
S, the severe U. S. Weather in the Northeast this quarter, again, impacted on logistics and productivity to. In Europe, we saw a slow start in January and that subsequently did pick up but there was a slow start in January. And that was exacerbated by the fact that we had the Gratkorn shut in December for the project that we invested in and we talked about that on prior calls.
You had the delayed impact of the lower volume into Q2. On Slide 7, you can see our earnings split between our 2 product categories. On the right hand side, you'll see that roughly approximately half split between specialized cellulose and paper. And then on the left hand side, from an EBITDA perspective, you can see that 61% came from paper. We had a good quarter for paper, and each of the businesses have picked up nicely there.
On slide 8, the trend in terms of our net debt and the net debt to EBITDA ratio And you can see that following the peak of our borrowings Q1 of 2014. That was after we funded the costs for the chemical cellulose conversions, you'll see that we've been able to significantly decrease our debt over the past 6 or 7 quarters. And we would expect that trend to continue as we move towards the end of this financial year. Slide 9 has our maturity profile for our debt, and this is the first time that you will see the new bonds, the 2022 bonds million reflected. Obviously, that helped to push out our maturities and improve the profile.
Some other key items to call out firstly on in 2015, you'll see that there's that there's some short term borrowings, $172,000,000. A lot of that arose as a result of the refinancing tracks transaction that occurred. And we will be looking to repay that from the cash that we have on hand. And you'll see me have significant amount of cash at $399,000,000. So that will reduce considerably.
Seen, we have our securitization structure. That's in Europe, that structure, the 326,000,000 The good news there is that we've just managed to refinance that and that has been extended to 2018. Moving to slide 10, it reflects our CapEx. And we split this between maintenance CapEx. And we call it expansion, but but the more appropriate description here is efficiency and cost reduction project.
You can see that the CapEx is split roughly half half between the two. Typically our maintenance CapEx is around $50,000,000, and you can see it's been relatively constant. For the year, and we didn't include this in the outlook statement, we expect CapEx for this year to be 2 $80,000,000. Turning to the divisional overviews, and I'm on I'll move to Slide 12. Firstly, talking about the paper markets.
Firstly, it's fair to say that the global sorry, the coated woodfree demand decline has been in line with expectations. I did talk about in Europe, January was lower than expected. However, since that period has resumed the same downward trend in Europe of about 2% to 3% down. Coaching mechanical, those declines have been more severe and more of a concern. We're often asked a lot of questions about how the stronger dollar and weaker euro has impacted on imports into the U S.
We've analyzed that and it has not had a significant impact so far for us. Turning to the costs and the selling prices. The good news is that coated woodfree sales prices have moved up in North America. And in Europe, we've as recent as last week, we've just announced some price increases both on the rails and sheet sides moving forward. From an input cost perspective, softwood pulp prices have been following.
However, hardwood prices have been high, and that's put a little bit pressure on input costs. Moving forward, we will continue to look for opportunities for price increases and as I said, we have been relatively successful in recent times to achieving some price increases. We will always look for opportunities to improve efficiencies and costs. And I think a lot of good work's been done across the regions to reduce fixed costs. And we will manage our capacity in line with our demand expectations.
Moving to Slide 13. This is now the specialized cellular trends. Firstly, we've seen a deceleration of capacity expansion. As you know, there was a significant amount of capacity that came onboard sort of 2 or 3 years ago that has certainly slowed down. And there are further expansions planned, but we have in the short term seen a slowdown.
And in fact, with the pricing in the market as it is at the moment, we have seen some of the capacity switching back to paper pulp including ourselves for some of our at Croquet. Overall, we underlined demand trends for dissolving pulp are still moving up and our expectations are consistent with what we've communicated with you in the past around about the 6% mark. In terms of annual growth. In terms of selling prices, commodity grade dissolving pulp prices are still low. However, the good news there is that we have started to see some stability in textile fiber prices.
We've seen it, cotton prices We've seen it with polyester prices. And even obviously with VSF prices, we have seen stability coming through. Input costs have been declining for producers with the movement in exchange rates with for producers with non U. S. Dollar costs, and that obviously includes our 2 South African mills.
We will continue to manage our capacity. And it's a very important that we continue our strong relationships with our key customers and align our growth strategies with this. We will look for further opportunities to investigate other end uses for dissolving pulp. Now turning to each of the regional businesses, And I'll start with Europe. We have a couple of graphs on this page.
The first one is shows the EBITDA trends over a recent time. And I think there's been significant improvement now and you can see all the way back now to, the middle of 2013, 2014 financial year. We've seen consistent improvement. A lot of that, obviously, as a result of the costs that we've managed to take out of the business On the top right, we have the are the RISI forecasts. And you can see that they are forecasting for graphic paper are down around about 2% to 3%.
I think for coated woodfree, that's consistent with our internal thinking. Mechanical we believe maybe a little bit softer than that. Better margins the better margins that you've seen year on year are a result of higher coated wood free selling prices, the lower costs. We've taken out significant costs. And as you know, we closed the or we sold at the NY Mega Mill last year.
We were able to cover some of those production volumes. And we also got a benefit from the transfer of the Dutch pension fund. The weaker euro has lifted, export prices for us, but that has been offset. Somewhat by the higher U. S.
Denominated pulp costs. Logistic costs have been rising on the back of those increased export and there have been higher freight rates coming through there. In addition to all of that, our specialty business, has been stronger and we achieved better volumes and higher pricing. In North America, the same structure for the slide. And as you know, 20 14 was a tough year for the North Americans.
However, since then, we've seen improvements, we've taken costs out of the business and we've been able to to put through some price increases. On the top right, the forecast outlook from RISI is slightly better than what the European situation is and it's connecting down about 1%. Our estimates are in a similar similar range. The improvement that we've seen over the last year and increased profitability has it wasn't from the fact that we did get the higher sales prices. There's been a better mix on the sales side with a higher us on premium sheet, and we've been able to achieve lower variable costs.
However, the severe weather that we did see during the quarter in the Northeast did impact negatively on productivity and logistics. Developing pulp sales volumes were down. And I've talked about this already, but we did switch back some of that production to make on fiber for our paper mills at JOKAY. Our release business has been affected by weaker sales to China. And in addition to that, We do sell some of that into Europe and the weaker euro has negatively impacted pricing for sales to Europe when you convert that back to dollars.
The lower sale variable costs arose from lower chemical and energy prices, which have more than offset firewood input costs. In South Africa, we continue to see strong earnings growth We've seen an increased contribution from our paper business. The margins are picking up nicely there as we streamline there and have a focus focused marketing strategy. In terms of the dissolving pulp the what you see on the top right hand side is the outlook for dissolving pulp demand growth and it's consistent with what I said earlier. It's The expectations are around about 6% per annum growth.
In terms of the earnings growth, the exchange rate gains on export sales benefited us. And in addition, we were able to achieve further fixed cost savings, good work done there. That did offset the lower dissolving pulp selling prices, the U. S. Dollar denominated selling prices In addition, the dissolving sales volumes were impacted by a negatively impacted by a boiler tube leakage in marijuana.
In fact, that occurred in December in our last quarter. And I think we did talk about it at the time, but obviously you have the delayed impact of the sales in this quarter. Our paper business, I've talked about, it improved further. It's making good margins now. And is making an increased contribution to our profitability.
We're seeing higher volumes and improved pricing there as well. And we've been able to lower logistics and fixed costs. Paul of the reason for the improvement has been the strong fruit export sales, which has boosted the demand for virgin fiber packaging grades. Okay. Then turning to the strategic focus moving forward.
And slide 18 is a slide that you've seen previously, but it's important to reemphasize we're focusing on. And in terms of the key focus areas, going forward, we will continue to achieve costs or look for cost advantages. I do have some examples on further slides where I'll expand on some of the initiatives that we're taking for each of these areas. We will continue to rationalize our declining businesses. We will, in the short term, look for smaller opportunities to grow through moderate investments, never losing sight of the key focus, which is to generate cash to strengthen our balance sheet and reduce net debt.
You know that we have our target of net debt to EBITDA of two times. Then turning to Slide 19, as I said, I would talk to some recent examples of each of these pillars. Firstly, on achieving cost advantages. Some of these have been the investments that we've made at the power plants, in terms of Somerset, the changes that we made at Gratkorn, for on the paper machine. We talked about that one on the last quarter.
Important that we call out that we are. We do have the flexibility at 12 K to switch between the craft and dissolving pulp. That enables us to benefit from price movements in the 2 respective markets. We've also putting a lot of energy behind our group procurement initiatives, and we do think there are some saving opportunities there. Then moving to optimizing and rationalizing declining businesses.
As you know, we've been transforming over over a number of years now. Some recent examples of that has been the cessation of quality paper production in South Africa. Recently, Mesa announced that they are switching their Hussam Mo and they did produce volumes on our behalf. And we will have the ability to transfer those volumes into our production locations in the second half of the financial year. And then we're also on the lookout for opportunities to make more packaging grades at our mills around the globe.
Then moving to Slide 20, as I said, growing through moderate investments. And again, we we list a few examples. We have made some investments at a lightweight recycle packaging at our no in Entro in South Africa and some upgrades to Together and the guana, all these mills have picked up in terms of their top ability. We also announced recently the Nanacellables pilot plant in the Netherlands and that project is ongoing at the moment. Strengthening the balance sheet is extremely important for us and we will continue to focus on having a cleaner stronger balance sheet so that we can accelerate both in adjacent business season.
We continue to pursue the 12 hour forestry sale. We have talked about that in prior quarters. And that is an ongoing process. The bond refinancing, I'm very pleased with the outcome there. And going forward, our annual interest costs will be $110,000,000 per annum estimated.
In addition to that, we repaid a smaller South African bond, which is ZAR 450,000,000. So we continue to look for opportunities on that front. Then turning to Slide 22. Our outlook as we move forward graphic paper markets, especially mechanical paper, remain difficult and continued pressure from higher paper sorry, from higher paper pulp and wood prices are putting margins under pressure. However, lower oil and energy prices are providing some relief for us.
Texstar prices have stabilized over the last few months. As I mentioned it earlier, in fact, we've actually started to see small rise in prices there. And dissolving pulp has been following that same trend. There's a very strong correlation. At the same time, we remain well positioned with our strong relationships and the fact that our assets or our big many of our production locations are located in South Africa, the weaker rand does help with, with costs.
We've state Q3 to well, Q3 is a seasonally weaker quarter for the U. S. And Europe, and we do have maintenance shuts across all three regions. These will negatively impact results. And what we've done here is we've compared the costs of the shuts this year relative to last year.
And there's an incremental impact once off of $21,000,000. We expect the operating performance for the year will be broadly similar to 2014, despite One soft impact from those capital projects that I discussed. At current exchange rates, the translation of euro and rand results into dollars may have an impact on group results. Nevertheless, earnings per share excluding the special items is expected to be substantially better than that of the prior year. Okay.
So that's, I've gone through the deck now. So operator, I'll put it back to you for questions. You.
Our first question comes from Caroline Learmont from Barclays. Please go ahead.
Thank you. 3 quick questions, please. So on cost control, a new displayed some, positive news on that in Europe, and you've also given some examples going forward of how you're further gonna focus on costs Can you give any indication in terms of number or percent of how much further you can potentially get costs down in Europe in terms of a target? And then secondly, Croquet, Can you give any indication of what the return on invested capital has been like at cloquet given that dissolving pulp markets haven't been quite as you might have expect it, and you've had to swing, capacity there into the, into the paper side. And then just finally, there's a specialized in the employee liability benefit settlement.
Is that to do with the Dutch pension fund transfer that you were talking about in the presentation? Thank you.
Okay. If I take each of these questions turn, firstly, on terms of the cost opportunities in Europe, as you know, we've taken out significant amounts of costs over the last few years. Opportunities as we move forward, obviously, we have a process of continuous improvement, but probably, in terms of giving you a number they're not as sizable as what you've seen over the last couple of years. Specific number to it, but it's substantially less than you've seen in the last couple of years, but we do think there are further opportunities. In terms of cloquet, we don't manage our capital at cloquet in isolation.
We look at the in the dissolving pulp business as an overall investment. We have to do that because we service the same customers And we have consistent pricing for and, volumes being supplied from to the same customer So I would rather answer the question relative to the overall investments and it has it has been successful for us, and we're happy with the conversion. Question, yes, that item that you referred to does relate to the Dutch pension fund.
Thank you.
Thank you. The next question comes from Bank of America's Roger Spitz. Please go ahead.
Thank you. A few questions, one at a time. Regarding the April, North American announced coated woodfree price increase. Can you say how much of that was, was realized?
The April price increase.
Or May, there's some people have told me different months. But, can you say, a recent price increase, encoded woodfree has been on?
And we've recently announced one in Europe. Last week, Mark, I don't think there was other price increases in the U. S. Well, in the sheet side, okay, on the sheet. Mark, did you just want to expand on the U.
S?
Sure. We announced price increases back in the end of of Q1. And, again, in the beginning of Q2, they were both on initially on web and, and the last one on sheets. And we have been implementing those price increases as we went through Q2. And we are seeing most of it come through Okay.
You've given a flat, roughly broadly flat,
guidance or profitability or perhaps EBITDA, the cellulose is going to be down say if the difference will be made up, where is that in your in your thinking US paper, European paper or Southern Africa other than cellulose?
Yes. In fact, it's all three of the paper businesses are improving on last year. So yes, that does make up the shortfall.
Can you provide any insight into the rough, contribution of cloquet dissolving wood pulp into, 4 fiscal q215, EBITDA. I know you probably don't want to give an a a number perhaps, so maybe you can give us some broad sense of prop you know, percent of profitability.
Yes. As I said, it's not something that we look at in isolation. We manage it as one business. So it's not a number that we do disclose externally.
Okay. On CapEx, you give the CapEx guidance that implies,
I guess, second half fiscal of 166 versus 114 for the first half. Is there something in particular driving that And will that be evenly spread over the two quarters or more this coming quarter with the maintenance turnarounds?
It's because we do have a lot of number of and maintenance shuts in the third quarter as we talked about. In terms of the split between the two quarters, it's roughly split half half if I look at the numbers.
Perfect. Last one is 2016 CapEx, can
you give any broad sense of what it might look like? Does it look like 2015 CapEx?
Yes, similar levels. We use $300,000,000 as our benchmark as our guidance. And would expect that to
Our next question comes from Nishal Robinson from UBS. Please go ahead.
Just on Europe, maybe just firstly to check on the price increases that you announced at the end of last year, have those all been given back So you said prices have sort of drifted down through the quarter. I think the other thing is just the trading position still seem pretty weak in Europe as prices sort of coming off. I mean, why do you think this new price increase that you want to implement would be successful?
Okay. I'll take the first part of the question and then I'll hand over to Barry. The price increases that we saw last the end of the last quarter that we talked to, Mark has already indicated that in the U. S, that most of that has stopped in Europe. Some of that has come back on the coated woodfree side.
And as as we've discussed, we have put through a further price increase last week. And I'll put you over to Barry to talk about that price increase we announced.
Thanks Steve. The price increases we announced last week were for the Reels business, both Woodfreecoded and Mechanical. Woodfreecoded Reels business has been particularly strong. But the price level both for mechanical and for wood free are now at a level where the increase in pulp prices makes them uneconomic. So we have to raise the prices.
It's important, but there is enough demand to do that. The second thing is that, capacities in the mechanical coated side are coming down. Steve already referred to the Versum switch to other coated papers or other papers that is underpinning our capacity loading. We also refer to a sheet price rise. The timing of that, we are still making up our minds about, but it will be during the following quarter.
And in that case, it is built very much on strong demand. Demand has been very strong from February onwards with capacities as to utilization well above 90%. Okay.
And maybe just a follow-up on that. Just when what's your sense of how much of the industry in quarter and quoted mechanical is currently loss making
in Europe? Sorry. Michelle, repeat that question. I just
wanted to see what your sense of how much of the industry in Europe on coated fine and coated mechanical is actually loss making currently?
What percentage is loss making? Look, we don't have those facts. I all I can say is that I think a number of the competitors that they are managing their assets for cash. And I've got to believe that if the machines are cash positive, they will continue to operate them, but we don't have those specific numbers.
Our next
question
comes from Credit Suisse. Lars Solberg has the floor. Thank you.
Barry, if I didn't just pick up on what you just said about, high utilization rates. How do we rationalize what we've seen in coated sheet prices? If I look at RISI prices have fallen actually below the level where you raised them back in October of last year. If you have very strong demand, what is going on
with pricing and how do we sort of reconcile the high utilization rate and strong demand with given that more than the price increase from October? Yes. It's correct that during the last 3 months of the calendar year last year, demand was not so strong. And that carried on into January of this the quarter we just had. The January month was very low, and that's still quite a bit of price reduction.
When we look at our prices, they've been stable since since February, along the going down, there's more talk of price going down than the real price going down. And part of the reason for that is the fact prices outside Europe are significantly higher than prices within Europe. So companies have naturally started to focus on markets outside Europe, and that's taken the pressure a bit off the markets inside Europe and has also raised operating rates. And I think that's the background.
Is there any issue here with paper links in the their their trouble? Is that putting any pressure on the market as that that's relevant?
I'll take a shot of that, Steve, if you like. The as far as we're concerned, we have no, no major, problem with the changes at paper links with the decline of paper links. We don't see that as a particular negative to the market because final demand at printers has not altered. It's just the route to the market that's changing.
Thank you. Just a couple of bigger picture questions. I suppose Steve, when you're talking about the ones of things that is going on, obviously, various things and various mills, Can you give us a sense of what you think the once off impact is? And also when you talk about the 1,000,000 higher year on year, how that's split between the, well, the sort of pulp upgrades at Gratkorn versus maintenance And if you can share with us what it means quarter on quarter as opposed to year on year?
I didn't catch all the questions, but let me try and answer how I interpreted it. I think you were asking for the breakdown of the 1,000,000. And its impact on what it arose from. It's essentially made up of 2 large items, the incremental impact. Firstly, as you know, we've been investing in the boiler at Gratkorn, and that makes up about $13,000,000 of the 21.
That is a once off project. And then the balance of the that the change relates to a shift in the Ngodwana annual maintenance shop in the South Africa and that was in Q2 last year and has now moved to Q3.
And what I'm trying to also understand is the full year impact of these one soft items that you referred to including Gratkorn and Somerset, etcetera. If you sort of, when you map those heading into 2016, what would be the cost you can have in 2016 to carry, so to speak?
Yes. Understood. If I take the 2 projects at Gratkorn, the impact from Q1 and the Q3 that I just talked about and the Somerset project, that also occurred in Q1. Add it all together, you get to about 35 $40,000,000.
Understand. And then a final question to Mark. It's been seen in the statistics that there hasn't been any particularly imports coming into the United States despite very strong prices versus Europe. Which Denise took somewhat surprising. And then I saw just the other day some North American statistics coming through showing a significant decline in North American coated paper shipments.
In fact, the weakest month or year Should be in touch with that as now the import starts to come or is that something else going on?
Oh, Laura, this I think you're referring to the most recent monthly data that you you're on the drop. Yeah. We're, we're aware of that data too. We are, we did, you know, this is a slow period of the year. When you look at the entire year in the North American demand cycle.
So, I think it's we haven't been able to put 2, the two questions together yet. We haven't seen a whole lot of imported product come in other than the product that we can we bring in. And, the other the other thing that's going on too, and I don't have the data lives. Maybe somebody's seen it by now. There was a fair amount of backup of, of of I'm gonna say Asian product because it's the backup was on the West Coast, and those ports have now opened up after the slowdown in strikes out there.
So that may be changing some of the dynamics in the month of April.
Thank you. Our next question comes from Sean Ungerer at Avior Research. Please go ahead.
Good afternoon. Couple of questions. Just in terms of the pension fund transfer, are there any other sort of opportunities along this line? And then in terms of the revised finance costs guidance, does this include or exclude the possible refinancing of the 20.30 bonds. And then just in terms of CapEx guidance as well, it seems sent down.
Is there anything that sort of drove this specifically. And then just looking at the SOP Paper Packaging business, in terms of those margins, how are you guys sort of thinking about in terms of the cycle. And then just following on to that, SA cash costs were down about 5% year on year in rand terms. Could you give a little bit of color as to what's helping that? And then lastly, in terms of the further optimization for the European specialties business and the new or the test run, I guess, of the folding box board.
Could you sort of give an indication of how material this is sort of in the European business? I presume not that big.
Okay. There was quite a few questions there. The first I'll take some of them and I'll pass them some of the others to my colleagues Firstly, in terms of further pension opportunities, Glenn, do you want to take that? Yes. We have a number of pension funds that are funded across the group.
And we're constantly looking at opportunities as far as that is concerned. The Dutch pension fund was a specific opportunity that we were managed to take advantage of. There are no known or immediate opportunities in other areas of the world, but we continue to look at them. The second question was about the finance costs going forward and the guidance we gave no, it didn't include any savings on the 20.32 bonds. That was as our bonds currently are.
Obviously, we've got the the 2017 and the 2021 bonds, but we were only able to refinance those in sort of 18 months, 21 months' time. But that's not obviously in the guidance either. The CapEx percentage, why did we pull it down? Well, as I said, earlier, we have about $150,050,000,000 mentioned in CapEx per annum. And then we identify a number of other just mainly focused on improving productivity and our cost base.
And this year, they added up to 1,000,000. As I said earlier, going forward, 1,000,000 is what we target each each year. The SA paper business has been strong and goes to have been growing and strengthening. And I'm going to put you to Alex just to talk in some more detail about the opportunities there. And Alex, maybe you can follow that up with the question on the cash cost which was the next question.
Sure, Steve. Thanks, Steve. And just in terms of the margins in terms of the cycle, you know, a lot of that business is based on a very strong agricultural export market out of South Africa and we see that that's going to continue We also make, products, which are very much sought after. We are keeping up with market So we think we can maintain those kinds of margins. Then from a cost perspective, what is helping that Now we are focusing on simplifying the business that gives you opportunities in terms of your recipes, and, production efficiencies, and that all drops down to the bottom line.
We have taken some, actions in terms of closing our coating operation at our Stenger Mall. We've also reduced some of our finishing house, costs at, Einstra and at Stenger. And, you know, the I think the other 2 key issues is we're continuing to take some costs out of SG and A and looking at the recipes, you know, how do we, drop variable cost continuously. I think that really covers it. Thanks, Alex.
And then your last question was about the, specialty paper packaging in Europe and the opportunities and we specifically asked about folding boxboard at March straight. And we estimate the opportunity there is about 30,000 to 40,000 tonne. So it's relatively small, but it certainly will boost the profitability of that specific specific model. We
have time
for one more question with comes from RBC Capital,
talk a little bit about what you're seeing in the competitive situation after the Versant new page and as well as the spin off and sale of some of those mills to catalyst what you're seeing in the North American markets. And then the second question is just, I wanted to see if you can talk a little bit more about co pay. It's of fluff versus hardwood versus dissolving, how what you're seeing in the fluff markets? Obviously, there's more capacity coming into that market as well. Thanks.
Just in terms of your first question, we don't like to talk specifically about our competitors. All we can say broadly is that post the Verso new page merger and obviously the emergence of catalysts into the U. S. Market. We have seen some aggressive competitive behavior, and that has put a little bit of pressure on prices.
But we really don't want to talk about them specifically. Closely, you asked about the swap markets, Mark, I don't know if there's anything you want to comment on that side?
Yes, Steve. I can tell you. First, we don't do not make fluff pulp at, at cloquet. So our when we swing, we swing from the dissolving wood pulp to, craft pulp which we use all internally on the machine, the paper machines. We do have the capability if if the economics warranted it and, to also go to the market with craft pulp, not but not fluff.
The fluff pulp demand is apparently very, very large. And we see and we've seen a lot of conversions being announced and being done down Most of them, though, are down in the southeast of the United States where they tend to use a lot of the the softwood. It requires a softwood for that product.
Thanks. And if I could just go back on the, the competitive situation, I don't want I was not looking for a sort of discussion about versus catalyst. And you mentioned the increased competitiveness. I guess the real question is from a contract standpoint or a customer standpoint, What is the reaction from customers? Are they trying to to really lock in with, it obviously had 2 sources of supply and, Are they trying to get more contracted business or are they looking to keep the spot market open for them?
Moss, do you want to take that?
I'll I'll I'll say a few things there. We're, you know, I think customers are evaluating their our contract customers are continuing, about the same this year as prior years. I think there is a lot of, a lot of change yet to happen in the market as people figure out how this is all gonna settle out and who's who's gonna be able to, who wants to supply what to customers. And I think that's gonna it's gonna take a while to play out still.
Thank you.
Alright. Mr. Beney, do you perhaps have any closing comments?
No, I think that's I want to thank everybody for joining us and we look forward to discussing our results at the end of next quarter. Thank you for joining us.
Ladies and gentlemen, on behalf of Sappi, that concludes today's conference. Thank you for joining us and you may now disconnect