Good day, and thank you for standing by. Welcome to the Sappi Third Quarter 2024 Results Call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be the question and answer session. To ask a question during the session, you need to press star one one on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Steve Binnie, CEO. Please go ahead.
Thank you. Good day, everybody. Thanks for joining us for the results call. As always, I'll go through the investor presentation, which has been made available to you. I will call out the page numbers as I move through it. I'm gonna start on page 3, which has got some of the highlights for the quarter. All in all, a satisfactory quarter, in line with the expectations, in line with the guidance that we provided. I think we're making good progress. Year-on-year, EBITDA up 40%, so obviously we've continued the recovery from the lows of last year.
In terms of the segments themselves, and we will go into a little bit more detail, but on the pulp side, strong market conditions, good demand, and further upward movement in pricing. Paper side, muted recovery. Packaging volumes continue to increase, and we would expect to see more of that as we move forward. Graphics seems to be leveling off now at a new level. Obviously, post the declines that we've seen in the last couple of years, it seems to be leveling off, albeit that we know that seasonally, Q4 is a stronger quarter than Q3.
Pleased to say that the sale of the Stockstadt Mill was concluded in the quarter, we had proceeds of $49 million, and all in all, the net cash generated for the quarter was $32 million, which is pleasing for us. Slide 4 has the EBITDA, sorry, the product contribution splits, and obviously, this is a longer-term trend line. The big story is obviously on the right-hand side, that we continue to reduce exposure to graphics. You know, we're well, or we're below 50% now, being graphics and obviously we've got a couple of projects underway, which will take that even lower and I've talked about this before, probably by the time we get to 2027, you know, that the target is to get that below 30%.
Increasing contributions from our higher growth margin segments. The EBITDA, a little bit, fluctuations obviously in terms of the macroeconomic conditions, specifically in the quarter. Obviously, on the packaging side, we had the big Somerset shutdown, which would have impacted on the contribution from packaging. Moving to page five. The bridge earnings last year relative to this year. I mean, firstly, recovery in volumes in the particularly obviously in the paper segments, which has contributed to that. We did see some negative pricing and mix. The pricing mainly in the packaging segment, where we did see some somewhat downward pressure. But, you know, in pulp, as I said, positive.
Savings in variable costs coming through, albeit that pulp and all of you will know this, that paper pulp prices have been higher in recent quarters, albeit they've just started to come down again. Adding to that some fixed cost adjustments relative to last year associated with the shutdown, giving us the EBITDA of $151 that you're seeing quarter-on-quarter. Moving to the input costs, and this is a 3-year trend line. Obviously, off the highs in 2022, we saw declines in costs, but then more recently, pulp rising and the other categories relatively flat. All in 2% quarter-on-quarter increase in variable costs.
As I said, pulp is leveling off, and in fact, we're anticipating pulp to start coming down again, but most of that benefit will... because there's a bit of a time lag, will be felt in the new financial year. Page seven has our leverage over time and our net debt levels. As I said earlier, positive move in net debt on the quarter. Obviously, we're higher than a year ago because we had to fund the expansion and conversion project at Somerset, and then we had more recently, we had the closure at Lanaken. So, you know, we had to fund those, but a strong focus on getting that debt number back down to close to the billion-dollar level.
Moving to slide 8, has our debt maturity profile. And some change, obviously, relative to the last quarter. Perhaps the largest sizable refinancing or maturity is on our 2026 EUR bonds. There's two hundred and forty million outstanding. We obviously continue to monitor. Just obviously, when we did issue those bonds, that it was at a level of 3.125%, so it's very favorable. So keeping it running a little bit longer does help. And it's not a, it's a big maturity, but it can be managed. So we will pick the optimal time for that. Then moving to slide 9, just looking at the cash flow from a generation perspective.
Obviously, in the current year, the free cash flow continues to be healthy. Obviously, at the bottom line, negative, but that's linked to what I talked about earlier, the CapEx, and the closure of Lanaken, and obviously we did clear the dividend in the current year. CapEx, we've got it down a little bit relative to the last quarter. We brought it down to $480 million. Some of the projects that we were undertaking, we've deferred into next year, because they don't have an impact on operations. The biggest part of it is Somerset, and, you know, that's on track. So under control and, and you know, no surprises in the number.
On page ten, we continue to be disciplined in our capital allocation, with a strong focus on getting the debt back close to $1 billion. We've got to see through the Somerset project, which is going well. And, you know, thereafter, we haven't committed to any other major CapEx, so we will start generating cash when that project is completed. We obviously reduced exposure to graphics with the two mill closures, Stockstadt and Lanaken. On the pulp side, we've made the investments in Gratkorn to give us wet strength label capabilities that will be finished in September, and the Somerset expansion conversion, which will be finished in April next year.
The net effect of those two is effectively like taking 2 mills, 2 machines out of coated woodfree, and obviously pushing us into higher margin, higher growth segments. On top of that, Somerset giving us the extra volume, so there will be growth on the top line associated with that, too. Moving to segmental overview and page 12, the pulp segment. You know, within that, obviously, the main driver is dissolving pulp. As I said, favorable conditions, strong demand, no new supply coming, prices favorable. So we are feeling pretty good about the market conditions there. It's a tight market. Offsetting that, BCTMP, you know, we sell some tons into the BCTMP market from Matane. That market has been tougher, and that's what impacted on the margin.
Having said that, just remember when we complete the Saiccor, sorry, the Somerset conversion, we are gonna be supplying additional BCTMP to the, to the Saiccor Mill. So we're gonna be less exposed to external markets. We also did have the Matane shut in the quarter, actually, which also impacted on margin, and we had a supplier which impacted. Moving to packaging, obviously there was a big drop in margin from what we've seen recently, but we had the 18-month extended shut at Somerset, which would have impacted. And then at the same time, we did have some production issues at Somerset, not linked to the shut itself, but those impacted on volumes.
They're now behind us, and we're feeling good about the prospects in North America for the fourth quarter. Europe, mixed, mixed. Obviously, it's still difficult in Europe. The economy is still challenging, but there are pockets of improvement, and we called out two there on the slide, labels and self-adhesives. The labels is good, obviously, because we're getting close to the completion of the project at Gratkorn. In South Africa, generally good. The containerboard demand was a little bit worse than we had thought it was gonna be, but underlying demand continues to be strong. Then on graphics, on page 14. As I said, we have seen recovery from the very lows of last year, but it now feels like it's leveling off.
We will have a little bit of seasonal benefit in Q4, but it does look like it's leveling off at around... the 500,000 ton mark per quarter. A little bit of micro, negative macroeconomic factors at play, but I don't think we're gonna get much substantial improvement from here. Having said that, obviously, because of Somerset, us taking out that capacity when we complete the conversion, that will reduce our exposure. Similarly at Gratkorn, and you know, post us closing the two mills earlier this year, you know, we're relatively full there. So the margins actually at 9% are reasonably healthy, and at normalized levels. Turning to page 15, the product segments... Sorry, the geographic segments.
Well, firstly, I'm obviously pleased that the volumes are positive in each of the regions year-over-year, but I did call out, obviously, graphics leveling off now. Selling prices, we did see a little bit of negative pressure in the packaging segment, and that's what impacted the numbers in the European and North American regions. The margins, South Africa, healthy. North America, obviously impacted by the Somerset shut, but should get back to normal levels. And then as we've called out, the European is lagging, but you know, hopefully some improvement will come through as the packaging and specialty improves moving forward. And you see all of this graphically on page 16.
So, you know, I'm not gonna repeat it, but you can see that healthy in South Africa, a little bit down in North America, but recovery coming, and then U.S. still subdued, Europe, still subdued. Then on to slide 17, Thrive strategy that we have. We shared this with you many times. It doesn't change quarter to quarter. We continue to focus across the four pillars on the operational excellence. Obviously, very pleased with the progress that we made, and after closing Lanaken and Stockstadt, start moving those volumes across, that improves our operating rates in the coated woodfree machines in Europe, and then across each of the regions, strong focus on maximizing production.
In South Africa, we continue to look for opportunities to increase our forestry footprint. These are not material acquisitions, but we continue to look for opportunities, and we added a couple of acquisitions, and that's in the CapEx numbers that you've seen. The enhancing trust, firstly, pleased that we maintained our Level 1 BEE compliance. We think our sustainability positioning puts us in a strong competitive space, and as I've talked about previously, we've probably got about $60 million-$70 million over the next few years to continue to improve on our environmental footprint. The growth of the business is, in the short term, it's built around the two projects that we've got at Gratkorn and Somerset, and as you heard earlier, those are going well.
And then in terms of sustaining our financial health, committed to getting that debt back downwards post the Somerset project, and as I say, we haven't committed any large CapEx beyond that. Slide 18, moving on to sustainability. Very proud that we got another EcoVadis Platinum Award across all three manufacturing regions, getting the highest rating. Six consecutive years ranks us in the top 1% in our segment. Then moving to the outlook, which is on slide 20. It's fair to say that there's still challenging macroeconomic conditions out there. Interest rates are high, but hopefully they'll come off at some point, but there is volatility out there. DP markets , I've talked about a couple of times on the call, still favorable conditions.
On the graphic side, a little bit of seasonal recovery, but as I say, we're probably at new, at the new normalized levels, you know, after the recent volatility over the last two years. Packaging markets continuing to improve, feeling very good about North America and South Africa. Europe, lagging, but we are seeing certain categories, as I said earlier, showing positive signs. On the cost side, chemical costs, there could be a little bit of inflation coming through, but on the positive side, it does look like pulp prices may have peaked, and they are expected to reduce in the coming months, which will benefit our paper business in the new financial year. Slide 21, we continue to focus on margin management, obviously taking into account our costs and ensuring that we can protect margins.
The guidance for Q4, well, firstly, we have the plantation fair value adjustment. There was a, a very recent reduction in wood prices in, in South Africa, which means you're gonna have a negative fair value adjustment in the fourth quarter, which offsets much of the positive from earlier in the year. Taking that out of it, we anticipate that, the EBITDA for the fourth quarter will be above, the same quarter of last year. So, further progress on our, on our road to recovery and, feeling positive about the quarter. Operator, that's me gone through the presentation. I'm gonna hand it now back to you for questions.
Thank you so much, dear participants. As a reminder, if you wish to ask a question, please press star one one on your telephone keypad and wait for your name to be announced. To withdraw a question, please press star one one again. Please stand by while we compile the Q&A roster. This will take a few moments. Now we're going to take our first question. It comes from the line of James Twyman from Prescient. Your line is open. Please ask your question.
Yes, hello. Thank you very much for the presentation. I've got three short ones, if I may, just to kick off with. The first one is, in terms of CapEx, where do you see that in next year? Do you think that'll be similar to this year, or maybe a bit higher or lower, just given that the Somerset expansion cost is still gonna be fairly similar? Secondly, is there any restructuring cash flow in Q4, either positive or negative? I can't see anything substantial. Seems either to be in Q3 that we've had or coming in Q1. And then are there any further energy credit possibilities? Others have had them.
You obviously got a big one in Q1, this, this last year, but just wonder if, if there's anything else that you could get there. Thank you.
Yeah, I'll take the first one, and Glen will take the second and third ones. Yeah, on the CapEx, you're right. There's a similar number coming through from Somerset next year. So yeah, we're still finalizing our budgets, but overall, as I look at it, it's likely to be a similar number to the current year. Obviously, predominantly around the Somerset project. Glen?
Good. James, just in terms of the restructuring costs, there will be some minor costs coming through in the fourth quarter, but the bulk of them have come through, so it won't be anything substantial. And then in terms of the energy credits, we don't have any energy credits for the fourth quarter, no.
Okay. Thank you.
Thank you. Now we're going to take our next question, and it comes from the line of Brian Morgan from RMB Morgan Stanley. Your line is open. Please ask your question.
Hi, guys. Thanks very much. With the pulp price cracking in China, can you just chat to us a little bit about how that might feed through into DWP? Do you think there's still some swing capacity?
I'll start, Brian, and Mohamed can add to what I say. Look, on the positive side, the fact that the pulp prices are coming down, as I indicated in the presentation, we think there will be benefits for the paper business to come. On the DP side, so far, you know, no impact. Most of the swing capacity has already moved into DP, so we're not anticipating any sizable further moves away from pulp to DP. And as I said, you would have got a sense of that as I went through the presentation, the demand is still robust. There is no new supply, and we're still feeling pretty positive. Mohamed, if you want to add to that.
Yeah, Steve, the only thing I would add is that, you know, more recently there's been some further supply side reductions. There's a mill that's taken off DP production in Canada, so that's also tightened up supply as well.
Great, thank you.
There's been a disconnect now between the paper pulp and dissolving pulp. And as I said, most of the capacity that would come across has already done so.
Okay, cool. Thanks, Steve. Then can I ask on, on paper pulp, now with Lanaken and Stockstadt closed, what's your net short position in Europe?
We are about 600 tons, 600,000 in Europe and about 200,000 in the US.
Okay, that's great. And then the last question is, with the wood price drop in South Africa, can you just give us an understanding of sort of the magnitude of the price drop? And then can we expect that to feed through into any of your costs, given that you guys do still buy wood?
Yes. Well, the magnitude of the drop, Alex, that's public, right? So we, we don't have to-
We can disclose that it was ZAR 125 a ton.
That's right.
Yeah. So that's public. You're right. And by the way, Brian, it's not just on what you buy from third parties, it's even on your own fair value, right? Because you take the fair value now, and then it means that your cost per ton that you apply to the paper and pulp businesses comes down as well. So most of that benefit would be felt in the 2025 year.
No, that's great. Thank you.
Thank you. Now we're going to take our next question. The next question comes from the line of Grant Model from Absa. Your line is open. Please ask your question.
Yeah. Thanks very much. Two questions from my side, please. So you've indicated that cotton prices are lower, but the viscose discount to cotton remains healthy. Do you have a sense of how much cotton prices would have to fall for viscose prices to rise, for it to be more favorable for cotton? That's my first question. My second question is, the last few quarters, you know, post the closure of some of your European graphic paper capacity, you've been operating close to the 90% level. I just wanted to ask whether you could give us a sense as you enter Q4, whether that capacity is still operating at around that 90% level, or has it moderated from those highs? Thanks so much.
Yep. Yep. Okay, on the first one, in terms of cotton versus viscose, it's not an exact replica, 'cause clearly, clearly they have different functionality. Historically, the two prices were very close. In recent times, cotton has sold at, and Mohamed, you can jump in here, at a quite a significant premium. More recently, it's come backwards. There is a correlation, but because it's a different product with a different process, the actual costs, the manufacturing costs are very, very different. So there's no doubt when, you know, when the price of one moves, it has a knock-on impact on the other. But Mohamed, I don't know if there's specifically anything that you wanna say on the relative movements.
Steve, I would just say it's... Cotton has just proven to be very, very volatile, whereas viscose has tended to be a lot more predictable. And what we've seen as a result of that predictability, the buyers of the fiber have tended to go with the fiber that is more predictable, so that they know what their input costs are.
Yeah. Yep. Okay, and then on the coated woodfree, yeah, look, we're still close to the 90% level. The industry, interestingly, in Europe is less than that. It's about in the mid-70s% somewhere. So we're above those levels, and you know, obviously, which means that some of our competitors must be struggling.
All right, super. If I can just... If I may ask a follow-up on that, and I think you've given this information before. Can you just give us, you know, your idea of what the surplus capacity is of graphic paper in Europe at the moment?
Yeah, good question, it's an important question because there's so many swing machines. And you know, whether it's on specialty grades, some machines have put uncoated on together with coated. But it's probably, we estimate the market demand for coated wood-free in Europe at about 2.5 million tons. And it's currently, you know, depending on how you allocate the capacity of the competitor, maybe about 700,000-800,000 tons excess.
Thanks very much.
Thank you. Now we're going to take our next question. The next question comes to the line of Saul Casadio from M&G plc. Your line is open. Please ask your question.
Hi. Thanks for taking my question. I have a couple more like clarification. The first one is an accounting one. As regards to the impact of the fair value adjustments of your plantations on your EBITDA. You report $3 million in the P&L, if I understand correctly, but when I look at your cash flow, there is, for the quarter, -$31 million in the account, suggesting that there's potentially non-cash contribution of $31 million in the quarter. So, I struggle to reconcile the two numbers. If you can explain that, that would be great.
Okay. So we're just finding that the 31, yeah, so it is the page, yeah, page 15 of the report.
That's the combination of your price fair value adjustments and your volume fair value adjustments. So we put them all, all together there because they're non-cash items.
Yeah, every year your trees grow, and you have what we call a volume adjustment. So that's obviously non-cash as well.
And we just call out the fair value adjustment on the income statement.
Okay. And does the volume adjustment flow through the EBITDA as well?
Yes, that's correct.
Yeah, but bear in mind, you have costs that you incur to grow your trees, your operating costs. Your silviculture costs.
And they're pretty much similar?
Correct. So they, they more or less set each other off.
Okay. Thanks. The second question is on your slide number 4. You mentioned you have a target to reduce the paper contribution below 30% by 2027. I missed whether you were referring to the EBITDA or the volumes.
It's on volumes. We at Somerset, we have a... The machine that we're converting is about, Mike, about 250,000 tons. So that's obviously coming out of the coated woodfree space. And then at the Gratkorn machine in Austria, we're taking about 200,000 tons out.
Yeah. On graphics volumes, it's more towards 250.
Yeah. Yeah. So that's on volume. Obviously, the segments that we're moving into are higher margin segments. So you would have not only the volume adjustment, but you would have the improved margin that would contribute towards the packaging and specialties grade.
Sure. Thank you. Thank you very much.
Thank you. Now we're going to take our next question. The next question comes from the line of Lars Kjellberg from SEB. Your line is open. Please ask your question. Lars, please be advised, you have a lot of background noise on your line.
Okay, not sure what that is. All right. Anyway, can you hear me okay?
Yep, Lars. You sound far away. I'm not sure you're... You sound like you're on Mars.
Okay, let me try. Is this better?
Yeah. Well, let's go for it, Lars.
Okay. Anyway, so two things. You know, pulp prices, of course, were extremely elevated, and yet paper prices barely moved, which suggests, of course, there's competitive pressures out there. Are you seeing any sort of downward price discussions now on account of fairly rapidly falling pulp prices, particularly on the hardwood side? That's my first question. The other one relates to packaging. Obviously, we can track the price indices, right, for U.S. bleached board, for example, and yes, it's down a bit. But most of the packaging grades, you know, kraft paper, container board, et cetera, are tracking higher. So what are you seeing in that market that makes, you know, your packaging exposure seeing some pricing pressure, but other big segments appears to be having the opposite?
Yeah. I think on the paper prices for graphics, no, we're not seeing significant downward pressure. Bear in mind that obviously pulp prices in Europe have lagged China, so prices are still relatively high. And yeah, to be honest, we haven't, we haven't-
Sorry?
Okay, I wasn't sure if you were asking another question there, but no, we're not seeing downward pressure. In the U.S., and I'll let Mike go into more detail or elaborate further, but certainly, yeah, we did see some negative price pressure on SBS markets in the U.S. Not significant, but downward pressure. I think there was from a competitive landscape, I think there were some competitors looking to fill their machines. But and maybe that's why the direction of the pricing is different from other categories. Having said that, it's not significant downward pressure, and we're feeling good about the market.
Yeah, I really think, Steve, you summed that up well. We're not seeing significant price pressure, I wouldn't call it. Maybe some minor price pressure last quarter. We're actually feeling good about our Q4, our next quarter.
Okay. Okay.
Lars, do you have any further questions?
I do. Can you hear me?
Yes, that's better.
Now it's gone. Okay, very good. Now, I was just gonna say, on the specialty side of the business, are you, you know, pricing direction, that would be helpful. And also a topic that has been quite vibrant on the US side specifically is, you know, the, the trade publications keeps on talking about a European threat of, you know, folding box board coming in. Uh, well, it looks pretty apparent that given the wood cost in the Nordics, in particular, that that would be quite a challenge. But if you—do you have any color you can share on potential import penetration, that could have an impact on your volumes, in particular, post-Somerset expansion?
Yeah. Yeah, look, your first question, I guess, is just a follow on from what you previously asked. As we said there is a little bit of downward pressure, but it's not significant. We are feeling good about the market in the U.S. Volumes are good, we- our machines are full, and we are feeling positive ahead of the completion of the Somerset project. On the folding box board coming out of Europe, look, there's already some of that there. We're not seeing unusually high activity. You're right, the operating costs in Europe does create challenges for them to bring in more. But certainly, and again, I'm repeating myself, but generally, we are feeling good about the North American market. We're feeling good about signing up customers ahead of the completion of the machine, and, you know, we're positive about the outlook.
Thank you.
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one one on your telephone keypad and wait for your name to be announced. Now we're going to take our next question. The question comes to the line of Brian Morgan from RMB Morgan Stanley. Your line is open, please ask your question.
Hi, guys. Thanks for the follow-up. You had $30 million of maintenance shuts in the quarter. What can we expect in the fourth quarter?
Sorry, it was $30 million?
Of maintenance shutdowns. Impact of maintenance shutdowns.
Yeah, we don't have any big ones. Sorry, which I... It's immaterial.
Where are we? Yeah, it's very small.
Okay. When would you think the next big quarter of maintenance would come through?
Yeah, February, we've got i n Ngodwana .
In Ngodwana. Okay, that's good. Thank you.
And then obviously, we've got Cloquet next year.
Okay. Just to confirm, these on 12-month cycles or 18-month cycles?
Yeah, the two American ones are 18 months. In Ngodwana-
Twelve.
With 12, and then, you know, Saiccor, we don't have one big shut. We've got the 3 lines, and we schedule those at different points in the year, but that's 12 months as well.
Okay, cool. And then can I just ask on Lanaken and Stockstadt, were you able to, were you able to consolidate all of those volumes, or some volumes you lost?
Yes, most of it, we were able to carousel. There was a little bit, little bit of uncoated that we didn't, but we knew that, and, and we took that out. But yeah, on the coated woodfree side, went very well, and most of the uncoated as well.
Cool. That's all for me. Thank you so much.
Thank you. Now, we will take our next question. The question comes to line of James Twyman from Prescient. Your line is open, please ask the question.
Yes, thank you for the follow-ups here, too. So I had a few questions. The first one was, if you look at the nine months volumes, South African volumes were down so far this year, and pulp volumes overall were also down, and the common denominator would be South African pulp. But that should be growing, I would suggest, because of Saiccor ramping up. But it would be good just to check that that is the case. The second one was, there was a nasty-looking fire at Saiccor last month, which fortunately didn't cause any injuries. Did that lead to a few days of downtime? Just be keen to know about that.
And then the third one is, just what the mechanics are of the Somerset startup in terms of the extra downtime that is needed to put this all online, and when you think that might be and what that might cost? And that then will be everything from me. Thank you.
Yep, yep. Okay, Mike will talk about the Somerset changeover as we complete the project, and Alex will just give you a little bit of feedback on the fire. In terms of the DP volumes, yeah.
We had a shutdown in Ngodwana, which affected the volume.
Yeah. Yeah.
Yeah, which we didn't have in the previous year. And what has really happened is we had an 18-month cycle, and we've actually pulled it back to 12 months, just because we're not very comfortable with the long duration. We obviously will be focusing on getting it back longer as we're comfortable with being able to maintain equipment adequately. So it's really a change in the shutdown timing.
Yeah. Yeah, and I, I'm just thinking, it's a year-to-date question. I think earlier in the year, we had some challenges at Ngodwana as well-
Yes ...which took a few tons out. But maybe the bigger answer to your question is that the production at Saiccor is going well, and we're really happy with the progress that we're making there. Specifically to the fire?
James, maybe just to give you some background, it was a liquid oxygen tanker that caught fire, and it looked more spectacular than it was. It did cost us about five days of downtime. But for me, what is very, very positive is the recovery. You know, we literally got that mill up as quickly as we could get the equipment replaced, and there was a little bit of damage of equipment. And just to remind, this was a real dead stop in the mill, so it's not that it was a controlled stop. So, you know, for me, what I take out of that is we really are under control of operating conditions. So very positive, but it did cost us some production time.
Thanks, Alex. Mike, on the Somerset?
Yes. So the Somerset outage is scheduled for 70 days of downtime on PM2. We go down the end of January, and we'll start up in April. The start up of the equipment is the equipment's almost identical to what we installed on our number one paper machine. So this isn't a brand new, you know, equipment that we've never run before. We have a ramp rate that is planned over the course of the next six months. The most aggressive performance starts in that first month. So we'll ramp up substantially, and we should be at reasonable uptime levels within three months, and then we'll progressively get better through the course of the next nine, is the way we've planned it.
Obviously ahead of that, we will be building inventory levels.
Yeah. So it's about 50,000 tons, 52,000 tons of what would have been graphics orders. But remember, this machine's gonna start up and be 100% packaging, and essentially, when back to full rate, double that production.
Does that make sense?
Yeah. Okay. So it's like in a sort of additional maintenance hit you're gonna take some time early next year.
That's the best way to think about it, but, you know, obviously, this is gonna be a machine expansion that in those 70 days we will be retooling the entire asset to make a much different grade at a higher production rate.
So net-net, it's positive because of the higher volumes post the completion of the project, if that makes sense.
Absolutely. Very much so. Very much so. If I could just do one more little one, which is, Lars was asking about coated fine paper prices. With the rise in pulp prices, you wouldn't get prices up, which means that the markets are quite weak, which, you know, maybe means there's a bit of pressure. But in terms of the specialty market, that's probably a bit different. You know, you haven't managed to get any pricing there really either, it looks like. But presumably, can we feel a bit more confident there that you can—you should be able to hold prices when your costs come down there?
Yeah, what's made it tricky, right, is that the market has been weak. So it's very difficult to get price increases in Europe when, you know, when the market conditions have been in that, in that state. Things are improving, so our ability to hold prices will improve. You know, obviously, if you look historically, you know, normally when the pulp cycle turns, that's when, that's when there's an opportunity to capitalize on the margin benefit. So it's gonna be a strong focus of our attention to keep our prices high for as long as possible.
Thank you.
Thank you very much.
Dear participants, as a reminder, if you wish to ask a question, please press star one one on your telephone keypads. Dear speakers, there are no further questions. I would now like to hand the conference over to your speaker, Steve Binnie, for any closing remarks.
No, just to thank everybody for joining us again today, and we look forward to discuss, discussing our year-end numbers in three months time. Thank you very much.
This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.