Good morning and welcome to Mondi's Q3 Trading Update Webinar. Closed captions are enabled for this session. If you would like to use them, please turn them on in your Zoom app. Please note that this is an automated service and that transcription errors do sometimes occur. Please note that all lines are currently muted. If you would like to ask a question during today's webinar, please press the raise hand button. We will then bring you into the meeting to ask your question, so please be ready to unmute yourself at that point. Questions will be taken during the Q&A section at the end. I will now hand you over to our host for today, Andrew King, CEO. Andrew, please go ahead.
Good morning, everyone, and thank you for joining us today. I am Andrew King, your Group CEO, and with me is Mike Powell, our CFO. I am sure you have all seen the announcement today, so I am just going to pick up on a few points before we go into questions. Overall, we delivered a resilient performance in the third quarter, considering the impact of planned maintenance shuts and the higher than anticipated input cost inflation. Good order books supported positive pricing momentum across much of the portfolio.
Reported underlying EBITDA was EUR 196 million for the quarter, with nil forestry fair value gain compared to EUR 167 million in the second quarter, which included a fair value loss of EUR 43 million. Price increases implemented early in the year lifted average selling prices during the quarter and enabled us to offset the higher input costs experienced in the period. That said, cost inflation remained elevated and increased more rapidly than we had anticipated at the half year. Further price increases have been announced across certain paper grades, although these do take time to be fully reflected in earnings. We remain focused on taking decisive action in areas we can control.
Progress continues on operational excellence, cost optimization, and improving the efficiency of our plant network. We are successfully transferring customer volumes from the converting plants scheduled for closure later this year, and during the quarter, we completed the sale of one solid board converting plant and agreed the sale of a second as part of our ongoing portfolio optimization efforts. As we enter the fourth quarter, higher packaging paper prices are expected to support performance, notwithstanding the ongoing input cost pressures. With that, Mike and I are very happy to take your questions.
Thank you. As a reminder, if you would like to ask a question during today's webinar, please press the raise hand button in your Zoom app. Our first question comes from the line of Cole Hathorn. Cole, your line is unmuted. Please go ahead.
Good morning. Thanks for taking my question. I would like to focus on the direction of cost inflation through the end of the year. Could you remind us or give us an update on wood cost inflation? Should we still think about the EUR 35 million wood cost inflation for the second half? Then I would like to ask on energy cost inflation, which I imagine is particularly gas, which is what probably surprised negatively. Gas prices moved up second quarter into the third quarter and are still very elevated at EUR 85 per megawatt hours at the moment for the TTF. I am just wondering what commentary you can give on gas cost inflation and how you are managing it. Am I right to assume that the businesses pressured by gas costs would ultimately be uncoated fine paper and Duino? Thank you.
Cole, morning. It is Mike here. Thanks for your questions. I think your first question was on wood. I think wood has worked out probably as we thought. I said at the half year that there would be a half two on half one increase of the EUR 35 million, which I think you mentioned yourself. If you then go to Q-on-Q, as you know, some of that occurred actually in Q2 at the balance in Q3. So, I think wood into Q4 is as we expected, and I do not expect large deltas Q4, Q3. So I think wood is contained, but obviously at elevated levels.
As we have said in the past, there is clearly less economic activity driving that, as well as obviously the two wars, but also laterally, as you know, no wood going into the Middle East and therefore trees not being harvested, byproducts therefore not being available, pushing the price of wood in Central Eastern Europe in particular up. But as expected, I guess is probably the phrase there, but at high levels. On energy, Cole, it sounds like you track the same index that we tend to use. Energy is the increase. Energy related, it is not just gas, of course. But again, you will know because you look at the gas indexes, if you take the average Q3 over Q2, so sequentially, gas is up 35%, 40%. That is different to when we spoke at the end of July.
You have just quoted the price today for gas, but the gas when we locked our balance sheet off, was EUR 44 per megawatt hour. Through the quarter, it averaged EUR 63. That is the 35%, 40% increase. But it is also the gas, the other related costs such as transport. So, if wood was half of that EUR 35 million hit in the quarter, the gas and other energy related costs were a good EUR 20 million, EUR 25 million. That is the delta, and that is because, of course, the indexes keep going up. If you go to your last part of your question, which I think was what happens from here on in.
If you look at the index today, as you say, it is EUR 85 per megawatt hour. That is another 35% up. Who knows where that goes? It can go down as well as up, but you can imagine there is therefore more costs coming through Q4 on Q3. As I say, not in wood, but if it stays at EUR 85 per megawatt hour, something not dissimilar. Then you have to look at what's happening with the price index, which maybe I'll pass over to Andrew. But first of all, Cole, just on cost, does that sort of help shape the cost side? Then we should move on to, that's fine, but what are you doing about it? And what does—
Yes, that's very helpful on the costs. Maybe I'd ask a difficult question on what you're doing about it. If I'm right in assuming that the impact is maybe the uncoated fine paper and—
Absolutely.
—do we know which is Italy and gas exposure, do we need more radical action to potentially take more economic downtime at these facilities, or is that even possible to kind of—
Sure. Let's talk about what's happening with—
—bring them off full then?
Let's talk about what's happening with selling price, too. Andrew, why don't you—
Yeah. I think first thing, Cole, the first thing you do is look to get your selling prices up. The good news on that side is we are getting selling prices up. You are right in the sense that the most impacted business or most exposed purely to input gas are the unintegrated businesses that don't make pulp from wood, simply put. In our world, that is isolated to two areas. It's a standalone Duino recycled mill, and it's to a lesser extent, the Neusiedler unintegrated fine paper operations.
But as Mike rightly says, input gas, well, gas energy more generally affects a number of cost items, so I wouldn't say our other businesses are immune from input gas because even if you make your own energy, it is having a knock-on effect even into biomass energy costs, but also to transport, logistics, etc , which of course everyone is exposed to. But yeah, the primary areas where you get that direct exposure is those unintegrated facilities. I think it's in a way encouraging that the market, we are seeing quite material price increases in spite of the well-documented oversupply and the recycled grades, et c. I think it's testament to the fact that, as we keep saying, there is no margin to play with in the industry.
And these price increases, sorry, this cost inflation is being translated into price increases kind of across the board on that front. And interestingly, to your point on downtimes, etc , industry stock levels are at pretty reasonable levels. So it is not as if this, call it overcapacity, is producing into stock. People are clearly taking downtime, which is logical because the marginal ton is not making them any money. So I think there is an element to that. Downtime is always something one looks at on a commercial basis, because you are always looking at the profitability of your marginal ton and one interrogates that. But we have the luxury of the vast bulk of our business having extremely low costs in the markets that they compete in.
Thank you.
Thanks, Cole.
Thank you. Our next question comes to the line of Gabriel Simões. Gabriel, your line is unmuted. Please go ahead.
Hi. Good morning. Thank you very much for taking my questions. I would just like to add a follow-up on the cost front. I understand gas prices have moved up significantly, but I just wanted to understand if you hedge any of the energy costs or have any longer term contracts, and just wanted to confirm if we are already seeing the full impact of that higher energy cost if there is still to come, as potentially hedges roll over.
My second question would be mainly on the pricing side as well. Given the lag that we usually see for prices on the containerboard side, I just wanted to understand how much pricing there is still to be passed through to boxes out of the price increases that we have seen on the paper side. How is demand for boxes given the higher prices? How are customers reacting to the potential increases? Thank you.
Thanks. Let me take the first one. Andrew, maybe you take the second. We do not hedge. Just a reminder, we probably make 80%, 85% of our own energy, obviously, from the trees, so we are much less exposed to that. Why therefore are we talking about costs in answer to the first question and the numbers? Because obviously, gas has frankly doubled since even Q2. Therefore, a doubling of an input cost, even if it is relatively small, has an impact, noticeable in a quarter as well, never mind on an annual basis. But to answer your question, no, we do not hedge. We do like to pass those costs through quickly in pricing, and therefore there is no under, overexposure in our numbers. They are clean in that respect, which I think is your question. Andrew?
Yes, on the pricing, to add to Mike, the best hedge is to get your prices up because that is the only thing that protects you in the long term, because hedges just buy you a bit of time and we want our people to react. As Mike says, it is a big cost item, but it is different exposures to others. When you look at the pricing dynamics, I think there are two elements of, call it price pass-through, that are relevant here. The one is obviously some of these price increases on the paper side are only just being implemented Q3 into Q4. So there is a, call it spillover effect into Q4 and frankly, beyond, with some of these price increases coming through in the paper side. At the same time, you are right in that the pass-through on the boxes then still has to take place.
Now, clearly containerboard prices, there has been a sequence of price increases through the year. So the box converters have been chasing their tails to pass that on. That has been happening, but it remains very much a work in progress. Clearly, there is a lot of competition in these markets. We are still seeing a fairly muted demand side environment. It depends on which market you are talking about because there are quite big regional differences in box demand. I would not say that increased prices are per se having an effect on demand, that the demand is being impacted more by the macro considerations, consumer confidence and the like, rather than, call it a price sensitivity.
But I think it is more of the same in the context of the overall market dynamic on underlying box demand. Northwestern Europe remains fairly muted. Southern Europe, where we do not have direct box exposure is more robust. Poland price, the growth is pretty resilient. I think it was 4% or 5%, something like that in the first half, albeit there is a lot of competition in the Polish market. If you look at year-on-year, like for like, we did about 1% volume growth in our business, not where we wanted to be, but in the context of a pretty flattish European market, a decent outcome.
Thank you.
Thank you.
Our next question comes from the line of Detlef Winckelmann. Detlef, your line is unmuted. Please go ahead.
Morning, everyone. Thanks for taking my question. Maybe my very first one would be, it does sound like there's a little bit of difficulty passing on some of the recycled containerboard price increases downstream. Just any commentary on any flexible packaging price increases we're seeing in the kraft paper and the paper bags? If we're seeing any similar pushback in those end markets. Then my follow-up question, which is a little bit of a technical one, is I see your vertical value chain that you put on your presentation still calls out a 1.6 million ton long kraftliner position. I'm just curious if you have a sense of how much of that is semi-chemical fluting or anything like that where presumably price increases have been a bit more muted. Thank you.
Yes. So firstly, on the question of the flexible packaging. Firstly, if, again, you look at the upstream side, in sack kraft, in an almost unprecedented way, we're onto our third price increase for the year reflective of two things. Again, there is input cost inflation there as well. Wood is obviously a major input for what is essentially a virgin product. I guess more importantly, the order situation is good. While the industrial applications for sack kraft remain flattish, it depends on, again, the geographic exposures. As we've spoken before, we are seeing new sources of demand there that is tightening things up. That is tightening things up and that's allowing us to get some further price increases. Those are effectively only being implemented now, so it's really a 2027 story at this stage because it's too late to materially impact 2026.
At the same time, the pass-through on the boxes, sorry, the bags, it is a slightly different dynamic there because you have semi-annual, annual contracts and the like. We did get the necessary increase in bag prices at the half year to reflect the paper price increases implemented to date. There will be more to come as we implement these latest price increases in the bag prices into the new year. But you have a lot of semi-annual contracts, so one would typically be waiting. It's a positive momentum on the pricing side, both in the paper and the bag side. You get the full pass-through only into the new year contract business. Sorry, and Detlef, forgive me, the second question?
Yeah, thanks. The second question was just related to your long kraftliner position, just a rough sense of how much of that may be semi-chemical fluting? Because my understanding is semi-chemical fluting prices have been a little bit more muted as a price progression standpoint.
Yes. If you take in round terms, we make between 2.8 million tons and 3 million tons of containerboard in total. Of that, 450,000 tons- 500,000 tons is semi-chem. You're right that semi-chem, it typically is much less volatile. Obviously, it didn't come off as much. But yeah, the increases are more muted. In some ways, a bit like the white top, which also operates in a slightly different dynamic. To your next question, we make about 500,000 tons of white top product. Again, typically a bit less volatile up and down. So the increases when we talk about benchmark unbleached kraftliner, it should be more muted. So yeah, you have to be a bit careful around that in terms of running sensitivities on price increases.
Great. Thank you.
Thanks, Detlef.
Thank you. Our next question comes from the line of Brian Morgan. Brian, your line is open. Please unmute and go ahead.
Well, thanks very much, guys. I appreciate the time. Can we just dive into the sack kraft business a little bit deeper, if you don't mind? How much of the price increases that we've seen year -to -date have been sort of a restocking cycle? Then if you could just maybe chat to us a little bit about demand drivers. I'd have thought, given what's happening in Middle Eastern demand would be pretty soft, and that's always been a pretty strong growth driver for you guys. So maybe just unpack it a little bit more for us, if you don't mind.
Yeah, sure. So on sack kraft, I don't think restocking, destocking, always on the margin in a rising price environment, I guess there is a bit of restocking, but I wouldn't overplay that. No, the order books are good for a couple of reasons. One is, we're not seeing a lot of demand-side growth in, call it, the traditional industrial uses in Europe in particular, which obviously still remains a very important market. But it's flat to marginally growing. It's not a bad demand-side environment in that context. Middle East, North Africa, you mentioned. These are always volatile markets. It's a portfolio of very different countries, obviously, that is represented there. So yeah, there's challenges in one or two of those markets at the moment, but the other market's doing well. So on average, it's doing pretty reasonably. Countries, LatAm, these sort of markets are actually doing pretty well.
Mexico is strong. North America is a bit weaker at the moment. There is a lot of agricultural exposures there, and that is a bit softer. At the same time, as I said already, we are also seeing other demand sources coming through from the non-traditional demand. E-commerce is a very important one there. Our extensible sack kraft is being used in e-commerce applications, so mailer bags, as we call them. These are the things which are coming to your front door in more and more numbers, I am sure.
That is a strongly growing area, which is tightening up that extensible sack kraft market. Again, it is a bit different in what we call our speciality kraft papers, which is actually a lot more consumer-orientated. These are everything from a simple retail shopper bag to a lot of what we call our paperization opportunities, where we are displacing plastic with paper solutions in primary retail packaging. That is a bit softer at the moment. The demand side is okay, but there is some capacity that has come in, both newly installed or recently installed, or relatively recently installed capacity in the European market.
Also you get some of these, what I would call soft conversions. One or two of the more traditional fine paper makers are at what I would call the lower grades. Where you do not need the strength properties of the products that we produce, you might be able to use some of this sort of thing. You see a little bit of pressure from those sides, so a little bit less. It is not quite as tight on those products as it is on what is our core product, which is the sack paper.
Okay. That is great color. Thank you, Andrew.
Thank you. Our next question comes from the line of James Twyman. James, your line is open. Please unmute and go ahead.
James, if you are speaking, we cannot hear you. I do not know if—
Okay, we shall move on. Our next question will come from the line of Sean Ungerer. Sean, your line is unmuted. Please go ahead.
Good morning, Andrew . Can you hear me?
Yes.
Excellent. Great. Just in terms of maybe harping on this, if I just look at the underlying EBITDA bridge ex -forestry adjustments for Q2 to Q3. FX looks maybe a little bit positive. You have got a delta and maintenance of about EUR 10 million. You are calling out, if I understand correctly, about EUR 35 million for wood costs in Q3 and another EUR 20 million -EUR 25 million for gas. That implies a price or revenue delta of about EUR 31 million- odd between price and volume. Is that correct or are there any other elements that I am missing?
I would not want my boss to be bridging quarters. The one thing you should have a look in there is the wood. The wood was H2 vs H1 EUR 35 million . The quarter-on-quarter is about half of that, if that helps you.
Okay. Cool. Then just in terms of other cost buckets, anything major there?
I think I have covered the costs off already.
Okay, cool. Just going to the sort of outlook statement, is it fair to assume that Mondi's comfortable that price increases are going to outweigh sort of cost inflation in Q4, assuming spot prices hold for pretty much everything?
Yeah. I mean, Sean, as you can appreciate, the one big variable in that is the energy inputs, because of course, it's extremely volatile. So you can only say as it stands today, yeah. With spot prices where they are, spot input costs, I guess, where they are today.
Yes, as the short answer, the price increases should offset the inflationary cost pressures. But of course, these costs are moving, well, particularly those energy input costs are moving in a fairly volatile fashion. So things can change, again, quite quickly. One could only, yes, as you say, use current spot and sort of take a view on it at that. In a way, that's the impact on all these related cost items. What's always a little bit also difficult to predict is the sort of second-order effects on logistics and things like that. But that feels as though it's settled a bit.
Okay, perfect. Just the comment around competition on the corrugated side. I think you sort of did flag it again. I think you said mainly in Poland. Is there anything else you can potentially expand on that?
No, I think it's across the piece.
Okay
I think my comment was Poland has continued to see decent overall demand side growth. As I say, the industry numbers suggest 4% or 5%, I think, which one would take in any normal environment. But one has to recognize there is a lot of competition, and I think people have been crowding in to what is one of the few growth markets around. By contrast, obviously, for example, Germany is also competitive, but in some ways, because one's competing in a very low growth environment. Again, if I look at the industry numbers, I think year -to -date, Germany's off something like half a percentage point in terms of overall volumes. So, the competition comes about because you're competing for a smaller pie. I think there's competition everywhere. I mean, there always is, let's be clear. But at the same time, the reality is these paper price increases cannot be absorbed by the box makers. They're just simply too large, and you will go bust if you don't pass on. So there is price pass-through. I'm just saying it hasn't changed in that context and that the market remains very competitive, simply in a low growth world that we find ourselves.
Okay, perfect. Just last one, Andrew. In terms of the asset sales, I'm assuming they're quite negligible in terms of the funds expected to clear in that. Just in terms of those actual assets themselves, are those part of the Schumacher acquisition or was that the original Mondi sort of plants?
No. When we bought the Schumacher business, there was a small sort of solid board business.
Yeah.
Obviously, it is a somewhat different business now. Just to be clear, there are some parts of that business which are highly complementary to what we do, particularly around the e-commerce side. But there are obviously some parts of it which really have very little bearing with what we do on the corrugated side. And it is those businesses that we are looking to make sure we focus in on our core activities.
Okay, perfect. Thanks, Andrew.
Thank you. Our next question comes from the line of Lewis Roxburgh. Lewis, your line is open. Please unmute and go ahead.
Hi, Andrew, Mike. Good color so far. Just a couple of questions from me, please. Just how should we think about normal seasonality into Q4 this year, just given the current demand backdrop? Secondly, just if you've seen an increase in demand for mailer bags. I know that you've got a decent market share there. Just wondered if the customers are substituting away from corrugated. And thirdly, just more generally just on pricing power. Is it sort of better or worse than you expected or just compared to your competitors? I think in the release you mentioned most divisions offset cost inflation with pricing. I think that's a good achievement. But just to see your views there. Thank you.
Sure. So a few questions in there. Seasonality. Yeah. I mean the one consistent in this world is we do still have seasons. And typically Q3 seasonally is weak for fine paper, because everyone's on holiday and not working in the offices or schools, et c. So it picks up into Q4 typically. In some ways, the industrial bag utilization is slightly the other way around because through construction season in Europe is more or the Northern Hemisphere is more through the summer months, and then it slows down a bit into the winter months. But August is always a bit strange because then you've got the summer holidays to confuse it. But typically Q2, Q3 is stronger than Q1, Q4 in very broad terms on those applications. But increasingly, that is being muted, that seasonal effect, because of your other question.
Things like the e-commerce applications in bags, which is those mailer bags, is almost the other way around because now we're going into high season both for boxes and bags, particularly for e-commerce going into Black Monday and every other day that leads up to the Christmas season. And this is now high season for those applications relative to certainly Q3. So, it differs across the piece. So seasonality has an impact at a divisional level. But overall for the group, it kind of washes out, so it's not a huge driver. And just to be clear, we take those planned maintenance shuts. We try and time those to coincide with low season demand as well. So in some ways, you don't want to double count there the effects of the planned maintenance shuts because we also take them on purpose when we expect the low season.
Fine paper mills, we typically take down through that summer holiday period. Kraft paper, we typically take more in the fourth quarter because of the lower seasonal demand for the industrial side. But just to your question on the mailer bags, no, it's very encouraging the demand we're seeing on the mailer bags market more broadly, and I guess more importantly, in a way, it's also a very good demand source, as I have said already, for the sack kraft product that we make. It's not just boxes it's displacing. In the first instance, it displaces plastic wrap, which is a clear win for us, obviously, as a group. To some extent, it is obviously also displacing boxes. Clearly, it's still net beneficial for us as a group. But yeah, it's a big area of growth for the e-commerce producers. And then, finally on the pricing power.
No, it is encouraging, as I said, that in spite of, for example, the oversupply and recycled in other markets, obviously it is much more balanced. But we are still seeing quite meaningful pricing increases on the back of this cost inflation because, as I say, there is no margin to play with in the industry. But also supported certainly in the virgin grades by strong order books off the back of good demand. Also, in particularly things like the virgin kraftliner, the supply side has been more constrained because of, for example, reduced imports from North America and the like, which has obviously tightened those markets up in spite of what remains a fairly benign or softish demand environment.
Thank you. Our next question comes from the line of James Twyman. James, please unmute and go ahead.
James, I can see you are still on mute.
Yeah. Can you hear me now?
Yeah. Got you.
Apologies, everybody. My two questions would be, firstly, you mentioned about downtime earlier on the call. My assumption is that you must be running flat out at the moment, given seasonal strength. Order books are good, and there should inevitably be some restocking. Just trying to understand that. Secondly, in terms of wood cost increase, could you give us some idea about how much of your costs are wood in kraftliner and sack paper, just to give us some sort of idea of scale there? Just briefly, the board sales, you do mention it, so I just wondered whether that is at least some sort of significant number.
I am not sure if I have fully understood the final question on quantum of board sales. You mean—
You are selling the operations—
No.
—and just as you mention it's presumably something.
No. We are optimizing the portfolio, but they're not material.
Okay.
To answer your question. Just coming back to the first question on downtime. We always looking, as I say, at what the value of that marginal ton is, and that's how you determine whether you should be taking downtime or not. But you're right that the vast bulk of our business, we are running full. Obviously, as I said already, seasonality-wise, one has to consider that when it comes to, for example, fine paper. But then we've been taking the planned shuts around that to coincide with that.
So yeah, we are largely running full at the moment. And it's very encouraging in those virgin grades that we have good order books and we're running full. We're getting some price increases. But as I say, we continue to battle this extremely volatile input cost environment. As it happens, with those energy prices having leapt up another leg recently, that has obviously put the pressure on the margins in the short term. The question on the wood cost was, I think, how big wood is in our input cost mix. Was it—
Exactly, yes.
In terms of overall—
Overall, we probably spend 25% of our direct materials on wood as a group, so it varies every year, but we probably spend EUR 1 billion, EUR 1.2 billion on wood.
Clearly in the kraft paper business, percentage-wise, it is a much higher percentage, but we are not going to give you the exact detail on that.
Okay. Thank you very much. If I may, there's been a lot of news about attempts to raise to get some tariffs on South African products coming into South Africa. That seems to have been rejected. What's your outlook on that, and does that affect the ability of these operations to be viable?
We remain in discussions with the relevant bodies on that, so it'd be premature for me to comment any on that.
Thank you for your time today. Thank you.
We do believe it's appropriate to offer some protection to the domestic business, particularly in the face of a very strong rand environment, which we know can change.
Yeah. Thank you.
Thank you. Our next question comes from the line of Themba Qonde. Themba, your line is unmuted. Please go ahead.
Hi, Andrew. Hi, Mike.
Hi.
Two questions from my side. Can we get a sense of what is the effective price that you have been, or the average price that you have been able to get through with the renewal of your contracts with your customers throughout the grades? And in terms of Schumacher, can we get a sense of what the operating rates are looking like at those mills?
Sure. I think it's very difficult for me to generalize on the sort of price increases. I think the best indicator I can give is there are those external indices—
Yeah.
—which give an indication of the benchmark prices and how they've moved over the course of this year. I would really point you to those, and we could certainly help you with those if that helps. But clearly I'm not going to get into the individual pricing dynamics of the respective sub-grades. I would point you to those indices. In terms of utilization on our corrugated business in Germany, which incorporates one of the Schumacher businesses. Just to be clear, these are converting operations, so it's a bit different to measure utilization relative to, for example, a paper mill where you have a much more defined capacity. But suffice to say, as we said at the time when we bought that business, there is underutilized capacity there.
That remains the case because clearly we are cautious about being overly aggressive in driving volume in to fill those in the context of what remains a challenging German demand side environment as I referred to earlier. But encouragingly, we are getting volume growth in that business more generally in spite of, as I say, a fairly anemic market backdrop. I think we achieved around 1% volume growth across our corrugated box business in Q3, and we'll look to accelerate that as we go forward.
Thank you. Our next question comes to the line of Joe Brent. Joe, your line is open. Please unmute and go ahead. Joe, if you're speaking, we cannot hear you. Okay. Our next question comes from the line of Cole Hathorn. Cole, your line is open. Please go ahead.
Morning. Thanks for taking my follow-up. Just a few clarifications. Just on the forestry fair value, I know you've given commentary that it's going to be nil for Q4 as well. Just thinking about 2027, so we get things in the right place. Assuming no changes from there, we should still get some positive growth as the trees grow. So we should still see kind of a positive, let's say, EUR 30 million forestry fair value into 2027. Just looking to confirm that. On wood costs into 2027, are there any kind of positives that you could talk about or effectively, kind of a peaking in the wood costs in Central Eastern Europe that you can point to, or how you're thinking about it, considering Poland's increasing some harvesting, so that should hopefully be helpful.
Yeah. The first question on forestry is correct. The trees continue to grow even this year, and they will next year, so numbers good for growth. The unknown, of course, is both the selling price and the harvesting price. But yeah, it's a decent number to plug in as best as we know today, Cole. On wood—
Yeah. I'll just add, Cole, the good news is because of the quirks of accounting, the lower the fair value this year, the lower the cost of fellings next year.
Yeah.
But, in a normal world, our trees grow and that adds value, on a net basis. The vagaries of price and our input costs, which frankly, historically, one wouldn't have focused on that much, but simply the sheer magnitude of these input cost movements is now suddenly relevant. I guess, in some ways, the same comment can apply to the wood.
Correct.
Undoubtedly, there is a, call it war premium, attached to wood costs in Central Europe at the moment. I think we have spoken about this before, but there are two reasons why I say that. One is, as Mike has already mentioned, the Middle East is a very important outlet for sawn timber. That has obviously been severely curtailed given the war in the Middle East. That, in turn, has meant the sawmills in Central Europe haven't been running full, which in turn means the forest owners don't harvest because they want the full value from the tree, from the sawmill, and then we don't get the same level of wood chips that come from that. The other impact, of course, is wood is a source of energy.
We are certainly competing more against people burning timber for energy purposes, and that increases the demand, hence pushing up the price. Undoubtedly, in my view, if the gas price and other related energy costs come off, then of course you would see that demand side soften for wood as simply as an energy source. I think that is the thing to watch in the main. As you rightly say, there are also initiatives being taken place to increase supply in the short term in the face of this heightened demand environment.
Of course, there is nothing that stimulates supply more than higher prices. If these prices prevail, I suspect there will be more supply coming onto the market, but extremely difficult to predict. In short, in the context of these very high energy prices, I think it is hard to assume a lot of relief on the wood cost side, but things can change quite quickly if you do see relief on that front. But it is beyond me to contemplate the geopolitical issues.
Thanks for the call. Then maybe just push you last one on a commercial decision from here. Gas prices are elevated. You made some comments that the industry is taking downtime, inventory levels are low. If you are struggling at some of your mills on the margins, there are players that are out there that are a lot worse off. Just wondering, when do you prefer the sustainable considering gas now or when do you take a more holistic approach, temporarily mothball a higher cost region, like Duino in Italy or if that even is possible to take extended temporary downtime there?
Sorry, Cole, I'm not trying to duck the question. Your line's going a bit dodgy, but I think I got it. As I said, I can only reiterate, we're always looking at optimizing our position. We will always look at all alternatives to optimize our portfolio and optimize our commercial offering. That's something we'll be investigating all the time across our whole suite of assets. Yeah, with that, I should probably call an end to today because we've taken a lot of your time already. Thank you very much, as always, for your interest and participation in this call. As always, the team's available for any follow-up questions. Just in summary, as you've heard, we have encouragingly been in a very positive momentum on the pricing side.
Of course, in the short term, we are seeing huge volatility on the input cost driven by this energy story. Undoubtedly, Q3 was right at the higher end of expectations in terms of energy input costs and all the related effects that's had. That has an impact in the short term. Clearly, we remain very positive in terms of the longer-term fundamentals and encouraging that we are seeing good pricing momentum of good order books and also a reasonable volume position. With that, really thank you for your interest and all that remains for me to say have a good day. Thank you very much.
Thank you. This concludes the meeting. You may now disconnect.