Yes, hi, and welcome everyone. My name is Dafina Shehu, and I'm an Analyst here at ABG Sundal Collier. Today we have Lennart Eberleh from Rottneros with us that's going to present the company, and then we're doing a Q&A in the end. Welcome.
Okay, thank you very much, and hello everybody. Nice to see so many here in the room, and also you who are joining us on the web. So just to start off, a brief overview of those who are not entirely familiar with the Rottneros. We do make some 350,000 tons of pulp, are some close to 290 employees, and had last year a turnover, so this is 2023, of SEK 2.7 billion. We're part of the Swedish forest industry cluster. Forest industry is one of the biggest industries in Sweden, with around about 140,000 people working in this industry. And it's the, if you measure the net contribution to the gross domestic product of this country, the biggest contributor with some SEK 120 billion in net contribution. Why is that? Because our raw material is renewable, and it is growing in Sweden.
We do import very little of the things we need to make our products, which we then ship out into the world. And where do we do this? We do this both in Värmland and in Hälsingland. In Värmland, we have Rottneros Mill, which is the origin of this company, which dates back to 1628. So in a couple of years, we will have a 400-year celebration of this company. And then we have Vallvik, which joined the group in 1995, up in Hälsingland, Söderhamn, which is our biggest mill where we make chemical pulp. We have also some other operations. We have a wood sourcing organization both in mid-Sweden and Värmland, Nykvist Skogs, which works with private forest owners. Half of Sweden's forest is owned by private people with an average holding of some 35-40 hectares.
And this is, of course, one of the biggest assets to be able to work closely with the forest owners to source the raw material. And when you source raw material from a forest owner, you source both the sawmill timber that we sell to the sawmills, and then we get back the sawmill chips, which are a vital part of the raw material mix. Around about 20%-30% is coming from the sawmills. We also have some sourcing operations in Lithuania, close to Riga, which is an important importing market for the Swedish forest industry overall. Since a couple of years back, we're also venturing into the packaging segment. We will come back to that at a later stage, but this is now coming to fruition, which is, of course, very exciting. The majority of our product still is pulp.
We are a pulp maker, so our customers make these specialized products out of our pulps. So we have brown and white chemical pulp with very specific properties that not that many producers can make. The entire global market for market pulp is some 70 million tons. Two-thirds of that is eucalyptus-based pulp out of Latin America. The remaining part is long fiber pulp, both from North America, Sweden, and Finland. But within this big market, there are a couple of very defined and specialized niches, such as pulp for filters. So we supply the coffee filter industry, motor combustion engines filters, air filters, but also grates for the electrotechnical applications. So if you, for example, envision a transformer, you have copper, which is leading the power, which is then in oil to cool it.
And then outside, you find a sort of insulation material, which is made of pulp, and that has to be of no conductivity, so the power doesn't go through that into the outer shell, which is metal. And there our pulp is one of the very few in the world, which is graded for this kind of application. We make the mechanical pulp in Rottneros, mainly focusing on cartonboard, and then we're going to start seeing some sales from formed fiber packaging next year. If we look a little bit on how the sales are distributed, you see a very nice spread into various areas, so not one area which is highly dominating.
It's a good spread of a couple of various specialized niches, especially the filter and the electrotechnical applications, as well as the specialties are relatively stable over time, so not so much depending on how the general economy is going. Whereas the cartonboard segment is a bit more close to how consumers are behaving. Cartonboard mills have to run full for us to sell to them our pulp, and there we've seen a small decline during this kind of year. In order to balance that out, we are into the tissue market, which otherwise is dominated by eucalyptus and other long fiber sulfate kraft pulp producers. So you can see here, for example, that we went from 9% in 2022 to 12% in 2023. Another small but growing segment is fiber cement.
So within the concrete industry, historically, you'd add asbestos fibers to give strength to the concrete, and you can sort of substitute the asbestos by cellulose fiber, which is, of course, also good from a sustainability perspective. So we feel with this kind of split that we're relatively well positioned if the market in the big areas is going up and down. And talking about markets, we also have to look into the geographical markets where we are active. Europe is our major market with more than two-thirds of our sales, where we have our own sales network directly going to the customers. Asia followed then there on place number two with 26%. And Asia really is everything outside China. So it's South Korea, it's Taiwan, it's Indonesia, it's India, where there's a lot of board production. So it's predominantly pulp for cartonboard that we're exporting to that area.
China is the biggest market for market pulp. Some 40 million tons out of the 70 million are going into China, so that is really the dominating power within the pulp market. If they are starting to buy, prices go up. If they fill their warehouses and they stop buying, then prices generally are coming down. So that's what's leading to the cyclicality of the pulp prices. We do have specialties, as I've mentioned, and especially in North America, there is no similar producer of these kinds of qualities. So we're actually shipping some 8% of our volume from Vallvik directly into the States. We have a pier and a deep-sea harbor in Vallvik, so the vessel goes there, is being loaded, and then we ship directly into North America with qualities that they cannot source locally. So that's, of course, also a good competitive advantage.
So much about the general outlook. If we look further ahead down the road, we have to see how we trim the company going forward, and of course, there's a large focus of sustainability, our long-term focus areas on how to develop it going forward. And being an industrial-heavy industry, safety and health is, of course, highly important to make sure that everybody gets home well and safe, and of course, we also align to the 17 global targets of the U.N. We don't tick all the 17 boxes. We are a small company, so we're starting with the ones which are most relevant for us, but this kind of long-term goals and focus areas is then backing into the budget that we're setting every autumn right now, and then we set the targets for next year, so this is a very important part in developing the company going forward.
I think having been able to do this over the history, that's also one of the reasons why we're still here after 400 years. Why should you be investing in Rottneros? The pulp industry is part of the green transition. We have a renewable resource. It is growing. It is collecting carbon dioxide out of the atmosphere and making fibers and other green molecules out of that. Over the last eight years, we have proven a long-term profitability in our business. We've built up a very robust balance sheet, small net debt situation, so we are in a position to ride out any sort of unbalance in the market. Hopefully, you feel that you've gotten the return that you were expecting. Some words about the pulp market, which is, of course, the most important market for us. I've mentioned it's a cyclical market.
It goes up and down. And what you see here, the four graphs are both the gross price in Europe for long fiber pulp, which are the upper lines, and Swedish kronor on the right-hand side, and U.S. dollars on the left-hand side. But on a gross price, there's always a rebate, and that is being shown on the lower side of this. So you can see that the gap between gross and net is increasing over time. We're now talking about a rebate of some 45%, which sounds quite ridiculous if you're not in this kind of business. And what is the reason for that? Well, big buyers often are linking their products to the pulp price index, so they want to have a good position with the end user, with the retailer who's buying the tissue paper off of them.
And if they don't really understand the mechanism between a gross price and a net price, then of course they have a better negotiation situation and are profiting from the rebate. And this has become a system over the last 30 years. As you can see, at least here from 2020 going onwards, this rebate is increasing every year, around about 2%. And once the rebate is increasing, the list price is increasing as well. But if you follow the net price, which is most important, of course, you see that there also over time is an upwards going trend in that. And if you're looking into the development a little bit more in detail, we plot the price development over the stock situation. High stocks usually leading to pulp price being coming down. You see that there towards the right-hand side.
We are now in a phase where stocks have accumulated. Prices have stalled at the end of summer. We were around about some $1,565 per ton. We're now down to $1,500, so we lost some $65 here over the last couple of weeks. It is worse for the eucalyptus. There's a massive overcapacity in eucalyptus short fiber pulp, which is a different grade, not directly relating to our capacity, and they've lost more than $300 over the course of the last weeks because that's the quality that is mostly being traded in China, and there's more capacity coming on stream. We talk about the balance of long fiber and short fiber in just a short while. Some comments about the results that we've had so far over the course of this year. If you're following us over a longer time, you see that our margins have been squeezed.
Nevertheless, we made a profit in the third quarter of SEK 40 million accumulated over the first nine months. It was SEK 75 million. And what is weighing on us is the cost for fibers. Cost for fibers has tremendously gone up over the last three years. It has more than doubled due to a couple of facts that we will also be coming back. Productions are stabilized, and we've also had a couple of big investments over the year. Usually, our investments are in line with our depreciation, some SEK 120 million-SEK 140 million on a yearly basis. So far, we have invested SEK 320 million, and we expect this to be SEK 460 million at the end of the year. What are we doing? We are increasing our CTMP pulp capacity. The mill had two lines, one for newsprint and one for cartonboard. Newsprint is a market in a structural decline.
We closed that down two years ago. We had to lay off about a third of the people in the mill, and now we're increasing the remaining line from 120,000-1 70,000 tons at a quite competitive cost per ton, and that will not add fixed costs, so once the market is coming back and we see good demand, we will have a good productivity development. We've invested in solar panels and batteries to be able to stabilize the grid, and we invested in a tall oil plant in the Vallvik. I talked about the balance sheet. You can see here our net debt to equity assets ratio is around about 60%. That's one of the financial targets that we have and that we're following to make sure that we have a solid balance sheet.
You can see also that, of course, the net cash flow was a bit higher due to the investments, and we would expect that to be coming back to normal levels going forward. But nevertheless, at the end of the quarter, there was still some SEK 260 million in available liquidity. Looking into the wood market, I mentioned that. Why is wood cost so important for us? If you look at the split of our variable costs, 65% of our raw material cost is the wood that we source. And if that market is developing like it has done over the last couple of years, you see that that is weighing heavily. Lots of graphs. This is the entire assortment of both sawmill timber and pulp wood. But look at the lower line here, which is called Svealand massaved. That's to the right, the third line from the bottom.
That's our majority of pulp wood that we're sourcing, and that has gone from the low at the end of 2022 to over SEK 500 per cubic meter now, so there's another SEK 250-SEK 300 times 1.5 million cubic meters that we're sourcing. That's the impact of the profit and loss statement. Very good for forest owners, a bit tougher for the pulp and paper industry, but usually, things are going up and down. Looking ahead, what are we doing? Where do we see our possibilities? There are four major trends, of course, that we are following based on the fact that we're becoming more and more people on this earth, that we're having a higher disposable income enhanced to handle. That means we are looking for a better life. Better life means more tissue paper. Tissue paper means increased demand for softwood pulp and eucalyptus pulp.
If this market is growing, that takes away the competition in the segments that we are because we are not here. We are specialized, for example, in electrotechnical applications. You all are aware of that the grid is being rebuilt. There's more renewable energy coming in, not only in Sweden but across Europe and the U.S. and China. That means there have to be more transformers that I explained use more fibers. There is also more transmitting cables. Electrotechnical cables of this kind of quality do have a fiber layer inside, again, for isolation. And that is a very stable and growing market. So here, we have a couple of very long-standing customers who year by year are increasing their demand. The packaging market is growing, and the best way to pack stuff that is going to consumers is on fiber-based materials. It could be virgin fiber-based.
It could also be recycled fibers. Recycled fibers can only be used a number of times, and then you have to add new primary fibers into the loop. Usually, you save five to seven times. You can reuse a fiber, and then it sort of disappears. So in order to have functional papers and boards, you have to add primary fiber. And that is constantly asking for more pulp. And of course, everybody wants to live in a world which is healthy and sustainable for future generations. So sustainability is a big part. Forest industry today already is 96% fossil-free in our production based on the raw material and the way how we run our mills. 50% of the raw material we take in becomes energy, which is a green energy because it's bio-based mass. So there are a couple of things that are actually in our favor.
I talked about the balance of long fiber and short fiber on a global basis, and if we look at the northern hemisphere first, Canada used to be the biggest producer area for long fiber pulp. There have been a couple of problems, climate-related, but also the way how they've been handling their forest. They have not been replanting as much and as good as we have done here in the Nordics, so there has been a crunch, and there has been reduced capacity. Some 2.6 million tons of softwood have been taken out of the market over the last couple of years. They also have problems in infestations. You heard about the bark beetle here in Sweden. They have the mountain pine beetle, which is causing similar problems.
The Nordics, Sweden, and Finland, of course, are heavily impacted by the consequences of Russia's attack on Ukraine back in 2022, which immediately shut down the border between Finland and Russia. Russia exported some 10% of the Finnish demand of raw material that disappeared overnight that has increased the demand for raw material in Sweden and the Baltics and been driving up prices. We have the bark beetle here that has been taking out a couple of volumes. And we're also in a period where legislation, EU, Sweden, and other countries are trying to reduce the amount of forest that we can use and in order to offset it as a carbon sink and to contribute to biodiversity. So there is a slight friction going on between conserving the forest or using it in order to substitute fossil-based products.
All in all, if we look back 100 years, there is twice the amount of forest today in Sweden compared to 100 years ago, despite the fact that we've built up an industry which is employing 140,000 people, an industry which has invested some SEK 43 billion over the last couple of years. So it's a big industry. It's very important both for Sweden and Finland. And it is contributing to get away from fossil-based products. So we try to really make sure that we have a sustainable way of handling the forests and make sure that they're growing. And I think we've demonstrated that. But that is an ongoing discussion that we're having. Latin America, Brazil is where the eucalyptus is growing. A eucalyptus tree is growing seven years from seed to ready harvest plant. Our trees need up to 80 years. So they have a big cost advantage.
That is why the industry has grown so much in Latin America, and their major market is in China. In China, there has happened a couple of changes. There has been a lot of overcapacity in many different areas, but also in the paper and board area, and they've also built pulp capacity, so if the prices are becoming too high for the Latin America exporters, they are starting their own pulp mills in order to set the ceiling to the pulp prices, so there is some kind of an equilibrium between how much the price can go up and how much the Brazilians can deliver. Historically, there was a link between the eucalyptus and our kind of pulp. The gap was about $150. That has now grown to some $450, so we have to see how much substitution there can be going on.
We do not foresee that there will be substitution into our core areas such as filter, electrotechnical, or cartonboard because you need the bending stiffness. You need certain properties which come from a longer fiber. But of course, there are always things going on. We are working with development and so are others. But I'm quite optimistic that the long fiber as such will become less in capacity. We have a secured raw material basis, and we have end users where we have a very strong brand name and long-standing customer relations. So to summarize this, we've stabilized our operations during the course of the year. We have finalized a very big investment program, which has restructured the Rottneros Mill and also made some substantial upgrades in Vallvik, as well as into renewable energy and our packaging.
And we've maintained a strong balance sheet during the course of the year and these investments. So we feel we are ready to tackle the future and now deliver value on the basis of the investments that we've been taken. Thank you very much.
Thank you, Lennart. So over to my questions. In Q3, you noted a challenging pricing environment for pulp with a decline in benchmark prices. How do you see the global pulp market evolving in Q4 2024 and in 2025?
We're always very careful with making forecasts. All the crystal balls that have been around used to be wrong. But we can see that the price decline has slowed down in Q4. And I don't believe there will be so much more reduction. As I've mentioned, there is a risk of more capacity to be closed down. That's the high-cost producers in Canada, in eastern Finland.
I would believe that we maybe are at the bottom of this. And from here, we have to see whether it will be a sideways development or if we can see a pickup. But the future will tell.
Okay. Following that question, what scenarios is a company preparing for in terms of demand and pricing trends?
We're always preparing for running full, and especially with the specialty niches that we're having. We're having annual negotiations. They're basically closed now for 2025. The volumes are there. We had good negotiation sessions with our customers. So we're looking positively into the future to make sure that we will maintain a margin that allows us to operate.
Thank you. In terms of costs, can you share more about the initiatives you are implementing to manage them, such as hedging strategies or supplier negotiations?
As I've mentioned, the biggest part, of course, of the cost is the raw material. That's a very transparent market. You see in the price lists. We know exactly what the price for the raw material should be. So it's much more a question of making sure we get the volume as there's maybe not enough volume of fiber in the forest for all the industries. But there we feel secure with the initiatives we have through Nykvist, through our Baltic operations, and again, through very long relations with our customers. Energy is the third biggest input cost. There we have very effective hedging in place that is giving us a very stable and forecasting price over the next years. And of next year, we will also have a PPA agreement with the windmill farm.
So we will increase the amount of renewable energy in our energy basket as a fixed price, which is, of course, very positive.
Super. So my last question, how do you evaluate your current capacity utilization and are there plans to optimize or expand capacity in the near term?
We're always working with productivity enhancements. It's not a question of involving adding more capacity. We want to utilize what we have at the best possible fixed cost. In the Rottneros, we've just finalized the investment program, and now we have to ramp it up over the coming next two years, most probably. It takes always some time to fine-tune and ramping up. So that is our strategy going forward.
Okay. Thank you, Lennart. Time is unfortunately running out, but thank you for listening.
Thank you.
Thank you.