The roots of our partnership go back thousands of years. Trees and humans, we've served one another. Helped expand our shared living space. Together, we've built houses all over the world, kept families warm, kept babies dry, powered everything from toasters to schools and industries, carried news, cargos, and food and drink in to virtually every country in the world, fostered prosperity and wellbeing across the generations. Yet our journey has only just begun. The world has decided to live without fossil fuels. Oil and other finite resources are being phased out in favor of renewable spruce and pine. A great many markets are facing massive renewal. This is the world in which SCA stands tall as Europe's biggest private forest owner.
This is a leading global industrial ecosystem, where the growth and renewal of our 2.6 million hectares of trees and the people who live and work with them never stops. We renew, we refine, we use everything, trunks, branches, and bark, to generate sustainable profitability in every respect. Trees and humans, a partnership that's fostering prosperity and wellbeing once again. A journey that has only just begun.
Here our journey continues. Welcome to SCA's Capital Markets Day. My name is Björn Lyngfelt. I'm the SVP Communications. We are now in Galtström, an ironworks located somewhat south of Sundsvall. It is actually the deepest root of the industrial ecosystem that SCA has created and is developing. It was founded in 1673. Here we will now be presenting our operations with a focus on our forest. We will also touch upon interesting items of the rest of our operations. Ulf Larsson, President and CEO, please, the floor is yours.
Thank you for that, Björn. Also from my side, most welcome to SCA, to Galtström, this beautiful place. To which I hope will be an interesting Capital Markets Day. I like to start with this slide, just to give you a flavor of what we are doing within SCA. As Björn said, we have a unique asset in our forest. Based on this unique asset, we have also created a fantastic industrial ecosystem, a strong integrated value chain. We are the biggest private forest owner in Europe, 2.6 million hectares of forest land, which is equal to the size of Belgium. We harvest annually about 5 million cubic meters, which give us a degree of self-sufficiency of about 50%, slightly more now before Östrand. In August, slightly less than 50%. All our forest holdings are certified according to the FSC and PEFC standard.
If we walk over to wood, we are number two in terms of sawmill capacity, but what's maybe more important and interesting is that we've been able to grow this business by close to 10% per year as an average during the past 10 years. In pulp, we are just now finalizing, which we think is the biggest industrial project ever in Sweden, SEK 8 billion, in order to double the capacity of NBSK at Östrand mill. Ingela Ekebro, in charge of the project, she will give you some more details, but I can say, as I've already had that question many times now, on plan, in budget. We have our paper business, which consisting both packaging paper and the publication paper. 1.7 million tons, a little bit more than half in packaging papers, where we have a clear growth focus.
We have our publication paper business, where we have a clear cash flow focus. To the right-hand side, you can see our KPIs for 2017. As I mentioned when we released the Q1 report just recently, we have a strong and a continued strong trend in the business as it is today. Our EBITDA margin for the first quarter was 26.7%, and our industrial return on capital employed was close to 17% for the first quarter. I did forget renewable energy because forest wood, pulp, and paper, these four are our external segments. Renewable energy is the part which is maybe growing fastest of all, and in renewable energy, we are, I think, the biggest producer of bioenergy in Europe, nine terawatt hours based on residues from our mills.
Today, we have 2.5 terawatt hours of installed wind power capacity on SCA land. Also we are doing a lot of research and development work in this field. As you maybe saw yesterday, we did announce a strategic cooperation with St1, which Mikael Källgren will talk more about later on. To summarize, we have the critical mass, we have a well invested asset base, strong cash flow, a strong brand, and growth opportunities in all areas. In United Nations climate meeting in Paris 2015, it was clearly stated that forest industry and the active forestry is an important, if not the most important, part to mitigate the negative effect of the climate change. We can do that in two ways. Firstly, in a growing forest, we capture carbon dioxide.
For SCA, during 2017, we captured more than 4 million tons in our forests, which is much more than we release in our entire operation from harvesters to distribution to end consumer. Maybe more important is that we have the opportunity, with this renewable fiber, we can replace fossil-based and non-renewable materials. That is maybe more important than the carbon dioxide capture. We also have a fast-growing demand for virgin fiber. Today it's not easy to get access to high-quality recycled fiber. It is also so that we can see in the trade that e-commerce, digitalization is also driving the demand for high-quality packaging grades, which is, for us in SCA, a perfect fit because we are based on fresh fiber products, and we also have our great forest holding. It is a positive momentum for the whole industry as such.
I did mention that we have good growth opportunities in all areas, at the same time, we have to meet some certain criteria in order to go into different projects. First, we have to create value. We need to have a decent return on capital employed in each project. We also like to stay with a healthy leverage, and we also like to stay with our investment grade rating. Maybe most important is that each project has to fit in our integrated value chain. If you look to the right-hand side, you can see that first we have ongoing projects. Östrand is already mentioned, our SEK 8 billion project, which will give a healthy growth on top line, 10%-15% depending on the pulp price. It will also give a good contribution on EBIT or EBITDA level, and again, on plan.
We have also taken the decision to increase the share of white top kraftliner with 50,000 tons. We think it's the right thing to continue to develop our portfolio, to move forward in the value chain, this project is a perfect example of this. Today, we also know that we will reach our goal to have five terawatts of installed capacity of wind power on SCA land 2020. We already have all the agreements in place in that perspective. What are we doing now? We have different opportunities, as said, yesterday we did announce a new strategic cooperation with St1. The first step here will be to start up a facility for producing 100,000 tons of liquid biofuel. We found a cost-efficient way to do that together with St1, we feel that we have good further opportunities in this field.
As I also announced earlier, we have started a pre-project in order to see in what way we can increase the capacity of kraftliner, the scope just now is to increase the capacity in Obbola, a machine which is already today the biggest machine in Europe, we think that we have a good potential for a brownfield project here. Mats will tell you more about this, we will have a clear view on this, I think, in Q1, Q2 next year. Last but not least, around Östrand. It is fantastic project, of course the main product will, for many years, be the pulp, as this mill will be the biggest in the world producing NBSK. We've also created a fantastic infrastructure around Östrand, which will give us great opportunities in the field of green chemicals, liquid biofuels, and things like that.
We are not the least together with St1 looking into these opportunities going forward. Our forest, a unique asset, based on this unique asset, we have created a fantastic industrial ecosystem, a super strong integrated value chain. To summarize our growth strategy in a simple way, we can say that, one, we like to maximize the growth in our forest. We can do that in two ways. First, we can be even more efficient and intensive in our silviculture operations. Today, we have an available growth of about 8 million cubic meters per year. We think that we can increase that amount further. We can also add forest holdings to our portfolio, which we are also interested in, of course. Secondly, we like to maximize the value from each tree through our strong and integrated value chain.
If you look to the right-hand side here, that is pretty much the agenda for the rest of the day up to lunch. We will talk about our possibilities that we see in forest, paper, pulp, energy, and wood. By that, I think I hand over to Jonas, who is in charge of our forest business since 1st of April, and before that, he's been in charge of our wood business since 2008.
Okay. Thank you, Ulf. What a nice and interesting day we're going to have. As Ulf mentioned, the best way for us to create long-term value from our forest land is to maximize the growth. We have been able to increase the growth dramatically over the years. Today, we have more standing volume and faster-growing forests since ever since we started measuring last century. This is made possible by those devoted foresters that have made smart investments and worked hard when it comes to silviculture. When we talk about silviculture, we talk about soil preparation, using the right species on the right site, and fertilization and so on. We also, during this period, introduced some new species. You will hear more about Pinus contorta later on today. Increased growth also enables our long-term harvesting levels.
As a result of a well-managed forest, the harvesting levels have more than doubled since the 1950s, the harvesting level will continue to increase also in the future. Increased growth and harvesting levels strongly support increased land value. Of course, the land value is also extremely dependent on a well-invested and well-managed industrial infrastructure in the region. Of course, an industry that refines what the forest produce, and you will hear more about this during the morning. If we move on to this picture, before I start to explain why our forest management is such a fantastic success story, before I go deeper into these figures and graphs, I want to explain the difference between the measurement cubic meter FO and cubic meter SUB, because that will help to understand this day or this presentation.
Most of you may already know this, just to be sure that you all follow me, I will clarify it further. Cubic meter FO stands for forest cubic meters and includes the entire tree, including the bark and the top of the tree, but excludes the branches. This measurement is used to describing a living and growing forest. The measurement cubic meter SUB stands for solid cubic meter under the bark, and the volume of the bark and the volume from the top of the tree is excluded. This measurement describes the part of the tree that is sold and used as an industrial raw material. As I just said, our forest management is a fantastic success story. We have been able to increase the standing volume by more than 50%, at the same time, we have doubled the harvesting levels.
This is partly due to historical reasons, partly to professional forest management, and partly to our ambitious silviculture management. I'm proud to say that. I will come back to this also later on today and explain it more in detail. Our ambitious silviculture program with soil preparation, the right species for the site, improved seedlings and fertilization, has increased standing volume from our forest land by 60% since the 1950s. Today you can see we have a standing volume around 232 million cubic meter FO. I'm also proud to say that SCA's strategy has always been to raise or keep the harvesting levels. We never fall for a short-sighted rise, which forces us to lower the harvesting levels in the future. With our management, harvesting level has more than doubled since the 1950s. We will be able to raise the levels robustly also in the future.
During this period, we have been able to increase both harvesting and growth while maintaining a high ambition for nature conservation and biodiversity. As Ulf mentioned, SCA is certified according to FSC and PEFC standards, two certification systems that verify a responsible and sustainable forest management. We have a fast-growing asset. We are increasing harvesting levels. As an effect, our land value rise. Land value in our region has more than doubled during the last two decades. As we have said, our long-term strategy is to continue to maximize the growth in our forests. Also increase the harvesting levels. As you have seen, we've been able to increase growth dramatically over the years. Today, we have more standing volume on our forests. Faster-growing forests than ever. With the sustainable forest management we apply today, standing volume and harvesting level will increase also in the future.
SCA's industry consume more than 10 million cubic meter of wood raw material annually. To secure the raw material supply to our industry, we have built up an efficient timber sourcing and logistic organization. As Ulf mentioned, about 50% of the raw material we need comes from our own forests. The other 50% we buy primarily from forest owners in the region. Most of it comes from private forest owners, but we also buy from bigger suppliers like other forest and sawmill companies. For ensuring the increased wood supply to expanded Östrand pulp mill, we have started a cooperation with a couple of major timber suppliers companies in Sweden. For example, state-owned Sveaskog and Forest Association Mellanskog. With these two companies, we have already signed long-term contract to supply Östrand.
We also import a minor volume from the Baltic States where we have our own purchasing organization. To further strengthen the raw material supply to our expanding forest industry, we also look at opportunities to acquire more forest land, as Ulf mentioned. The forest management system we apply today give us a good balance between high growth and harvest in our forests, and biodiversity and nature experience. In the future, SCA Forest will be as rich in timber, as biodiversity and nature experience as today. There's an ongoing debate today how to use forest land in the best way. To us, it's extremely important to mitigate further restriction in ownership rights. To further restrict the use of forest is counterproductive when it comes to reducing CO2 emissions and producing sustainable products from our sustainable forests.
By that, I will hand over to Mats, and as I said, you will hear more about SCA Forest operation later this morning.
Thank you and good morning, everybody. Happy to be here, and as the subject is on the screen now, I'm mainly going to talk about kraftliner expansion. First, starting with our strategic priorities within paper, I think this has been clear now for some time, but our focus here on the publication paper side being approximately half of our business, is a cash flow focus. Here our success is built on operational and commercial excellence, and I would say our ability to renew our product portfolio, and I'm quite proud to say that today, 45% of our product portfolio didn't exist five years ago. We have a funnel of new products that I'm also quite proud of. We are having, as an example, a very important new product launch coming now in 1st of July.
We are working very hard on maximizing this business with limited CapEx spend, and it's working quite well. On the other side, on our kraftliner business, we have a growth strategy. We are building our strategy, I would say, basically on our strength, both on the publication paper side and on the kraftliner side here. We have had a plan. We have a roadmap for that, where we have started implementing the first two steps of that roadmap. We took the decision to invest almost SEK 200 million in our Munksund mill, expanding the white top liner capacity there, going from 150,000 tons to 200,000 tons. By this, we are gradually focusing the whole mill into what we would call specialties or niche products within the containerboard segments.
Our idea is also then to transfer. Since the total capacity is not expanding, we will transfer 50,000 tons from Munksund over to Obbola in phase 2. It happens to be so that the 50,000 tons of least profitable products in Munksund is the most profitable products in Obbola, so it fits very well. The grammage range and the sweet spot of these two paper machines and mills are overlapping, so the least profitable products in Munksund becomes the most profitable products in Obbola. There is a gain, a significant gain of that product optimization. The third step of our roadmap is to expand the capacity, and I would say also by that, reduce the cost of goods in Obbola. We are now in the process.
We have an environmental permit process, but we are also in a pre-project phase where we are preparing for this expansion. The pre-project for us, that means that we have set aside a full organization now. We have a project director in place. Same role as Ingela is having here, and we are having an organization of 20-plus people in full swing of preparing and doing this project. Not yet decided. Of course, we are working on the timeline there as well. Why would we do this? Well, first of all, the market is there. We are having a long-term view on the positive outlook of the packaging market in general, the containerboard market, and I would say specifically, the kraftliner market. It's driven by long-term trends that are very favorable for us. You all, I think, know it.
You know it from your private daily life, but we can see it also in the demand picture that we are seeing here. For us, at least up till 2026, we are seeing an annual demand increase of 2% coming into the market. This demand increase can't be met by today's capacity. That is one thing. If we're looking into the operating rates as we see today, you can see here on the virgin means the kraftliner market, and recycled means the test liner market. Up till now, the operating rates on the test liner markets is hovering around a little bit above 90%, and that is met also going forward by capacity expansions. The barriers to entry or the barriers to expand capacity on the recycled paper side are not that high. It's more the availability of raw material.
The technology of making the product or the access to other types of assets like virgin fiber or pulp mill capacity, you don't need that there. On the virgin fiber side, the kraftliner side, it's much more complicated. It's much more complicated to build capacity, and it's much more expensive also to build capacity. Here, the operating rates now are almost up to 97%, 98%, so it's completely full. Of course, with an operating rate as this and with a growth going forward where we see that we believe that the need for products will increase by 800,000 tons, according to our estimations, approximately by 2026. It's not possible. That won't happen unless new capacity comes on stream. Of course, what will happen then is that products needs to be transferred from virgin fiber-based products into recycled fiber-based products.
There is a cannibalization, of course, between these two product types. There is a clear need in the full capacity. I would say the good news for us there is that I believe that we have almost a unique opportunity to expand the capacity in a profitable way because this is not easy to find the right opportunity or the right location or the right circumstances for a good expansion project in this area. But here in Obbola, I believe we have one of the best opportunities that I can see. We have all the basic things that you need to have in place. We have access to the fresh fiber that we need. We have the pulp mill. Large parts of the pulp mill is renewed.
We have invested SEK 3 billion into the pulp mill, but we have hardly invested anything into the paper machine during the last 10 years. We were standing in front of a renewal or lifetime extension of the paper machine now, once the pulp mill was ready. We have many things that we have done in the pulp mill, has prepared ourselves for this expansion. Of course, we have a very strong market position here. We are the leading non-integrated supplier into this market, and we know how to do this. What we are planning or preparing and planning for and analyzing in Obbola, that is to build a new 800,000 ton paper machine. That would be the world's biggest paper machine in its kind for its segment, which is very interesting.
By that, we would close the existing paper machine that has a date from 1975. That is the biggest kraftliner machine in Europe today. That's also very interesting. We have hardly or we have no asset capital left in that machine, so it's possible. We would replace it by the biggest paper machine in the world. We would start with an 800,000 ton paper machine. Our plans are not to debottleneck the full pulp mill as a starting point, so we would start with a capacity of around 700,000 tons, and then we would have the opportunity or option of debottlenecking the rest of the pulp mill at a later stage, taking it up to 800,000 tons. It would be a 2-step approach. As I said, the second part of that project is to expand the existing pulp lines.
We would expand the recycled fiber pulp line, and we would debottleneck parts that make sense in the existing pulp line. An investment decision is something that comes after this pre-project, when we have kind of confirmed that our analyses are correct and that we have a profitable project going forward. We have our timeline, so we are on schedule and on plan for this project going forward. With this, I would like to hand over the word to Ingela.
Thank you. Thank you, Mats. Today, it is exactly 999 days since the board of SCA took the decision to invest SEK 7.8 billion in expanding the pulp capacity in Östrand pulp mill. We started the preparation work immediately on site, and today we are around 100 people in the project management teams and around 1,800 people on site. These 999 days, we have tried to use as efficient as possible, and thanks to the fact that we have an ongoing production at the site, we have been able to start up quite a number of new process areas. The new control center was ready for use the 1st of July last year, and the new wood processing plant has been in operation also since July last year.
The new evaporation plant, the biggest and most energy efficient of its kind for softwood pulp, has been in operation since December, and the first full production month, the availability was 99.2%. In February, it was 99.9%, and in March, 100%. At least I consider that as a successful startup. The new drying machine had pulp on the wire three days before the planned startup, and out of the first eight web threadings, seven was successful. It has been an extremely stable production on the new machine, even more stable than on the existing one. During 2017 and 2018, we have also been able to start up a lot of equipment for the increased white liquor capacity, all that on time. White liquor is the chemical that is used in the digester for dissolving the chips into free fibers.
Besides the hardware preparation on site, we also have used the time for setting up a new enhanced market organization in order to be well prepared to bring the new capacity to the market. We have a really strong organization in place and the preparation is ongoing for the new capacity on the market. The preparation has been ongoing for quite a while now. The new control center has been used since the last summer for training and commissioning works. All operators at Östrand have been able to run their new departments in process simulators. With the right operator interface, the right configuration, and process control programs, they have been able to start the production lines, solve problems during production, and shut down the production lines prior to the actual startup.
That is something that we believe very strongly will affect the process stability during the ramp-up period. Now we are in the middle of the final important preparation for the startup, and that is to put the fiber line and the expanded recovery boiler in place. We will push the buttons in June, and we foresee a normal ramp-up period of 12-18 months. The first year with full production would then be 2020. After the startup, the total capacity in the mill will be 1 million tons, 900,000 tons of NBSK, and 100,000 tons of bleached CTMP. We expect the fixed cost reduction for the kraft pulp of SEK 350 per ton compared to the situation in the old mill.
At full production rate, we will be able to produce 1.2 terawatt hours of green electricity, from of which 0.5 terawatt hours will be supplied to the grid. The wood supply is, as Jonas mentioned, secured mainly from domestic forests. The cost impact will then be reasonable, but of course the transportation costs can be somewhat higher due to longer distances. Regarding pulp quality, we have high ambitions. We aim for being the benchmark for pulp for tissue products. We have focused our process design mainly for being a strong supplier to the tissue market, and the market conditions looks promising. We can see a growing market demand for all pulp segments, also for bleached softwood kraft, where the growth has been stable for the last years. The driving force for that is mainly a strong growth of tissue production.
Oh, sorry. The shrinking consumption of printing and writing papers also creates a shortage of recycled fibers that has to be covered with virgin fibers, and that is, of course, unfavorable for the pulp market. To wrap up the situation for the pulp business at SCA, we have a very strong focus to finalize the investment project to start up the new pulp line in an efficient and safe way, then to ramp up the production as fast as possible, so we can start fine-tuning the production and pulp quality in order to reach the new pulp quality to reach the leading position for softwood pulp for tissue products. That is what we are aiming for. Thank you.
Now I will hand over to Mikael Källgren. He is President for the Renewable Energy business.
Thank you, Ingela. We've just heard a compelling presentation of the fantastic Östrand Pulp project and the business development of pulp within SCA. However, the Östrand expansion is equally a fantastic project in terms of developing renewable energy. Let me explain why. The expansion of Östrand give us three important potential future assets. First, asset 1 is the fact that we're more than doubling our production of tall oil at Östrand. Tall oil is a residual product when producing chemical pulp. Asset 2 is the shift we now have been able to make, going from being a net energy consumer to a net energy producer at Östrand, giving us a surplus, not only of green power production, but also in solid biofuels, black liquor, and capacity to produce more heat and steam.
Asset 3 is the way we can deploy this energy surplus internally to maximize cost savings and therefore profitability for future biorefineries, but also for Östrand. I'll walk through these assets during my presentation. As announced yesterday and mentioned by Ulf in the introduction, we are now taking the next step of creating more value out of asset 1, the tall oil. We do this by forming a joint venture with St1 that gives SCA access to the full value chain of biofuels within the transport sector. This means that we're going from being a raw material supplier of tall oil to other industries to becoming a biofuel producer. As you know, mandates and targets have been decided and are being decided both in Sweden and within EU, and the market for liquid biofuels for transportation is growing fast.
On the chart behind me, you can see the Swedish HVO market and its development in the last years. Together with St1, we now plan to invest SEK 500 million in a commercial scale plant to produce biofuel from tall oil such as HVO, but also potentially biojet for aviation. The capacity will be about 100,000 tons of biofuels annually, and SCA will be able to supply this joint venture with about 60,000 tons of tall oil every year, and that's about a third of the total demand. Commissioning is, as we speak, planned during 2021, and the production of biofuels from tall oil will be equal to SCA usage of fossil fuel in our value chain from the forest to end customers. That includes forest machines, trucks, cars, and ships.
This joint venture to produce tall oil is a little bit of a sprint with commercial technologies in place. Hopefully it will be a very successful sprint. However, we all know that the future of renewables, especially within transportation, is more of a marathon, and the Östrand expansion will allow us to be a highly success participant in the marathon as well. I'll tell you why. As mentioned in the beginning, the asset 2 and 3 are the energy surplus created by the great energy efficiency at Östrand, which can be utilized in 3 ways for future biorefineries if done right. Firstly, Östrand will have the capacity of producing an excess of heat and steam that can be used for drying sawdust and bark and other feedstock for a future biorefinery.
This means that we can avoid additional major investments in new CHP plants and boilers compared to a greenfield biorefinery. Secondly, Östrand will produce 700 gigawatt hours of bark, which can be used for future feedstock. This means lower cost and security of supply. In this context, I like to mention that renewable energy within SCA, we have about 2.5 terawatt hours of solid biofuels today in our portfolio, such as pellets, sawdust, bark, residues from forestry. This can also be used as future feedstock. Thirdly, Östrand will have an energy surplus also in the black liquor, which can be extracted to produce biofuels. Here we have invested SEK 50 million in a pilot plant developing this technology further. However, the synergies also work in reverse.
By the extraction of lignin from the black liquor, we can free capacity at Östrand, allowing Östrand to increase pulp production further in the future. This is some of the background and framework of why we're now looking into 2 biorefinery lines next to Östrand for the future. One where we want to convert solid biofuel to liquid biofuels, and one biorefinery line where we want to extract lignin and lignin oil from the black liquor to produce biofuels. Hand-in-hand with technology development, we're also meeting external requirements, such as obtaining environmental permit and detailed site planning, so that when the time is right and these technologies are ready to go commercial, we will have the decision in our own hands. We have now looked into one aspect of renewable energy and how to make money by reducing emissions within transportation.
Let us look at another asset, our land. Let me start by asking you a couple of questions. Do you know how many wind turbines that were under construction in Sweden during 2017? Let me tell you. It was 670 wind turbines. Do you know what percentage of those that were under construction on our land? The answer is more than 35%. What does this mean for SCA in value creation? I'll go through some details. We have great wind conditions on our land, and our business model is mainly leasing out this land to investors, being an active partner with in-house competence in wind power. We also, in some cases, develop our own project until environmental permit is granted, and then we sell these to potential partners or investors before construction.
With the 35% from last year, we not only know that we now will reach a very important sustainability target of SCA, and that is 5 terawatt-hours of wind power capacity on an SCA land by 2020. We also know that we have secured an EBITDA contribution of at least SEK 60 million-SEK 70 million for a very long period of time. Our land lease agreements are often 25 years or longer. Even though the conditions of getting permits for wind power in Sweden today are more complex than before, there are a lot of ongoing projects on our land, and our growth strategy within wind power will continue. In terms of renewables, we now have ticked all the major boxes for future value creation for SCA, at least as we know today. We've talked about wind power and our land lease and growth opportunities.
We've talked about the tall oil in cooperation with St1 and the synergies with Östrand for the future and key biofuels within transportation. We believe that renewable energy has the potential to be the next value creator for SCA, as referred to by Ulf in the introduction. Thank you. Then I hand over to Jerry Larsson.
Thank you, Mikael, and good morning, everyone. To begin with, I would like to underline the importance of our sawmill business to SCA as a big forest owner. This is because we represent two-thirds of the revenue that two SCA Forests, thus supporting the asset value of our forest land. Later in the presentation, our CFO, Mr. Toby Lawton, will go through this in more detail. We have during a long period of time worked to create one of Europe's largest and most efficient sawmill operation. This is done mainly through large investment, but also very importantly by consolidating our mills. When moving from 11 to 5 sawmills during a period of 10 years, and at the same time increasing the total volume output, we have now all our mills within the top 10 size in Sweden, and two are actually among the top 5.
In other words, we can also say that our average size on approximately 450,000 cubic meters per unit and year is three times as high as the average in Sweden. Together with the fact that we are very well-situated close to SCA's forest holdings, we have created an efficient and valuable asset for SCA, playing an important role in the whole company's integrated value chain. Our annual growth rate the past 20 years has been close to 20%, and we've done that in a profitable way. It has been done partly by growing the total volume of sawn goods output, but mainly by moving forward in the value chain. To begin with, we targeted the wood industry, where our very high-quality saw logs were appreciated. For example, we are now producing and selling knot-free finger-jointed glulam blanks for the window industry. For example, to our customer DOVISTA.
We created distribution platforms and further processing units in order to supply the building material trade. Customers in that aspect are, for example, here in Sweden, Beijer and Byggmax, and for example, in the U.K., Travis Perkins and Wickes. This has given a higher and more stable margin over a business cycle because we have focused on a part of the business that is less volatile, actually the repair and remodeling part of the business. By moving forward in the value chain, we have gained customer insights that has given us better possibility to work with product innovations. When talking about product innovation, I would like to give you two examples. The first one is our pine heartwood decking. You could see it in the picture, and for you here present in Sundsvall, you can see it behind me on the wall.
This garden product, to produce this, we use advanced X-ray technology in our log sorting department where we find the suitable logs with a high share of heartwood. In the 2nd state, we cut those logs in a specific cutting pattern that ensures the fact that we have a 99% share of heartwood in this garden product. We can create a very beautiful, durable, sustainable, and 100% chemical-free garden product. We have also our outdoor cladding with concealed fitting. You can see it on the summer house also presented in the picture. It is painted in a controlled industrial environment, and it is also equipped with concealed fittings. This gives the possibility for us to offer a product that does not need to be painted at all in the building site.
When doing that, we, of course, save a lot of time for the builder and also cut cost in the total value chain. To sum up our strategic direction within wood, we will continue to look upon a profitable growth within the building material trade in Scandinavia, U.K., and France. We will also work a lot with our industrial customers, especially those where we can utilize from our naturally high-quality logs that we have up here in the north. We want to continue to gain from our well-invested big sawmills, and also develop our further processing units. We will do that, for example, by automation, where we work with very advanced measurement techniques in order to increase the yield from log to finished products. We will also work with optimization to find the right log for the right end use.
For example, when we are producing these window blanks that I described earlier for the window industry. Finally, we also work extensively with digitalization all through the value chain. One example of that is that we now offer a home delivery solution for the growing e-commerce market. This is done together with our customers within the building material trade and through their e-platforms. By doing all this, we will continue our profitable growth and increase the customer's experience of wood, and also the customer's experience in how to buy wood. Thank you.
Thank you. We have now had an overview of different businesses in the morning, going from the forest all the way to the gas station. We have now deserved coffee, which we will have. After the coffee break, we will dig deeper into the focus of the day, which is the forest, and learn more of how we can create more value out of a tree. We will break now for coffee. Coffee is served behind the technology department. We will reconvene here in 20 minutes, and bon appétit. Welcome back to SCA's Capital Market Day in Galtström. We will now tread deeper into SCA's forest. Show us the way, Jonas Mårtensson, President Forest.
Okay. Thank you, Björn. In this session, I will give you a more detailed description how our ambitious forest management will create value today and in the future.
I will start actually with the history of the Swedish forests as a business operation. Industrial forestry has been conducted in Northern Sweden since the 17th century, starting primarily with production of charcoal for the mining and iron production. The mining industries in mid-Sweden overused the forest to such a large content, so that the surrounding areas of the mines and the industries were more or less one great clear cut. As John mentioned, new ironworks were established in new areas with good access to forest and running water. Galtström, where we are today, as you heard, are one good example. The sawmill industry then started to industrialize the northern part of Sweden during the second half of the 19th century. All forest far up north and to the west to the mountains to the west of Sweden, were subject to repeated exploitive selective cutting.
Big timber trees were harvested and small growing trees were left. No measures were taken for regeneration, and the result was, of course, a poor forest with small volume, and it was also slow-growing. That you can see on the picture on the right-hand side, which is a picture from that time, beginning of the 1920s. During the 1950s, selective cutting was replaced by final felling and silviculture. As a result of that, the forest industry in Sweden has, since the 1950s, been refocused on restoring these old forests. These leftover stands with poor growth have been harvested and reforested with ambitious silviculture, creating young forests with high growth. This has resulted in considerable gains in production, but also a need for improved nature conservation. In 1993, a new Swedish Forestry Act was approved, which sets equal goals between production and biodiversity.
The consequence of this was a totally new way of managing our forests. The management system that we apply today gives us a good balance between high growth and harvest in our forest, as well as biodiversity. The result is illustrated on the picture on the right-hand side, and you will see it for yourself also during the afternoon, during the forest excursion. As I think most of you already know, we are Europe's largest private forest owner. Ulf already has mentioned we manage 2.6 million hectares of forest land, as Ulf said, close to the size of Belgium. After this 2.6 million, 2 million hectares are so-called productive forest land used for timber production. That's 8.5% of the productive forest land of Sweden.
The definition of productive forest land is a holding where the forest grows more than one cubic meter per hectare and year during a rotation period. The total standing volume on SCA Forest land today amounts to a bit more than 230 million cubic meter FO. As you can see on the map, our forest holdings that are marked in green, they are located close to our well invested and well-managed industry along the coast. I hope you remember the difference between cubic meter FO, forest cubic meter, and cubic meter SUB, solid cubic meter under the bark, because that helps to understand this picture. SCA Forests are currently in a high growth phase, as shown in the table. Annual gross growth is currently about 9.5 million cubic meter FO. From the 9.5 million, we have natural losses such as windfalls, damage caused by animals, and so on.
Together with the pre-commercial thinning, this gives us a total loss of around 1.3 million cubic meter FO. The annual available net growth is 8.2 million cubic meter FO. As I mentioned, and as you have heard, we have a total standing volume of 232 million cubic meter FO. With a growth of 8.2 million, that gave us an annual real growth rate of 3.5%. Out of this 8.2 million cubic meter, we harvest 5.2 million, corresponding to 4.3 million cubic meter SUB. The annual harvesting level is based upon our long-term harvesting plans, at present, a bit more than 5 million cubic meter. As you understand, this is what gave us a strong current cash flow from our forest operations. As you can see, we harvest less than two-thirds of the annual growth.
The reason for that is that our young, well-managed forests are not yet ripe for harvesting. Harvesting and cash flow from the forest will increase over time. Silviculture has been developed step by step since the 1920s, and it's based upon the importance of soil preparation, combined with the plantation of seedlings of the right species on the right site. Trees can be fertilized, like all plants. In the soil of northern Sweden, we get a good effect from adding nitrogen, combined with some other nutrients. When we add around 150 kilos of nitrogen per hectare, the trees manage to grab that and increase the growth by 15%, and the effect lasts for about 10 years. Natural regeneration is quite risky at our latitudes and height above sea levels.
The chance of getting good seed years goes from 100% around the area of Gävle, down to 10% when you reach Åsele. Planting is a much safer method up here. It also enable us to use genetically improved seedlings. You can breed seeds the way you breed dogs and/or horses. We are now coming into the third generation of seeds, where the seedlings will give about 25% higher growth than a natural seed, and the breeding will of course continue. Pinus contorta, or lodgepole pine, were introduced in Sweden in the mid-1970s after a long research and testing of different species. Species that could work in Sweden and could fit the Swedish sawmills and the forest industry. Seeds were picked in British Columbia, Canada, and seedlings were produced in our own nursery.
As of today, we have planted in total lodgepole pine on 300,000 hectares of SCA land, which corresponds to around 15% of our total area. Lodgepole pine, what is so fantastic with this species is that it's growing 40% faster than natural Swedish pine, Pinus sylvestris. As you can see, our growth plan has increased after every taxation due to developed forest management, and has increased our standing volume per hectare significantly during the last decades. SCA have a high share of young forests currently in a strong growth phase. As you can see on the left-hand side, one third of today's standing volume is younger than 50 years. A very high proportion of the growth is around 60%, takes place in our young, well-managed forests.
These stands are so productive that we like to keep them and let them grow for another 20 to 30 years before we start to harvest. On the right side, you can see that lodgepole pine at present stands for almost 10% of our total volume, and stands for close to 20% of the total growth. Lodgepole pine will continue to boost our biological growth, There are no legal restriction concerning the harvesting age of the lodgepole pine stand. In order to maximize the growth and the future harvesting levels of all tree species, the plan is to start to harvest lodgepole pine on a larger scale in about 10 to 20 years when our stands are between 50 to 70 years old. Planning is the keys to increase growth in our forest, also to reduce cost when managing forests, as well as managing nature considerations.
Every 6 to 8 years, we conduct a new forest taxation to recalculate the standing volume and future harvesting level. As you may know, the rotation period in our area, our part of Sweden, is between 80-100 years. Therefore, we need a very structured and long-term planning process. For example, to identify forest habitats with high conservation value before we start to build forest roads or before we start to harvest. It also allows us to interact with other forest owners when we build forest roads, or it also can give us a chance to purchase timber from private forest owners in the area where we're going to harvest. Of course, at the end of the period or the end of the planning, it enable us to harvest several stands in the same area to be cost-efficient in terms of harvesting and logistics.
SCA have the world's largest forest tree nursery with 18 greenhouses located close to Sundsvall. We have a capacity to grow 100 million seedlings per year, enough to cover about 50,000 hectares or about an area of 100,000 football fields, or/and greater than the populated area of Stockholm. A bit less than 50% of the seedlings produced in our nursery are used on our own forest land. The rest are sold to other forest owners externally. Since the 1970s, we have been monitoring 50,000 seedlings from the time that they are planted until they are 10 years old. The data is used to find individual trees with high quality and high growth. Today, we use cultivated seedlings from the third generation of seed plantations, and the result is a forest with 25% better growth than natural regeneration.
We have also recently developed an improved seedling system called PowerPot that is 15% more effective than traditional systems when it comes to planting the seedlings. Global warming will have a significant impact in our part of Sweden. The effect of global climate change has been well studied in Scandinavian forests, and the effect on forest growth will be largest in the north. With a significant longer growth season and with a projected increase of three to four degrees in temperature, the growth will increase by 25%-30% by the end of the century. However, there is also an increased risk for damages to forest and soils, such as increased risk for storms, fires, infestation, and snow damage. Periods of ground frost will also be shorter, which might have a negative impact on harvesting or logistics.
We are already planting seedlings that are better adapted to the warmer climate, but these will of course not be harvested within 60-80 years or so. As you saw earlier this morning, we have been able to more than double the harvesting level since the 1950s, and at the same time, we have increased the standing volume in our forest by 60%. If you take a look at these two graphs, you can see that the sustainable growth will continue. Our harvesting levels will continue to increase. Within 30 years, we will reach a harvesting level around 5 million cubic meter SUB. During the same period, standing volume will continue to grow from today's level to over 270 million cubic meter FO. I also want to emphasize that these calculations, they are based upon current practices.
We have not included the positive effect from a warmer climate into these figures. This diagram shows our forest divided into different age classes. The majority of our stands are young forest, up to 60 years old with high growth. Because of the high growth, we should wait to harvest them until they are about 80 years. From inventories, we also know that the older the forest is, it is also often more valuable for nature conservation. This is also clear from the diagram, as you can see. The younger stands are the result of silviculture and good forest management with higher volumes per hectare and more average nature values. When these stands reach harvestable age around 2035, the harvest will increase considerably. With our responsible forest management, we preserve the forest's biodiversity through, first of all, voluntary set-asides. That is forest areas that have a high conservation value.
For example, woodland key habitats. Today, both the FSC and PEFC certification standards require that woodland key habitats are set aside from forestry or that they are managed to promote biodiversity. 5%-8% of SCA's productive land is set aside voluntarily and at our own cost to preserve biodiversity. Nature consideration during harvesting are a common practice in Swedish forestry. When we harvest, 10%-15% of the felled area is retained for nature consideration. The idea behind this type of nature conservation is to retain trees or areas that are important for value. For example, retention of individual old trees, tree groups, and deadwood, or retention of buffer zones around streams, lakes, and wetlands. Last year, 13% of our productive forest land planned for harvesting was saved. We also conduct alternative forms of forest management to promote biodiversity.
Today, around 20% of our forest land is excluded from harvesting. In the future, we need to find more effective ways to promote and keep the biodiversity. We can't just continue to set aside more forest land. We need also to do it in a more efficient way, especially when we also know that our young forests binds 4 million tons of CO2 every year. Since the 1950s, forestry has gone from being more or less manual to highly mechanized and automated. In the 1950s to the 1960s, tractors, forwarders replaced horses, and chainsaws were replaced by various types of harvesting machines. Of course, by that, dramatic gains in productivity were achieved. There were rapid development of new, more efficient machine systems until the 1990s. In the 1990s, the single-grip harvester and forwarder replaced more or less all other machine systems in Sweden.
This is still the most efficient machine system and what we use today. As the machines used in forestry became more automated and more complex to operate, the need for instruction, training, and education also grew. During the mechanization period, the forest machines were typically owned by the forest company, and the operators employed directly by the forest company. The next step to drive productivity and reduce harvesting cost was to reorganize with contractors, and we started that during the 1990s. Today, the main part of the harvesting we do is done by independent contractors. Around 2005, as you can see from the diagram, we started to see a fall in productivity in our harvesting operations. From our own logging teams, we rediscovered that basics such as time utility and speed is still crucial.
We started a dedicated program in SCA in 2010 to help our harvesting contractors to improve their productivity as well as their financial performance. We're starting to see the result of that improvement program. Productivity has started to increase again, we had an impressive all-time high year in 2017. I'm proud to say that SCA is today the benchmark when it comes to productivity and cost efficiency in harvesting operations. Just to give you a feeling of the speed of harvesting, a harvester fell more than 100 trees per hour or two trees per minute, and you will see it for yourself in the afternoon during the forest excursion. As you have heard and seen, SCA's forest consume more than 10 million cubic meter SUB of wood raw material annually.
To secure the wood supply to our industry, we have built up an efficient wood sourcing and logistics organization. As I mentioned during my first session, about 50% comes from our own forests, and the other part we primarily buy from private forest owners in the region. To be cost efficient in logistics, SCA has today six timber terminals located in the inland of Northern Sweden, and SCA is unique in that perspective. The majority of the transportation work is done by railway. All wood sourced to the left of the yellow border or to the west of the yellow line and border on the map is hauled to a terminal and then transported by railway to our industries along the coast. This, of course, also helps us to be competitive when we purchase timber from forest owners in the inland.
We purchase between 3 million-4 million cubic meter annually from private forest owners in our region. SCA has a unique competence and performance when it comes to silviculture and harvesting productivity. That, together with our well-invested and highly competitive industry, we have an attractive proposition for forest owners. The forest owners also see us as a strong financial and long-term industrial partner that is investing billions of SEK every year in Northern Sweden. Two years ago, we launched a digital tool where the forest owners get help managing their forest land. With Skogsvingen, forest owners can get a good overview of their forest holding. They get measured and calculated data to help them in the management of their holdings, such as when and where to do thinning or final felling.
They also get integrated with our ERP system, it makes it easy for them to do business with SCA. Finally, they get assurance that their forest is managed in the best way, hopefully, they also sleep better at night. As you have heard, I hope it's very clear, increasing the growth has been our strategy for decades, we have been able to increase the growth dramatically over the years as you have seen. Today, we have more standing volume and faster-growing forests than ever. This is made possible by those dedicated foresters that has made smart investments in silviculture, such as improved seed material, introduction of faster-growing tree species, and fertilization. Each tree harvested in SCA forests is replaced by more than two new trees.
Net growth, as you have seen, is now today 8.2 million cubic meter FO. Since the '50s we have been able to increase the harvesting levels by more than 100%. Today we harvest around 5 million cubic meter FO, corresponding to 4.3 million cubic meter SUB. As you understand then, the net growth is 3 million cubic meter, binding 4 million tons of CO2 every year. Both our net growth and harvesting levels will continue to grow over time. As you have seen, 50% of the raw material we use come from our own forests, and of course, this helps us to secure the supply of our expanding forest industry. We have an efficient value chain. I'm proud to say that SCA is today the benchmark when it comes to productivity and cost efficiency in harvesting and wood logistics.
We have developed a strong improvement program to help contractors to improve their business, both in terms of productivity and financial performance. As you have seen, we have efficient transport system. We have six terminals inland in northern part of Sweden. With the sustainable forest management we apply today, standing volume and harvesting volume will continue to increase. At the same time, our ambition is that the forest conservation and nature experience values must be maintained for future generation. Thank you. Now we'll hand over to our CFO, Toby, and he will come in.
Thank you
the forest, I hope.
Thank you, Jonas. Good morning, everybody. I think you just saw Jonas presented to you about our growing forest asset and how we manage that forest asset to actively increase the harvesting rate in the future and grow the harvesting rate in the future. He also explained about our extensive forest and wood sourcing organization with the well-developed local presence we have in Northern Sweden with the uniquely invested terminals and so on, and rail terminals that give us a stable and competitive buying platform for our fiber needs, which we secure over that which we harvest from our own forest. Now I would like to focus on how we increase and maximize the value which we extract from each tree in that value chain.
First, before I jump into that, I have one slide here on capital allocation to show you how we think about capital allocation. Here at the bottom of this slide, firstly, you can see our forest asset, which is the largest part of our valuation and of course our market capitalization, and therefore the most important asset we have in SCA. This asset is built upon the good growth which we have with our relatively young forest, with that 3.5% annual growth. The value of this asset is also secured and enhanced by that integrated value chain that we have. With our industries, which are closely connected to the forest geographically, we have this tight geographical area with a close connection between the forest and the industries.
At the top, we have our strategic investments, these could be CapEx or they could be M&A, and these must either build upon that forest asset or build upon that integrated value chain. These strategic investments have to deliver a sufficient return, have to deliver an enhanced return on capital. They have to be well-grounded with realistic assumptions, and they have to create significant value. That's the ground of our strategic investments. If we have strategic investments that do that, of course, we have to look at our capital structure on the right-hand side to see how we look to finance these strategic investments. Here we have a clear statement or financial target, which we've talked about, which we want to maintain an investment-grade credit rating.
We will therefore only fund these future investments if we believe they can be funded within that investment-grade credit rating. Of course, the rating is built on many factors, and net debt to EBITDA is probably one of the most relevant. Here we aim to keep a stable level and to maintain that rating, which is normally viewed as something below three times net debt to EBITDA. Finally, we have the dividend on the left-hand side here. Here we expect to pay a stable and increasing dividend, which we've also stated clearly. This is, of course, supported by the strong cash flow generation, which we have from the business.
To the extent that we have money over after funding the dividend, we expect to use that to fund strategic investments as long as we maintain that capital structure that we have with the investment-grade credit rating. Of course, if we do not have attractive value-creating strategic investments, we'd expect to return funds to shareholders. That's how we think about capital allocation. Okay. I'll move on to value creation if you look from the perspective of a typical pure forest owner. If you're a pure forest owner, you have two main sources of income. You have the sawlogs, which are sold to make sawn timber, which represent almost 50% of the volume from the harvest, but almost two-thirds of the value, as Jerry mentioned earlier.
This is because the price for the sawlog, which is the lower, wider, straighter part of the tree, is significantly higher than that for pulpwood. It's also why it's so important that we have an efficient sawmill operation in close connection to our forest. The pulpwood is the other half, this is obviously needed to make pulp and paper. Pulpwood typically attracts a price a little over half that of the sawlog, but it's still obviously a very valuable and important raw material to the pulp and paper industry. Okay, this is a fairly busy slide, the diagram on the left here, if I start there. The diagram on the left represents our integrated value chain, it's probably too small for you to read clearly, but we have the forest in the center of our value chain.
This is surrounded by SCA's different industries in a tight geography. We have a very extensive and efficient logistics operation which links up the various parts, and manages also the distribution out to our end markets and end customers out in Europe and beyond. We have the byproducts, which are used from one industry, which are used to create another income stream. This could be pellets, which are made from sawdust. It could be the wood chips from sawmills going into the pulp and paper mills. It could be heat or green electricity from the mills. It could be wind power on the forest land, as you've heard about, or potentially green chemicals from the pulp process.
This means that we're not just vertically integrated downstream from the forest and towards the end consumer, but we're also horizontally integrated, especially within our tight geography, with a close proximity between the forest and our mills. We have this horizontal integration to also then maximize the value that we can create from each tree. If you look on the right-hand side here, this is the typical income from one cubic meter or probably an average or smallish size tree. You can see that a pure forest owner, a typical forest owner, would receive around 390 SEK for that cubic meter, which is the blended price then that they would get from the sawlogs and the pulpwood. Of course, there would be some costs for harvesting that wood in the first place, but that would be the income, the sales.
Where it comes to SCA, we receive an income of over SEK 2,000 for that cubic meter because of this integrated value chain and all these vertically and horizontally integrated industries. Of course, we don't do the integration at any price. It's not just to integrate. It has to generate a sufficient return on capital and be value-creating. We have an opportunity then to earn a margin on a much bigger number with more than SEK 2,000 per cubic meter. Of course, this is a bit of a simplified picture, and you could easily ask, 'Okay, what's unique about that? Why does this all have to sit under one roof or in one company?'
Can't other companies do this and create value in different companies? What we think makes SCA unique in this value chain is that we sit on the raw material through this integrated value chain. Whether it's harvested from our own forest or it's sourced through our forest sourcing organization, which I mentioned, we have the long-term security of knowing exactly where that raw material will come from, where those 9 million cubic meters which we source per year come from. That means we can take long-term decisions in developing this value chain. We can develop it in our geography without the risk that someday the raw material might disappear, or we might depend on a supplier who might change their mind or get another idea. We might have a sourcing contract which is up for renegotiation in 2 years, or so on.
We can manage that risk. We can do that only because we sit on that raw material, and not just the raw material, but the flows of the byproducts also from the manufacturing processes or the industrial processes. That allows us to invest and create value. Not only that, by reducing this risk, we manage to secure and maximize also the value of our forest land in the middle, which is dependent on having long-term competitive industries nearby to buy the wood. That's how we think about our value chain and maximize the value from each tree. As for examples, there are many examples of this value chain. I talked about the pellets business making pellets from sawdust, or we have a very efficient logistics operation.
Here, these are examples into the future, and this staircase of cash flow funded growth opportunities, which Ulf presented earlier, are all about further developing this value chain which we have. The growth of the kraftliner, both white top kraftliner and the growth of kraftliner in Obbola, are all about increasing the vertical integration in our value chain. While particularly the growth of both wind power and the green chemical production, either in the JV with St1 or the biorefinery in Östrand, is all about the horizontal integration and creating another profit stream from the byproducts which we already have because we sit on this raw material. Okay. Now I'll move to a bit about some of the economics of the forest segment and firstly, the seasonality.
On the left-hand side here, you can see the net sales from the forest segment, which are pretty steady net sales. The forest segment supplies all the industries with their raw material needs. Whether it be from SCA's own forest or also sourced from other forest owners, from third parties. In the middle, you can see the EBITDA development also per quarter. This is also pretty stable, but I think you can clearly see a seasonality in our EBITDA, where every other quarter, the EBITDA is a little bit stronger. This is all related to the seasonal harvesting practices we have, where we harvest more from our own forest in the second and fourth quarters when the ground conditions are wetter, and more from third-party forest owners in the first and third quarters when the ground is either dry or frozen. That's the pattern.
When we harvest more from our own forest, we have a higher EBITDA, of course. When we harvest less from our own forest, we have a lower EBITDA, but it's compensated somewhat by the revaluation of the forest, which is a little bit larger because we leave more growth in the standing volume in those quarters than we otherwise do in the other quarters. This compensates somewhat for that lower profitability, but not completely. Now, I know many like to make comparisons between different forest companies and forest divisions. Here I want to show that there are unfortunately a lot of factors which affect this relative profitability that make it a little bit harder to compare, and you need to understand what drives these factors.
If I start, it's quite a busy picture as well, but on the left-hand side, you can see this graph, which Jonas has already presented as well, on the age distribution of our standing timber in our forest. Here we have a relatively large amount of younger forest, as you've seen. A younger forest means that if we take the income side on the top left, we have a larger share of thinning, than you would have had if you had an even age distribution. Thinning delivers a lower average price than final harvesting and also has a higher harvesting cost than final harvesting. The gross profit when you have a higher share of thinning is lower than you would have had with an even age distribution.
On the bottom left here, you can see that a number of the cost drivers are also age-related to some extent. The pre-commercial thinning and the fertilization tend to occur on younger trees, and the road construction more on mid-age trees, while the silviculture costs are spread throughout the age span. With a younger forest, we have comparatively a lower profitability than you would have had with an even age distribution in your forest. As the forest ages, you would expect to see the profitability steadily increase as a result of that aging and the age span becoming more even. Secondly, on the right-hand side here, some of the other factors. The pricing model is, of course, important. Here, SCA uses market prices between the forest business and the industries.
As we source around 50% of our wood externally, we use the external price that we have from our external source wood, which we then apply to our internal sales from the forest division. That, of course, means that when it comes to the external wood, we make no profit in the forest division from the external wood. It's simply supplied on to the industries at cost. The efficiency of the harvesting operation, number 2 here, is, of course, one of the most important KPIs for our forest business unit. As Jonas presented earlier, due to the strong focus on best practice, which we've had over many years, we have the industry-leading harvesting cost in our industry. Thirdly, third point here, which is the same point on the left-hand side, the younger forest drives a comparatively lower profitability. The fourth point relates to wood swaps.
I'll come back in a moment to this, but we swap wood with other forest companies, and we do that in order to reduce overall cost. For us, this cost benefit we allocate to the industry which receives the wood. You could equally allocate it to the forest, but that's not our practice. Finally, the last point, the fifth point here, we make a number of smaller transactions every year in order to buy and sell forest land, which I'll also come back to this, but the capital gains on these transactions will vary depending on the size of the transaction at the time. That could be another factor. Okay. I'll come on a bit to internal market prices and our wood sourcing. As I said, the forest segment supplies the industry segments with wood, which is sold at market prices.
These are based on the external prices for externally sourced wood. We charge a small premium for certified wood. It's important to understand, again, that there's no EBITDA earned on externally sourced wood from the forest to the industries. It's sold on at cost. What this means is that when the Östrand investment comes online and is fully up and running, the sales from the forest division will increase, but the EBITDA will not increase, because that increase will mainly come from externally sourced wood. On the right-hand side, you can see then the effect of the change in the sourcing volumes, particularly from the Östrand investment, and showing when the pulp line is at full volume post Östrand. Today you can see in 2017, firstly, we have a self-sufficiency of just over 50% in wood.
The externally sourced wood comes from both locally purchased volumes from smaller forest owners and from larger central sourcing arrangements. The overall volumes today are split 50/50 between the sawmills and the pulp and paper mills. After Östrand is fully up and running at full capacity, we will expect to buy more pulpwood, and this will be sourced both from the locally purchased smaller forest owners and also to a little bit lesser extent from the centrally sourced suppliers. Our total wood sourcing will then increase from today's level of around 10 million cubic meters to around 12 million cubic meters as a result. Our self-sufficiency will then be slightly below 50%. Here you can see the development of our harvesting cost over the last some 30 years. As I said, we are confident that we have the lowest cost in the industry when it comes to harvesting.
As Jonas presented, the focus on both technological development and organizational development has driven this harvesting cost year after year to significantly beat this inflationary pressure, which you also see on the graph here. Over the last 30 years, inflation has increased by over 100%, which we all know about, but the harvesting cost has increased by less than 20%. It's been a constant focus. One significant factor in this is, of course, our size, where we have a large number of harvesting teams, and they can develop new techniques and practices and, of course, compete with each other in established benchmarking and coaching programs. As I mentioned before, every year we buy and sell land. We do this for a number of reasons, or a couple of reasons.
Firstly, to move our forest land closer to the industry, so we end up with land closer to the industry. Secondly, to improve the consolidation of our forest land, which makes it easier and more efficient to manage. Thirdly, sometimes we do swaps of land in order to create nature reserves as well. The point on the bottom left here under legal restrictions is you have to remember we're only allowed to increase our overall forest holding by buying land from legal entities. When it comes to private individuals, we're only allowed to buy and sell land provided that these purchases and sales balance each other out. We're not allowed to be a net buyer from private individuals. While we do this activity every year, you can see that they are small pieces of land.
Even in the largest year here in 2014, you can see this is less than 1% of our total forest holding. It's not large pieces today. The good thing with this data is you can also clearly see what the market prices that we have for our forest land in our area, both on the purchase and the sale side. I think you can see here it demonstrates a pretty stable level around the SEK 270 per cubic meter of standing forest. Just this is a couple of pictures or maps to show you a few examples of what we do.
On the left-hand side here is a typical land swap, here you can see the purple land area is an area that we then swap for the shaded area, saying you can see SCA gains, that you can clearly see from the picture improves our consolidation on our forest land on the left-hand side. While on the right-hand side, you can see an area around Rogån, a nice hand-drawn map from 1955, a second one in 2017 here, where you can also see the area has become much more consolidated, that enables us to be much more efficient in managing the forest and lowers the cost of building infrastructure or roads, for example, which can make quite a significant difference. That's why.
When it comes to wood swaps, which I mentioned earlier as well, we swap around 1 to 1.5 million cubic meters annually. We do this if the swap makes logistical sense to both parties. This has gone on for a number of years. Our wood maybe, for example, typically our wood may be closer to the partner's industry or some of their wood may be closer to our industry, so it is quite a straightforward logic. This overall generates savings both in lower logistics costs and of course reduces emissions in the logistics process. The total saving in our swaps is around SEK 60 million per year. As I explained earlier, this benefit is allocated to industry that is acquiring wood, depending which industry it is. Okay.
Now, a few words on our valuation methodology that we use in our accounting valuation of the forest asset. The forest valuation in our books is divided into 2 components. Firstly, we have the land valuation, which is accounted for using IAS 16. It is booked at acquisition cost. As many of you know, most of our land was acquired a very long time ago, so it is a very small acquisition cost. Whereas the biological asset is the trees that are standing on that land. These are valued according to IAS 41, which is the standard used for biological assets and a lot of typically farming as well. Under this principle of the valuation, it is a discounted cash flow valuation. It is based on our current harvesting plan. That is made using growth assessments and using current technology and practices in our plan.
We then base the prices and costs on a 5-year average. We use an inflation of 2% per year for both costs and for prices. When we combine this with the cost of capital, which we use, which is a cost of capital for a typical Scandinavian forest company of 5.25%, this gives us our book or accounting valuation of SEK 31 billion, which is equivalent to, you can see at the top right here, SEK 135 per cubic meter. When you put this accounting valuation up against a market valuation, which I showed earlier, there is of course a difference. You can ask yourself, why should there be a difference between an accounting valuation and a market valuation?
There is no exact answer or right or wrong answer, but some of the potential areas of difference is, of course, one is in the assumptions in which cost of capital or which projection you have on market prices or costs. Other potential differences could be on different views in harvesting plans or potential harvesting levels in the future. It could be perhaps some higher growth rates from seedlings which have not yet been developed or used. It could be improvements in the future on silviculture or fertilization. There might be technological developments that occur either affecting harvesting or growth. The impact of climate change, as Jonas mentioned, is not really yet fully understood, and it is not included. Finally, of course, the valuation under the land. The valuation of the land under the forest is not included in our accounting valuation.
Wherever it comes from, it seems pretty clear to us that there is a difference, and the accounting valuation of SEK 135 is around half that you would see from typical market values in our region. You can see both from what we buy and sell for, as I showed you earlier, and also the market statistics from LRF, who typically collect statistics for market valuation of forest assets. That was my last slide. With that, I will hand over to Ulf.
By that, I think that we have more or less gone through the material that we have prepared for you today, and I will give a short summary. It's not too easy. I did some notes here. One thing is that the forest industry today is seen maybe as the most important component in order to mitigate negative effects of the climate change. One thing is that we capture carbon dioxide in our growing forests, not only in SCA's forest, but in general. Also, and maybe more important, we can replace fossil-based materials with renewable fiber. That is a fantastic thing, really. That is also contributing to the strong general situation that we have for the industry just now. If we just look at SCA, I think that we are in a good position.
We are more or less 100% virgin based in our industry. We have a great asset in our big forest holdings. Upon this great and unique asset, we've built up a strong integrated value chain, and we like to continue our profitable growth in different ways. We like to increase the growth in our forest asset, and Jonas more or less promised that we can do that. We can also buy some forest land, but we have some restrictions as long as we are in Sweden, as we can't buy from private forest owner, but we can buy legal entities. When it comes to the second step, to increase or maximize the value of each tree in paper, it's obvious, Mats, that we are really looking forward to the results from the pre-project in kraftliner. We see kraftliner as a good growth opportunity.
We feel just as we speak, a fantastic market for kraftliner, but over time it has been a really strong market for kraftliner. We have a good position. We have 2 strong machines, machine number 1 in Europe in Obbola, and machine number three in Munksund, but nevertheless, it can be better, even better. In pulp, we are looking forward to the startup that we are going to do in mid-June. Ingela has left, so maybe she's a little bit bored. I don't think so. She's there. Good. It is a fantastic achievement to run a project like this and be able to start up exactly the same time and to keep the cost. We are really looking forward to that. That is the first step, of course. We see lot of different new opportunities in Östrand related to more pulp production.
I think we can do more than we've done now. Also we are looking into the field of green chemicals. We've been talking about liquid biofuels and things like that. We have a great future. We have created a fantastic infrastructure around Östrand, and we shall utilize that further going forward. In renewable energy, yesterday we did announce the cooperation with St1, which we think is a perfect fit. I think we share values, which is not the least important. The first step now will be to start up a facility that can produce 100,000 tons of liquid biofuel, and we think that we can do that in a really capital efficient way as we utilize the asset and facility that St1 already has today in Gothenburg.
SEK 500 million is a lot of money, if we compare that with what others have spent in order to produce the same amount of liquid biofuel, it is rather cheap. That will be a really strong and good project. Also today, we know that we will reach our target to have 5 terawatt hours of installed capacity wind power 2020, which will start to give a good contribution at that point of time. Last but not least, our wood business. As Jerry said, that is the part that contributes most to the value of the forest. We've done some big investments in the sawmill business. We will consolidate a little bit, when we see possibilities for further development, further growth, we will also take care of them in a good way.
I think by that we are ready to open up for a Q&A, I think I can stand here, then we just hand out the microphone when it's appropriate. Please.
There are microphones available for those asking questions. Please wait for a microphone and you will have them
Thank you very much.
It is just to speak.
Great. Thanks, very educational. I'm Alexander Berglund from Bank of America Merrill Lynch. 3 questions from me. First one on Östrand. You talked a bit on expanding your marketing and sales division. I was wondering if you could give a bit more color on those negotiations of those new tons that you are going to sell. Is it common when you have a new mill like this that you need to give some kind of discount due to all the risk related to that kind of ramp up? I mean, increased discount compared to market conditions. Maybe I'll leave it there, you can answer that first.
Yeah, we can stay with that person. Well, I can start at least, someone can complement maybe. As you know, we have a super strong market as it is just now. I believe that we've done thorough preparations for the market side in the project. As mentioned before, we do a lot of work in the technical part in a project like this, but we have also done a thorough work in the market side. We feel that we will be able to place this volume rather easy as it is just now. You have lack of pulp in all areas all over the world. Long term, we think that today, we are 100% based in Europe. With this additional volume, we will place some volume in Asia, mainly China maybe, and also some volumes maybe in U.S.
As it is today, we could place everything in Europe, but long term, we think we should spread it out a little bit.
Thank you very much. My second question, just a bit on the JV that you announced yesterday. Of these SEK 500 million, how is that split 50/50 within the JV? Then also, if you maybe could expand a bit on kind of the strategic rationale of expanding in the downstream and doing biofuels rather than just selling the CTO to another player.
Perfect. I hand over to you, Mikael.
Yeah.
Please come here.
The plan is to set up the JV 50/50. When it comes to moving forward in the value chain, we can see that there are potential big value creation possibilities moving forward. That is why. At the same time, we are gaining competence with this partnership as well, and we learn more about the markets. If you look at the future potential for SCA and Ulf's picture with the biorefinery lines next to Östrand somewhere in time, this is a good way to start moving forward.
Okay, thank you. Maybe just to follow up on that. Can we look at any other business where we can see some specific return measurements in biofuels? Is there some comparable that we can look at? Sorry, I am not super educated in the-
It is okay.
Short answer, there is not really an exact comparable to the model we are looking at. I think you can see how much, it is pretty public how much HVO is worth as a product. I think it is pretty public how much tall oil is worth a lot less. If you can develop it as a significant value added, you can take a piece of. I think there are some other companies that do not exactly the same thing, but similar things, and have pretty decent returns.
Thanks. We'll look into that. I think I'll leave it there and let my colleagues ask some questions. Thank you.
Linus.
Thank you very much. It's Linus Larsson with SEB. I actually would like to come back to the announcement from yesterday and Mikael's previous presentation. It's a relatively small investment for the capacity that you're looking to produce. My first question is if you could just expand a little bit on whether the JV is going to buy in some processing capacity and how this is going to work and how this will affect the return on your, if I understand it correctly, SEK 250 million investment.
Yeah. As Ulf said earlier, the plan is to, we always seek the best synergies also when it comes to future biorefineries in Östrand to be sure that we build the most competitive facilities. In this case, our plan is to, as Ulf said, utilize both existing and new infrastructure within the refinery that St1 has in Gothenburg. That's one of the reasons I think why you get different numbers when you look at capacity versus investment.
JV has to buy capacity from St1's to cost. Cost based.
Right. Thanks for that clarification. In relation to that, just continuing on this topic and what you are potentially looking to do at Östrand. You mentioned the two potential lines to be built at some point, at some cost at Östrand. I wonder if you could just talk a bit about the timeline and the scope of such a potential investment, please.
Right now, we are looking into these three potential feedstock or asset, as I call them. The first thing is the tall oil. Those technologies are already commercial today. Today you can buy this from different suppliers. That's why we are moving forward now. When it comes to converting solid biofuels and extracting lignin from black liquor, that's technologies that are under development around the world. There are different technology developers and companies doing this. The technology development is in demo scale today. It's quite hard to say, are these technologies ready to go commercial in one year or five years period of time? Time will tell. I think the agenda of climate change and the political pressure right now are driving this development of new technologies. We think they will come. It's just a matter of when.
We want to make sure from our side of view, that we make sure that we then have all the prerequisites in place so that we have the decision in our own hands, not starting with, for example, an environmental permitting process when the technology is ready, then we have five years just waiting. That's our plan.
As you saw, it's pretty long-term.
Yeah
phased 2025. We don't know that that's.
Yeah
The case just now. We put in a lot of efforts. We do a lot of research. We have also started up our pilot in Östrand to see if we can extract black liquor to use. We do a lot of things. We think that St1 will be a perfect partner, also in this field, because they have a lot of competence, and maybe we also add some other partners. Again, the starting point is what we have at Östrand today. That is the biggest NBSK mill in the world now. The infrastructure is perfect. We have some bottlenecks in the production. We shall try to utilize this development in order also to increase capacity in pulp, which I think is a very perfect fit.
Great.
Yeah. Thank you.
Many thanks.
Maybe it's better we stand here. Oskar.
Thank you. Oskar Lindström from Danske Bank. Three questions, two to Mats Nordlander, if I may. The first one there is for the Östrand project or the potential Östrand project, what kind of a timing should we expect if this project goes ahead? When should we expect startup? What kind of investment cost, and impact on wood consumption?
Yes, there was a number of questions there. I think at this point, at the time of decision, we can't really foresee the delivery time of equipment at time of decision. I think it would be fair to assume from decision until startup, 24 months. Can be a little bit shorter, might be a little bit longer, but I would set 24 months as the reasonable project time. If we would be ready for a decision in the beginning of next year, you can calculate from there. Yeah. The second question was-
The investment cost. Would you need to do sort of major refurbishment of the site, or is it taking out the old machine and putting in a new machine?
The paper machine would be a brand-new machine. We had the choice of a lifetime extension of existing capital or non-capital as we are having there in the paper machine. We found it much more efficient, and I would say gives a better return going in with new capital because then we can increase the capacity significantly on a new machine. It would be basically closing the old machine or in parallel, building a new machine. When that is ready, we basically switch valves, we walk over to the new machine. That would give us the shortest possible downtime or basically in theory, no downtime.
Okay. My second question to you concerns the Ortviken mill. Although times are pretty good now, if graphic paper consumption in Europe continues to decline, I suppose the capacity utilization on that machine could come down to such a level that you'd have to question. Are there options to convert any of these machines to other capacity or other qualities, or is this a site that you see significant development potential for?
I think, first of all, we are In our strategic planning phase or in our outlook long term, we haven't changed our mind to the outlook of the graphic paper sector, although we are experiencing a much better or healthier situation currently. Long term and in our planning, we have the same view as we've had before. We are looking upon Ortviken as a mill site with, I would say it has a great strategic value, the mill site and its location. It's a few kilometers or a kilometers away from the harbor. We have the water, we have the electricity there. We have a lot of knowhow in the mill. Of course, we are having conceptual ideas and studies of how to utilize that, even if it would go the way you are presenting it now.
Our current focus, our main focus is extracting most of the value of what we have today.
Thank you. Just my final question is regarding growth and strategy. I don't know if it's to you, Ulf, or maybe to Toby. As you continue to grow, it's going to be in the industrial operations. Your level of self-sufficiency will go down, most likely. Do you see that as a limitation to your growth of the industrial operations, that you would like to be at a certain minimum level of self-sufficiency?
I wouldn't say that we have a clear limit, but as I said before, we are interested in increasing the forest holding if possible, if you can do that in a good way. I think that 50% is a high degree of self-sufficiency. I think that we can develop a lot more, even if the degree of self-sufficiency would go down a little bit. At the same time, we have strong flexibility now in the mills that we have with Östrand up and running. We know that we can secure and increase the value of our own forest, and that is also a good position to have going forward. It was a very unclear answer, but we are in a good position just now. We can see that we can increase industrial capacity, and lower the degree of self-sufficiency a little bit. That's absolutely possible.
All right. Thank you.
You could add it. Just a minute.
Go ahead.
In the longer term as well, we are talking longer term, the harvesting rate we expect also should steadily increase. To that extent, that brings it back.
Again, just to add, when we announced this project in Östrand, 10 years ago, when we did build a new recovery boiler, it wasn't possible to take the full step just due to the wood supply situation. That was the reason why we didn't do it as we done it now in Östrand. Now when we did announce the project 2015, something like that, many place they really contacted us in order to have the opportunity to supply the mill. We have been positively surprised in that perspective. I think also forest owners, they really understand that we need a well-invested industry in order to put value on the forest, of course.
Thank you.
Thank you very much. It's Christian Kopfer from Nordea. Just on required returns on capital. Is it possible to say anything what kind of levels do you have on required returns on capital for new projects in the industrial operations?
I was expecting that question. The short answer is we don't have a hurdle rate or a specific rate. I think we don't look at return on capital any differently than you would. We need new projects to have a good return and a return well above cost of capital and to enhance our return on capital. I think our industrial operations had 13% return on capital last year. We don't have a hurdle rate, and it's not all about one number either. Equally important is that we have realistic and reasonable assumptions for the future about how we look at maybe pricing, how we look at market growth. Different industries maybe have different levels of risk as well. We prefer not to fixate on or fix one number, but we want to continue enhancing and improving our return on capital, absolutely.
It must create value.
On the pilot plant that you are building, is that based on certain patents that you have, or are you buying into existing technologies or making that your baby?
We have applied for some patents around that technology, yes. There's no partnering in the pilot plant.
How far are you from having, say, final results from the pilot plant?
The project plan is for three years, and then we will evaluate it. We're in the middle of it right now, so it's too early to say.
Just now we produce a bucket per day, don't we?
Yeah.
Yeah.
Some days. Some days don't. It's the normal.
It's working.
Yeah.
Small scale. Okay.
It's the normal challenging going from lab to pilot and further on.
Right.
Yeah.
Finally for me.
You said that you are open to acquire more forest. Are you also open to going over to short fiber?
In the forest, we have also short fiber.
Okay, sorry. I was going to say South America.
I think we like to stay. We try to build on the integrated value chain, and that means that we like to have the forest where we have the industry.
You can have a pulp mill there as well.
Yes, you can. Then you need some money also. That's a huge investment. As it is, yes, now we prefer to stay in our integrated value chain and build on that.
All right. Hi, this is Gustav Hansson with Pareto. Two questions from my side. First of all, for you, Jonas. You showed a graph of your estimated development of your standing timber volume. I think the number was about 270 million by 2050. Sorry, I can't do the CAGR calculation in my head, so just wondering, is that a net number after your increasing harvesting volumes post 2035? Is that also then a good proxy to estimate your long-term harvesting levels?
Not needed.
Okay. As you saw, we recalculate the standing volume and the harvesting plans every 8-10 years. With the figures or the calculations that we have today with the current practices we use today, we see we will reach these 270 million cubic meter FO in standing volume on our land. That is, as I said, based on the harvesting levels that we have in our harvesting plans based on current practices.
All right, fair enough. Secondly, to you, Toby, is it fair to say that your only real financial target is to keep an investment-grade rating? I'm thinking, do you want to comment anything on dividend policy going forward, given that you have a large investment potentially in Obbola, at least with the numbers I have in my head, and keeping that rating your potential for increasing dividends in the coming years seems quite limited. Do you want to comment anything on that?
No, I think you're right. You can say we have two financial targets. One is to maintain investment grade rating, the other is to have a stable and increasing dividend. Those are our two financial targets, within that, we will look at the Obbola project, like other projects, to live within those financial targets and to grow value.
Fair to say.
I think it's important to remember, operationally, we generate a lot of cash flow. Right now, last year in the first quarter, we funded, for example, the entire strategic investment in Östrand through operational cash flow. We get a lot of operational cash flow coming through, which can help.
All right. Thanks.
We have a tight schedule for the forest excursion in the afternoon. We will have two more questions here at this table, and the other questions we will have to have over lunch and in the forest. Please.
Thank you. Nick Aliofs from Kepler Cheuvreux. Two questions from me. The first one is around forest preservation and potential political risks. You mentioned that these must become more efficient. Could you please elaborate a little bit around this?
Efficient nature conservation. Well, there is a lot of focus on areas and % and so on. We see that the main focus of nature conservation is really preserving biodiversity, meaning that you need to preserve biotopes, habitat, species, and so on. That can be done in various ways in order to increase the productivity and the efficiency of nature conservation as well. That's not really where the general debate is going, but we definitely see that you can get more conservation value out of the same land. You can balance production and conservation in a better way, and that we are trying to do.
Okay, how difficult is this with the current political landscape to get sort of acceptance for your way of thinking?
There is a quite heated debate, but the political decisions are so far fairly balanced, I would say. We have an election approaching. There are parties that need to make a position and a stand. Let's see where we are after the election.
I must relate to the current situation. More and more, and not least politicians, they see the forest as the solution to mitigate the climate change. Also, the fiber should be used for anything, for liquid biofuels, for renewable materials and things like that. In one way or another, you need to balance. I think we have a more balanced discussion today than we had yesterday, to be honest.
Okay. No, that's good. Then my second question is around wood costs and the changes we see with Östrand expansion, Metsä Group's expansion last year. Potentially, there is at least one Chinese pulp mill in northern Finland. Two questions really within that. Why do we see all of these pulp expansion plans in the Nordic region when we've learned historically that you should build pulp mills in South America?
Can we take that one first?
Okay.
I think that the reason for that was that we saw also a lot of closures in the mechanical pulping industry. That is the main reason. Also, as Jonas mentioned, the forest is growing faster and faster, and you had a surplus of wood for a while. If you look down to the situation that Right when Tofte was closed down, that was a real surplus of wood. The wood was more or less worthless for a while, which also had a big impact on prices and things like that. I think that was the main reason for all these three projects coming on stream at the same time, Värö, Äänekoski, and Östrand. As you can see us now, we are lucky, of course, but the market can assimilate more or less everything on that.
Okay. The obvious sort of last question, wood pricing, how should we think about that going forward longer term?
You can think whatever you will. I mean, it's a market. For us, we have a rather strong position. We have our industry where we have our own forest, and you always ask a lot about why other companies make such money on their forest and we don't. It is a part of the game, more or less. We have a really strong position, and we are not afraid of the wood supply, and we think that we can do it in a cost-efficient way.
Thank you.
Robin Sandell with Carnegie. Perhaps to Ulf. Historically, this industry has been quite cyclical. For almost two years now, we enjoyed a very good market situation basically across the board. There are a lot of structural things you are talking about. Is this now only a cyclical upswing? That's sort of how a lot of people look at it. You've been in the industry for a very long time.
Is it really so that we have sort of more structural elements of the fiber substitution, plastic panic, Asia, a shortage of easily accessible forest? Is this really driving demand? What is your opinion? I know it's a broad question, but it's probably a very important question.
It's so hard to say. Just now we are in a very positive momentum, as I said. We have strong markets in all geographies, in Asia, in Europe, in the U.S. at the same time. We can see some fundamentals, as mentioned already. The forest and forest industry is seen as some kind of solution to mitigate climate change, which is, of course, positive. For us, being in the fresh fiber business, we are really privileged just now as it is a problem to get access to recycled fiber. Also, we have the weak Swedish krona, which is also affecting result for Swedish companies a lot just now. This situation will not remain, but will it be less or more cyclical than in the past? It's really tricky to say.
I think we have some positive elements now that we haven't maybe seen in the business in the past. Of course, it will continue to be cyclical.
Right. Thanks. Then in terms of pulp, you will be a major market pulp sort of player in six months' time or something like that. Now, what do you see in terms of supply-demand for softwood in the midterm?
As it is just now, we have a super strong market, no further investments are announced up till today. From an announcement till we have something up and running, you have three years at least. You will do some bottlenecking, and you will do some capacity creep and productivity creep and things like that, but no major things. That, of course, will keep the balance on a healthy level. If something else, will we have a war? Will you see something else that can dramatically change the situation? We don't know, really. As it is just now, it is strong, and it is a balanced situation, and no capacity announced, neither in short fiber or long fiber.
I think we said before as well, we see 1.5%, 2% growth year after year in softwood growth. That's driven by the growth in tissue and packaging grades around the world. The three projects Ulf mentioned in Värö, Äänekoski, and Östrand basically amount to that growth over the period of three, four years, or four, five years. The capacity growth is not higher than the growth in the market. It's not really changing the balance picture. If anything, more capacity will be needed.
Sure. In terms of the wood cost, why would wood cost go up in 2019, 2020, as we have basically no capacity coming on stream? You would assume Värö and Östrand and Äänekoski, this is what we have now, and it's this year. Next year, and 2020, there aren't any. The demand increase will not be that high. Is there something that I'm missing? Is the fact we have used the situation?
No. I think perhaps you already answered, we see potentially some higher wood costs from having to source from further away because of the higher wood usage in Östrand. We expect that to be balanced or overcompensated by the fact that we'll also be selling green electricity from Östrand, which will be an additional income. We don't see any dramatic. We see quite a stable situation at the moment.
From time to time, this first quarter, you also saw, especially in the southern part of Sweden.
They had some struggle with the wood supply, and the reason for that was the wet winter in that part, and in this area, we had two meters snow. That is also a sign of our strength because we have our own organization. We have 50% degree of self-sufficiency. We never really had a big problem with our industry. We didn't have to stop the industry, just due to the wood supply. That, of course, is driving the prices. If you have that kind of climate for a while, then that will drive prices.
Thanks. Then the last question to Toby. Don't you think that the size of forest land is an extremely important factor in terms of valuation of land? Because the sample you have is sort of 0.01% of the total. There must be a totally different sort of reasoning if you buy 2.6 million hectares of forest land, or if you buy a small sort of part on the backside of your cottage.
There's very few examples of big pieces, but I think what I would say is if a legal entity comes up for sale, that commands a premium, because then you have a much bigger potential buyer universe. Companies like us can buy legal entities. If anything, a forest owned by legal entities commands a potential premium. Yeah, it's very hard to say when there's no benchmarks, how a large plot compares to a small plot.
As long you have a zero interest environment, then of course, forest holdings are interesting for many investors.
Yeah, for sure.
That's for sure.
Yeah. Thank you very much.
Thank you. By that, we conclude the indoor session of this Capital Markets Day. I say farewell to those of you who have participated through the webcast. Thank you, because the rest of us will now go for lunch. Some instructions regarding the lunch. We will leave here, we will take a walk in the sun to the manor house, the white building that is located a bit east of here, and there you will be served lunch. After that, you will walk some distance back in order to get onto the buses. On the way back, you will have backpacks. Backpacks with all the equipment you need for the forest excursions. It will be extreme expedition conditions, as you realize. You will also have information in these backpacks, and you can sit on them. You don't need them for the lunch.
Lunch by the manor house, come back to the buses for the forest excursion. At about a quarter to 1:00, I will start urging you to go and get your backpacks and get onto the buses. 1:00 sharp, the buses will leave. Otherwise, we will miss the plane on the way back, and that would be a pity. Thank you very much for this session. Look forward to the rest of the day