This presentation on SCA's report for the third quarter. My name is Björn Lyngfelt. I'm a Senior Vice President, Communications of SCA. This is the first report of a full quarter as an independent forest products company. We will present the report. The presentation will be made by Ulf Larsson, President and CEO, and Toby Lawton, our CFO. After the presentation, there will be time for questions and answers. Please, Ulf .
Thank you for that, Björn. Happy to give you some more details about our third quarter, which is a stable and strong quarter, I would say. We have a continuous good market in all regions. We see a good market in Europe, but also in U.S. and in Asia. For all product areas, more or less, we also have strong market and price increases, with an exception for publication paper, as we have mentioned many times before, where we have structural challenges. Sales growth during this quarter was 12%, driven by volume and price, to some extent mitigated by a negative currency impact. EBITDA was up a little bit more than SEK 200 million, or 25%. Main driver, again, volume and price. Also, we have seen during this quarter a limited effect from maintenance stops.
If you remember quarter two this year, we had almost SEK 150 million in negative result impact. This quarter, just SEK 16 million. In quarter three 2016, it was about SEK 46 million. We have still continued planned extra cost related to the Östrand project. Again, that is training personnel in order to prepare them to be ready for the start-up in June next year. We also have some operational costs. It is a challenge to run the old mill at the same time as we try to build up the new one, but it is according to plan, I would say. Last but not least, we have had a stable cost level during the quarter, and also production has been on a good level during this quarter, which is, of course, really interesting when we also have a strong market.
Östrand project is progressing according to plan, both when it comes to money and to time. We will be able to start up quarter two next year in June. Up till today, we have spent about 60% of the total budget for the project, but the whole project according to the plan. When we have a strong market as we have just now, it is really important to focus on cost and also productivity, cost efficiency. That will also be our main focus now going forward. At the same time, of course, we have a strong focus on delivering on the big project in Östrand. By that, I turn over to our four segments and start with the forest. We have a really stable situation in the forest. We have a good supply and availability of wood. Price is quite flat in our region.
We have seen some price increases in the southern part of Sweden, but in the SCA region, we have a flat price development. We have also now started to prepare for the start-up of the new project in Östrand next year. By that, we do what we can to prepare logistical systems. We have also started to buy a little more wood, and we also increase inventory step by step now up till June next year. Sales remained flat this quarter in comparison with Q3 2016. EBITDA was up a little bit, but that is connected to a higher share of harvesting from our own forest. If we turn over to wood, we have a strong quarter.
We have a strong underlying market, as you can see on the left-hand side, we have been able to increase prices by between 1%-2% per quarter since the first quarter 2016. That has also been the case Q3 2017, in local currency, but we have had a negative currency effect during the third quarter, and that is mainly connected to the British pound. The strong market step by step increasing prices. Sales was up 19% this quarter in comparison with Q3 2016, and EBITDA was up 31%. As told before, we have been able during the past 20 years to increase the sales in the wood business by 10% per year in a profitable way. The driver just now is the exposure through the BM trade, and that is a special business, and today it is 45% of what we do in wood.
In that business, we supply 50% from our own sawmills, we buy 50% externally. It can be wood, but it can also be sheet materials and other things, just in order to offer a complete portfolio to our customers. When we trade from external companies, that give us a good return on capital employed, of course. On the other hand, it will have a lower margin than our, let's say, traditional business. We turn over to pulp, we have a strong pulp market. As you know, peak prices today are at SEK 920 per ton, and we have now seen announcement on SEK 960. As mentioned before, we have some negative impact on the result from the big project, training personnel, operational costs and write-offs, and things like that, which is absolutely according to plan.
Sales was reasonably flat this quarter in comparison to Q3 2016, and same goes for EBITDA. As mentioned earlier, also in Östrand, we had a substantial maintenance stop in Q2. This quarter, we haven't had any impact from maintenance stops. We will also later on give you some more details about the project, and Toby will provide you with that in a couple of minutes here. In paper, you know that we do about 50% of the sales in kraftliner and 50% in publication paper. In kraftliner, if we start there, we have a really strong market. If you look on the graph to the left-hand side, you can see that we have been able to increase prices quite substantially since quarter three 2016.
We've seen announcements of EUR 50 plus EUR 50 plus EUR 50 for unbleached kraft during 2017. We have seen at least two-thirds of that coming through to EBIT level. That, of course, gives us a positive effect when it comes to both net sales and also EBITDA. In publication paper, we still have a challenging market, not the least for coated products. In our case, we do two-thirds of, we do in publication paper, we do in coated papers, LWC. We had a price decrease in the beginning of this year with about 2%-3%. You see also on the graph that we have had a continuous negative price development, that is more related to mix and other stuff. It is challenging in the publication paper market.
It is a little bit better on the uncoated side, where we do then produce about 250,000 tons. Sales, nevertheless, was up 13%. EBITDA was up 51%, that is mainly due to high kraftliner prices. By that, I leave, hand over to you, Toby.
Thank you, Ulf. Good morning, everybody. Firstly, I can show you our profit and loss account for the third quarter. You can see here we had a net sales in the quarter of SEK 4.2 billion, a growth of 12% versus the same quarter last year, which, as Ulf presented, is primarily driven by prices and volumes. EBITDA, SEK 1,049 million, a 25% growth in EBITDA, which is the strong price effect that's driving improvement in EBITDA, which then gives an EBITDA margin you can see of 24.8% for the quarter. Year to date, we now have an EBITDA margin of 21.6%. Our EBIT is SEK 776. You can see we have no items affecting comparability this quarter because earlier in the year, we had the Sylva projects, which was splitting the company and the items affecting comparability.
That's now closed and completed. We have no items affecting comparability this quarter. We have financial items of SEK 11 million. Last year, of course, we were still in the comparable figures. We were still a part of the bigger SCA, so the financial items then are not really relevant as a comparable figure. We have net profit this year then, in the quarter, of SEK 627 million. If I move on to show you a bit the development per business unit, I'll try not to repeat too much what Ulf presented. You can see in the forest segment, we had a very stable top line, stable volumes, stable prices. In the bottom line, we had a 25% EBITDA margin.
Here it's slightly better than last year, slightly lower than the second quarter this year, and that's always driven mainly by the share of harvesting of our own forest. We had a slightly higher share than we did in the third quarter last year, but a slightly lower share than we did in the second quarter. When it comes to the wood segment, we have a strong growth versus last year, 19% versus last year. There's a bit of seasonality versus quarter two, which is usually the strongest quarter. On bottom line, we have a 12% EBITDA margin.
The effect of some higher volumes and higher prices coming through with a bit stronger EBITDA margin, but also a pretty stable development in EBITDA margin, which is also reflecting what Ulf mentioned, that our share of sales in the building materials trade gives us a more stable development when it comes to margin than we would otherwise have. When it comes to the pulp segment, we have a slightly lower top line than we did last year, a bit driven by currency, a little bit volume, but helped by the higher prices we have this year versus last year. The margin, you can see we're now 25% EBITDA margin. The biggest effect here is actually that we had a big maintenance stop in the second quarter, which we haven't had in the third quarter.
Of course, the pricing environment is also helping a bit when it comes to margin. Paper, we have a strong growth as well in paper, primarily pricing on the kraftliner side. On publication paper, we have had stronger volumes in deliveries in the third quarter, but that's primarily due to phasing of deliveries. It's not really due to an underlying volume growth. EBITDA margin, of course, a strong EBITDA margin in the paper segment this quarter, really driven by kraftliner pricing. Just to come to then the waterfall on net sales, here quickly you can see it's driven by price and volume, but positive pricing for wood, for pulp prices, and particularly for kraftliner prices. In terms of volume, we've had growth in volume in the wood segment and publication paper.
Pretty flat for volumes in kraftliner and a bit lower volumes in pulp, and a small negative currency effect in the quarter. When it comes to quarterly EBITDA deviation, by far the biggest effect is in terms of price mix. In there you can see, as it says on the slide here, it's really the higher prices for wood, pulp, and particularly kraftliner that are driving the increase. Volumes is a positive effect, but a smaller effect. Those two are really driving the improvement in EBITDA versus last year, the 25% improvement that I mentioned. When it comes to the cost side, raw material cost and energy are very stable. A small improvement, but that's driven mainly because the pricing is actually slightly higher for raw materials and energy, but the efficiency and the yield have offset the higher pricing environment.
We have a slightly better performance, very small, slightly better performance than we had last year. Currency, a negative effect in the quarter versus the third quarter last year. A slightly negative effect versus the second quarter, by the way. On the fixed cost side and the other side, we have a small negative, which is really driven by the project cost in Östrand. Aside from the project cost in Östrand, when it comes to fixed costs, we have a stable development, and a focus on keeping stable cost line is there. The EBITDA margin, as I said, has gone from 22.3% to 24.8% this quarter. A little bit on cash flow. We had a cash flow of, you can see there, SEK 525 million in terms of operating cash flow in the quarter.
We had a strong operating cash surplus coming through from the profitability. The working capital change has been negative, which is primarily driven by growth in terms of volumes and prices. When you look at working capital in relation to sales, it's stable with the last year period. Current CapEx, we have about SEK 400 million year to date, SEK 129 million in the quarter in terms of current CapEx. You can see at the bottom here, we have strategic CapEx, which is the Östrand project, where we've invested SEK 2.1 billion so far in the year. Now, we have a bit more information in the report on Östrand, and I'll just present a couple of slides to give a bit more background to Östrand.
Of course, the main background is the growth in the bleached softwood kraft market, which over a period of a few years has been growing now for 1.5%-2% per year on average over recent years. That's the background to the investment. Of course, we expect that growth to continue, and we expect it to be driven by the growth in demand for virgin fiber, which is both in tissue segment, particularly, and packaging segment. That's the background. When it comes to the investment, as I said, we've invested SEK 2.1 billion so far this year. In total, so far, we've invested SEK 4.7 billion. We expect another SEK 1 billion to come in the fourth quarter this year and the remainder to come over 2018 and 2019. You can see there SEK 1.6 billion in 2018 and SEK 0.5 billion in 2019.
When it comes to the timing and cost, we have a startup which is planned for June of next year. We expect a ramp-up period of the new mill to come up to full speed of some 12-18 months. When it comes to next year, 2018, we expect the capacity to be pretty much in line with 2017. That's because we will have an extended production stop in connection with the startup, which will be around 45 days. The volume lost during that startup period, during that production stop, will be compensated by the increased capacity in the mill after the startup. Once during the startup period, we also do expect there will be some increase in direct costs, particularly with some increased maintenance costs, increased costs for chemicals and energy in connection with the startup.
The startup period, especially initially, will have some cost effect. In 2020, we expect to be the first full year where the mill is at full new capacity. 2019 will be somewhere in between, and 2020 will be the first year where we will be at the capacity of 900,000 tons of NBSK. When it comes to the cost position, we expect the cash cost per ton for the pulp mill when it is up and running at the full new capacity will decrease by approximately SEK 350 per ton based on primarily indirect costs. That we expect to be the main change in terms of cost position on indirect side. That will put Östrand in the top quartile amongst softwood kraft pulp producers globally.
When it comes to working capital, as Ulf mentioned, we do also expect, of course, an increase in working capital in connection with the start-up as the business grows. That will come probably quite some effect in the first half next year as we proceed towards the start-up. Finally, a little bit on the balance sheet. Our capital employed at the end of September was SEK 42 billion , an increase versus the year-end last year, which was around SEK 40 billion, primarily due to the Östrand project. We have a net debt of SEK 5.8 billion at the end of September, which is 1.7 x EBITDA, and our net debt to equity at the end of September, 16.1% [Non-English content].
Yeah. Thank you. To summarize, we have a strong, stable market situation in all regions. We have increasing prices in all areas except from publication paper. We had a strong sales growth in this quarter, and also EBITDA was up a little bit more than SEK 200 million, or 25%. The big project is progressing according to plan, and main focus we have now in a strong market will be cost efficiency and, of course, to deliver on this big project. We have seen a lot of interest in our forest, which is nice to see, and we also get a lot of questions around the forest. We have also decided to perform a capital markets day with a forest focus in May next year.
Th at will be held in Sundsvall, and we will also in the beginning of next year, send out an invitation. Hope you can come there. By that, I think we open up.
Yeah, that was the presentations. Now we will open up for questions. There will be microphones close to you. If we start over there, Andreas, could you provide the microphone?
Thank you very much. It's Linus Larsson with SEB. Congratulations on a very strong set of results for the third quarter. I wonder if I could just ask a bit about, as it appears, a very strong market environment and how it's affecting you in the wood business. You had volume growth of 16%. Could you comment a bit upon that and whether there is something extraordinary happening here, or we should expect this level of volume going forward? Maybe that's the first question.
In the volume growth, this quarter is mainly connected to what we do in the [BM trade]. You have a seasonal effect. The strongest quarter for BM is in the second quarter and in the third quarter. That is one reason. You could see on the slide that we've had increasing prices, and that has also, of course, have had a positive effect on the growth. For us, the most important thing is to keep up the profitability. The growth is not the main focus, really. If we can find a way to grow and do it in a profitable way, of course, we will do it. Maybe that's an answer.
Yeah. I mean, as we go into the fourth quarter, there is nothing, if we look on a year-on-year basis, we should expect a continuously strong performance in wood.
We have a reasonably strong market out there, so no big things will happen, I think.
You could also mention we had a big investment phase in our sawmills in recent years, and particularly last year, there was still some of the ramp-up going on in particularly Bollsta and Tunadal as well. There's been some of that volume from those investments is coming through this year as well.
Especially in Tunadal, it is the first year with the Tunadal up and running, and that has been a success. The ramp-up curve was quite aggressive, but we do a little bit better than we thought. Tunadal is working well. It is the fastest sawmill in the saw line in the world. Now we can see it with our own eyes, which is positive.
Great. May I also ask on the kraftliner side, there as well, you've had a very strong market environment.
Yeah.
Could you tell us a bit about the phasing of the price increases and what to expect in terms of your P&L in the fourth quarter, primarily? Are there further price improvements coming through in the fourth quarter?
As I said, we have had the three price increases, EUR 50 plus EUR 50 plus EUR 50. I can say that we've seen about EUR 110 coming through up till today. I think that we have something left in the fourth quarter, s omething left.
Finally, I don't know to what extent you can or want to answer that, we're approaching the end of the year, and focus will turn to dividends. Is there anything you would like to comment around your dividend at this time of the year?
No.
[Non-English content].
Please. Yes. Thank you very much. Good morning. This is Christian Kopfer from Nordea. Just a couple of questions from my side. Firstly, just to follow up on Linus' question on kraftliner. You mentioned, Ulf, that about EUR 110 per ton was realized.
Yeah.
Was that realized for the full third quarter, or was it in steps realized?
It has been gradually implemented.
Okay. If prices stay at that level, then profitability should increase.
A little bit.
Okay, fine. On FX, because there has been a lot of movements on the FX side as well, how much of that was approximately realized in the third quarter?
Sorry, on the?
On the FX side, on the currency side.
You mean how much ?
Due to hedges and so on, how much are the latest movements?
We've hedged around a third of our euro flows through the year. It is offset to some extent by hedges. The currency differences have not been that big when you look quarter versus quarter last year. We price kraftliner primarily in euros, so that does have an impact. If you look going forward, you need to take that into account.
On group level, on currency, not just on paper side, i s it the same thing there that most of the currency fluctuations was in?
I think it was the third. A third was hedged in the result, two-thirds comes through the result.
Okay. When do you expect to announce financial goals, leverage ratios? What do you expect over time and so on?
As we said, we do not have a plan to announce financial goals. Where we stand, when it comes to the dividend, for example, that will obviously be clear at the start of next year. We have no current plans to announce financial targets.
We have the ones that we had before.
Yeah.
We know them, so that is what we stick to just now.
Okay. Finally from me then, on round wood prices, we've seen them coming up a bit in the southern part of Sweden, but you have managed to hold them stable, as you say, i n your parts. What is the main reason for that?
Normally, it is a supply and demand question, and we have good availability of wood as it is just now. It is a stable market.
You're not seeing any signs of increasing prices?
No, not just now, no. It's stable.
Okay. Thank you very much.
Thank you. Please.
Martin Melbye, ABG Sundal Collier. Questions on the Östrand project, please. You have a slide now showing that the cash cost per ton would be reduced SEK 350 per ton once up and running. You didn't give us the starting point. Is that on purpose, or can you elaborate about that one?
Well, I think when it comes to the indirect costs, the indirect costs are something that are the biggest impact in the project with the direct costs. The impact from the growth in the volume without a big increase in indirect costs is SEK 350 per ton. The starting point, or whichever year you look at, is impacted in our results by wood prices, by pulp prices, by energy prices. There's a lot of other impacts on the result, but the impact from improving the indirect cost coverage is going to be SEK 350 per ton. If you look back, I think we've given four years of history now for Östrand end results. A couple of years have obviously been impacted by the project, and we've explained how much of the cost is impacted by the project.
Yeah, you can judge with a bit of history, and then, of course, it depends on the pricing environment, and you need to take your own assumptions when you look at what you think the pricing environment is going to look like.
Fair enough. Just briefly then, how do you define indirect cost? That varies a lot between different companies.
It's the fixed cost. It's not wood, it's not energy, it's not chemicals, but it's primarily the people and the other fixed costs around the mill.
In terms of what you have to do left until startup, when will be the most critical month, so to say? Can you please tell us about that one?
As I announced, now we will have 45 days stop. That stop, we need to extend the recovery boiler. That will be challenging, no doubt about that. We have done all preparation that we can do, and so far so good, but it will be a challenging period, definitely.
Thank you.
The positive thing just to add is that otherwise, we have a sequential startup. We have already started the wood handling department and different parts of the mill, but the recovery boiler will be the big thing. Please.
Hi. Oskar Lindström from Danske Bank. A lot of good questions here already. I wanted to ask a little bit about your forest operations. You mentioned that one of the reasons behind the stronger results in the group was higher harvesting in your own forests compared to, I presume, previous quarters.
On that note, is this going to be a new normal level? How does that work? If you increase harvesting in your own forest, presumably you would have, at least on EBIT, a negative impact from lower revaluation of forest land values.
I can take the first part, and that is you see a seasonal effect.
Let's say the harvesting level is the same as it's been before, but that has been disturbed in the past just due to a couple of storms that we had. In also 2016, we were impacted by the storm. I would say that now we are on a normal level, and the seasonal pattern is also quite normal.
I think on the second part, in the forest, we both source externally sourced wood and from our own forest. When we source externally sourced wood, it's sold on to the industries without a markup. It's at cost sold onto the industries. When we harvest and sell on from our own forest, of course, the margin from that comes through to the bottom line. The proportion that we're harvesting from our own forest has a pretty strong impact on the bottom-line performance. I t is offset slightly by the revaluation, because if we're harvesting more of our own forest, the net growth is slightly lower. You will see when we harvest more of our own forest, the revaluation effect is smaller, but overall, it's still a bigger effect on the bottom line.
Could you sort of give some guidance on the sort of rough relationship? If you increase harvesting in your own forest by, let's say, 10%, is the net effect on group EBIT 7% or 5% or 9%?
I think it's hard to say. I think it's primarily a phasing impact, is what I'd like to say, because I think we're clear about how much we expect to harvest during the year. I think it's 4.3 million cubic meters this year. It will phase during different quarters depending on when we choose to harvest. We stick to the annual harvesting plan, but it's the phasing changes.
All right. My second question, if I may, is on pulp and the Östrand project, where you, like everyone else, your average realized price is at discount to the RISI or PIX list price. When I look at this over time, it seems like this discount is increasing. My first question is that a correct observation? Second, going forward, when you start up the new mill, is there any reason why we should expect a change to that discount in either direction?
You have a discount. You're absolutely right about that. The trend in the past has been increasing discount rates. Now we have a really strong pulp market. It's always a negotiation, of course. You have a connection between the official price, so to say, the PIX price, and the discount rate, that's for sure.
I think that you will continue to have these discounts. What was the other question?
When you start up and start delivering from the new mill with sort of increased volumes, should we expect that to have any impact on the discount?
No, I don't think so.
I don't think it'll have an impact on the discount. We will increase our share of sales to markets further away. That means we will have some higher logistics costs, which will impact net mill prices. Yeah, we have no reason to believe it's particularly discount-related .
That depends on the price level for the mill, higher spot price than we have in regular business.
If I just may then, the sales number reported for your pulp division, does that reflect net mill price, i.e., after logistics costs? Is it a gross sort of number?
No, it's before logistics cost.
Logistics costs are just taken up as any other cost?
Yes.
Yes. All right. Thank you very much.
Thank you. We have a question from the telephone. Martin Melbye from ABG, please.
Good morning. I'm thinking about the forest asset value. You got the SEK 31 billion kind of set by the previous management team. When you look at this valuation now at the year-end, the balance sheet, what are you thinking about the SEK 31 billion? They did very big changes before you took over, but it ended up at the same old SEK 31 billion.
I wouldn't say there were particularly big changes, but there was a change to the discount rate last year. It's too early to say what assumptions we'll have at the end of this year. When we look, for example, the pricing environment, we're very much in line with the pricing that is assumed in the accounting valuation of the forest today. We don't see any particular sort of indicators that there will be big changes when it comes to that.
Thank you.
On Östrand, say, at a day like this, stock is up 6%. Should we put in some safety measure there and assume some kind of ramp with cost and direct cost in 2018?
I mentioned, I think, as I went through, that there will be some impact on direct costs during the ramp-up, which is due to the ramp-up, which is things like the energy cost as you start up. It's the chemical cost as you start up. It's a lot of maintenance costs during the start-up. Yes, next year, there will be a lot of costs associated with the start-up. Okay.
You won't specify a number?
No. At this stage, it's too early to say a specific number.
Good. Thank you.
Yeah.
Thank you. We turn over to Alexander Berglund, Bank of America, London.
Hello, gentlemen. Just a quick question on your wood sourcing. I believe on a full year now, you have about 50% from your own forest. Just thinking a bit with Östrand, how is this going to change? I guess you're not going to be able to keep up that 50%, so is it going to go a bit lower? That's the first question, and also just following up, what does this mean for your costs on timber? With Östrand becoming larger, does that mean that you get a better cost position because you get a better bargaining power, or does this mean that wood prices should go up because you need to buy more from that region?
Okay. It's obvious then, when we start up Östrand, we will need between 2 million cubic meters and 2.5 million cubic meters more pulpwood. The plan just now is to buy that in the neighborhood of source from small private forest owners, and we have already started that work. We also bring in some wood from Norway. We do some import from the Baltics, where we have our own company for that purpose, and we also buy some wood from Scotland. We are rather well prepared. I think it will be a rather stable situation. As you know, some capacity has been closed down in Sweden during the past years, and we have a rather balanced situation. We'll not speculate about wood cost.
We have a good base, slightly less than 50% when we start up Östrand, but I think that we have a really good position when it comes to supply Östrand in a safe and cost-efficient way.
Okay, thanks. Very clear.
Thank you. We turn to Robin Santavirta, Carnegie, Helsinki.
Yes, good afternoon. Could you comment on, in terms of pulp, where do you sell? How much do you sell, for example, in Europe, how much do you sell in China? How do you expect that to change? I think Toby said that as Östrand ramp up, you will sell probably more to China.
Today we are 100% focused on Europe, more or less, one can say. In order to place 500,000 tons of NBSK, I think it's fair to guess that we need to put at least maybe 200,000 tons outside Europe. That will, of course, be the balance. We will not destroy the European market. Today, we're 100% focused on Europe.
Right. Perhaps some 200,000 tons sold outside of Europe.
Depending on the market. Just now we have a strong market, if we had more pulp, we could sell much more in Europe. It depends on the market. We have to be flexible there, I would say.
We think we're going to have attractive products that some Far East markets will be quite interested in as well. Yeah.
As we see as now, it is a strong market, and after Östrand we have no new capacity on stream. I think it will be a fairly stable market going forward.
Thanks. Could you comment on the prolonged maintenance, the 45 days? As I understand, you will then start probably early May. Could you provide some kind of ballpark numbers, of course, for that maintenance stop?
I think, like I said earlier, it's a bit too early to give a number in terms of the cost impact, either the maintenance stop or the cost impact during the startup. Of course, you can count the 45 days out of 365, and you can see the volume impact that that will have in terms of, if you like, lost production volume. That's obviously the biggest effect.
Right. Could you share some kind of view related to what kind of average capacity utilization you would have in H2 when you start up the new production capacity? Higher the average for H2 than the run rate at the end of the year. If I do the math, and just really simply, I reach sort of an average capacity utilization of 70 if production capacity would be in 2018 the same as in 2017. Is that number totally wrong?
No, I think that's not too far away.
You have another factor also, that is the quality. One thing is capacity and volume, but when you start up a new mill like this, we need to take care of all quality issues. We will not produce volume with bad quality. We have to do what's needed to handle that.
I understand. Of course, yeah. Could you comment what is usually the amount of capacity utilization you need in that kind of mill in order to reach breakeven?
I think obviously during the startup curve, it's a lot of work to get the mill up to the new capacity level. That takes time. When you get to the new capacity level, then obviously the bottom line, all else being healthy, then the bottom line is healthy. I think we're not particularly focused on a kind of breakeven volume. We're more focused on making sure the startup goes as smoothly and as quickly as possible.
Of course. Thanks. I understand. Those were my questions.
Thank you. We have Mikael Doepel. I hope I got that right. Handelsbanken, Helsinki. Please.
Yes. Thank you very much. I have two questions. First of all, on Östrand, when you mentioned the cash cost, which will be SEK 350 per ton lower once everything is in place. When I do some calculations around this and assuming the, roughly speaking, current pulp prices and currencies, I end up with the return on capital employed, or basically return on the SEK 7.8 billion investment of around 10%. Could you confirm that this is in the ballpark at least? Secondly, on the kraftliner market, what we have seen now is that the recycled paper prices have come up a bit in Europe, given the export limitations into China, which could put some pressure on testliner prices, which, and again, it could have some indirect effects on kraftliner. What's your take on the situation in that market right now in terms of pricing?
I take the first point. I think we're not going to give a return figure or our own internal calculations. It of course depends on many factors outside our control, like pulp pricing, not the least of them. As we try to explain, the biggest effect is the effect on indirect cost, which is this SEK 350 per ton, which we've explained. That's what we want to give you in terms of estimating the biggest effect. When it comes to other effects, you need to make your own judgments there. On the second question.
You're right, and we're not speculating what's going to happen in the future, but we have seen a little bit lower recycled fiber prices in Europe for the moment being. On the other hand, underlying growth is really strong just now. As I said, for pulp, if we have more kraftliner, we could easily sell it wherever, also to China. So far we haven't seen any effect. We haven't seen any further price increase announcements, but neither the opposite. It is a stable market now with a good underlying demand, I would say.
Okay. Could I just add one question to the pulp outlook? As you mentioned yourself in your presentations, there's some further price hikes announced now and also for November. Do you expect these hikes to go through?
Yeah, we don't speculate in prices. We have also seen the announced price increases, and if they come, we will follow.
Okay. Those were my questions. Thank you very much.
Thank you. We have no more questions in line. I'd like to thank you all for taking part in this presentation. I would also like you to put a note in your calendar for the 22nd of May. I hope and look forward to seeing you in Sundsvall next spring. Thank you very much.