Good morning and welcome to this presentation of the third quarter SCA results. With me here today, I have President and CEO, Ulf Larsson, and CFO, Andreas Ewertz. Over to you, Ulf.
Thank you for that, Anders, and also from my side, a warm welcome to this presentation. When I summarize the second quarter, I can state that we, for the fifth quarter in a row, reached an EBITDA margin of 50%. We have a continued strong cash flow in the company, and by that, we also finance all investments, not just our strategic investments, but also our current CapEx through our operating cash flow. Last quarter, I said that , the big Obbola project, was on budget and ahead of time. That goes also now for the big pulp project, the CTMP expansion in Ortviken. That one is also on budget, but one quarter ahead of time. We will start to ramp up this line in the fourth quarter.
The new paper machine in Obbola is now running 24/7, and we have started to deliver paper to our customers, and we have also seen, well, boxes produced from this paper with good quality, which is, I would say, a real success. Sales was in line with Q3 last year. Volume-wise, we've had a weaker market in solid wood products, as we guided for already in Q2. We have also seen some negative impact from the ramp-up in Obbola, but that is more a lagging effect, due to the fact that we are ahead of the time schedule. Otherwise, we have seen a positive currency and price mix effect.
EBITDA is down 7% in comparison with Q3 last year, and that is due to already mentioned lower prices on wood products, somewhat lower delivery volumes, and of course, we are also hit by cost inflation and mainly in distribution, and also we have seen price increases when it comes to wood raw materials. On the positive side, we can note pulp prices and Kraftliner prices, which both have reached record high prices during the third quarter. Also, we have had lower energy costs this quarter in comparison with last year. This morning, we have sent out the press release saying that we will, from first of January next year, present renewable energy as a separate segment.
The reason behind this is that we are already today a leading producer of renewable energy, and we will continue to grow this segment. You know that we have already today 20% of installed wind power capacity on SCA land, but from now, we will start to invest our own money into wind power. We also have a couple of ongoing projects within the field of liquid biofuels. Some KPIs. We did close to SEK 2.5 billion on EBITDA level, which gave us a healthy EBITDA margin of 50%. The return on capital employed for our industrial operations, calculated as the average for the last 12 months, was 44%. The leverage this quarter landed on 0.8, despite our large ongoing investment program.
As I said, we finance all our investment, not only these big strategic projects, but all our investments with our operating cash flow. I will say some words about each segment, starting with the Forest. In Forest, we have seen increasing wood prices, especially when we compare the situation we have just now with what we had one year ago, as you can see in the bottom left in the graph. We have also seen increasing prices sequentially. When we compare Q3 with Q2, especially for pulpwood, we have had a price increase of SEK 50 per cubic meter in softwood and SEK 70 per cubic meter in hardwood.
We don't import too much wood as we have a high degree of self-sufficiency in this area, but nevertheless, if we compare the price level today with what we had one year ago, for softwood, we have gone from EUR 40 per ton up to more like EUR 90-EUR 100 per cubic meter. In birch, from EUR 50 up to EUR 125, and we look into energy wood, we have gone from EUR 25-EUR 90 per cubic meter. Otherwise, sales was up due to higher prices, and same thing with EBITDA. We had a positive revaluation effect of our biological assets, around SEK 70 million. We have also this quarter harvested around 90,000 cubic meters more in comparison with last year.
As said, I mean, we have also seen cost inflation, mainly in the forest side due to higher fuel prices, which have had, of course, negative impact in transportation, but also for harvesting wood. Well, I said already last quarter that we have a lower global demand in our wood business, and by that, also reduced deliveries. The reason behind this is, of course, that we have a uncertainty in the market due to cost inflation, due to higher interest rates, and so on. We have seen that not least the demand in DIY and builders merchants has not been especially weak while new construction still is on an okay level. Of course, before new projects will be started, there will be people hesitating for that, of course.
On the other side, we have also during this period now seen curtailments and by that also decrease in production. The estimation from my side during second quarter was that we should see reduced prices by around 25% in the third quarter in comparison with the second quarter. That was for SCA more like 20% due to the fact that we agreed on prices in the second quarter, but deliveries came in the third quarter, so some kind of lagging effect, but also a positive currency effect. My best guess for the fourth quarter now is that we will see another price decrease of 25%, which is equal to SEK 600-SEK 700 per cubic meter. By that, my best guess is that we have reached the bottom.
If we start on the top left, we note that the stock level in Sweden and Finland is on a high level in relation to the average for the past 10 years. In the bottom left, we can, on the other hand, see that production has started to decrease. On the top right-hand, we can see the price development, and this one is only updated until September, I would say. As mentioned, we will see another substantial price decrease in the fourth quarter. Again, by that I believe that we have seen the bottom in solid-wood products. Turning over to pulp, and as mentioned already, the CTMP project at Ortviken is on budget and ahead of time.
We will start up we ramp up the new line during the fourth quarter, which is one quarter ahead of time. Very positive, of course. Sales was up as much as 25% during this quarter due to higher prices and also due to a positive currency effect. EBITDA up for the same reason, but as mentioned earlier, we see now that we have a higher cost for wood raw materials. During the third quarter, we also started up a planned maintenance stop at Östrand, which had a negative EBIT impact of around SEK 25 million during the third quarter. If we start on the top left side, we can note that we reached record high prices in pulp during the third quarter.
The official European peak price was around $1,500 per ton for deliveries in September. Prices has started to normalize a little bit, and we see that peak prices for deliveries in October will stay at around $1,480 per ton. When we look at the inventory level, we can see that for hardwood it's more on a normal level while it has increased a bit for softwood pulp. We can definitely now see less disturbances in the supply chain, and by that also I think that we see increasing inventories. The stock of orders for SCA in this market is, to be honest, very good. Again, a lot of uncertainty from energy crisis in Europe, and also we see some effect from continued lockdowns in China.
In containerboard, the Obbola Kraftliner machine is now up and running, and it is now producing sellable products. As already said, the first paper has already reached customers and we have produced, well, boxes with good quality, which is really nice. On the other side, the fine-tuning will of course continue for a number of quarters now, but nevertheless, we will deliver as much volume in the fourth quarter as we've done in the third quarter. That is a positive thing. We also in containerboard had a planned maintenance stop during the third quarter, and that was in Munksund, and the negative EBIT impact of that was around SEK 60 million .
Some words about the market in containerboard, and also here we reached record high Kraftliner prices in the third quarter. Prices decreased in October, November for unbleached kraft by EUR 30 per ton, while on the other side, White Top Kraftliner remained on the same level. Why? Well, one reason is that the OCC price has collapsed. In June, we had a price of EUR 185 per ton for OCC. The price today is around EUR 75 per ton, and we believe that we can come down another EUR 25 per ton, so, reaching EUR 45-EUR 50 per ton in OCC. The price difference between Kraftliner and testliner today is around EUR 120 per ton, which is on the narrow side, I would say.
Demand, not least in the retail business, has come down, but on the other side, we also know that production has started to decrease now. Nevertheless, we have somewhat increasing inventory level for Kraftliner as it is today. Last but not least, we have decided to start to report renewable energy as a new segment from January 1st next year. We believe that we are well-positioned to capture growth in renewable energy. We think that we can contribute to the transition towards the fossil-free Europe, and we also see that we will have a significant increase in demand for green electricity and renewable biofuels going forward. Already today, we are a leading producer of renewable energy. We have 20% of installed capacity of wind power on SCA land.
We will start to invest our own money into wind power. We already today produce 12 TWh of bioenergy, and by that we are one of the biggest producers in Europe. Last year, we also produced 1.4 TWh of green electricity, which is around 1% of the total consumption in Sweden. By that, I hand over to you, Andreas.
Thank you, Ulf, and welcome everybody. I'll start off with income statement for the third quarter, and net sales declined 1% to SEK 5 billion, where lower prices in wood was offset by higher prices in containerboard and pulp. EBITDA totaled SEK 2.5 billion, corresponding to an EBITDA margin of around 50%. This is, as Ulf mentioned, our fifth straight quarter with an EBITDA margin of around 50%. The EBIT margin was 42%. We had an effective tax rate of around 20%, bringing net profit for the period to just below SEK 1.7 billion or SEK 2.3 p er share. On the next slide, we have the development by segment, and if we start with forest to the left, net sales were in line with the previous quarter at around SEK 1.6 billion, where higher prices were offset by lower delivery volumes to our sawmill.
EBITDA declined slightly to SEK 623 million, which was due to seasonally lower harvest from our own forest. In wood, we've had several strong quarters since the beginning of 2021. In Q3, prices declined 20%, as Ulf mentioned, bringing net sales to SEK 1.4 billion and EBITDA to SEK 382 million, corresponding to a margin of around 27%. In pulp, we have had steadily increasing prices throughout the year, and in Q3 we had record high prices. Sales totaled SEK 1.9 billion, and EBITDA was unchanged at SEK 865 million, corresponding to a record high EBITDA margin of 46%. We started the maintenance stop in the end of the quarter, which had a slight negative impact on volumes. In containerboard, the prices have increased since the end of Q4 2020.
In Q3, volumes were negatively impacted by the maintenance stop in Munksund and the startup of the new paper machine in Obbola. Net sales totaled SEK 1.7 billion. We had an EBITDA of SEK 733 million, corresponding to a margin of 43%. As Ulf mentioned, the maintenance stop had a negative impact of 43%. On the next slide, we have the sales bridge between Q3 this year and Q3 last year, and we start to the left. Prices increased 1%, where higher prices in pulp and containerboard were offset by lower prices in wood. Volumes had a negative impact of 6%, again, because of a weaker wood market and the startup of PM2 in Obbola. We had a positive impact from currency of 5% and a negative impact from exit publication paper of 1%.
If we move on to the EBITDA bridge, again starting to the left, higher prices in pulp and containerboard was offset by lower prices in wood. Volumes had a negative impact of SEK 130 million, again, because of lower volumes in wood and the startup of PM2 in Obbola. High cost of wood raw material and chemicals had a negative impact of SEK 186 million. We had a positive impact in energy, which really shows our high self-sufficiency post our exit publication paper. We had a positive impact from currency of SEK 190 million, and we had a negative impact from higher fuel costs and startup cost at Ortviken. We now have the full CTMP organization in place. In total, EBITDA declined 7% to just below SEK 2.5 billion, and again, an EBITDA margin of 50%.
On the next slide, we have the EBITDA bridge for the first nine months, and price mix had the biggest effect of SEK 2.5 billion, where prices increased in all areas. This was only partly offset by lower volumes and higher wood costs. Again, energy had a positive impact and a positive impact from currency, and a negative impact from higher distribution cost. In total, EBITDA increased 30% to SEK 8.2 billion, corresponding to a margin of almost 52%. We continue to have a strong cash flow, almost SEK 1.9 billion in the quarter and SEK 5 billion for the first nine months, and this means we are continuing to fund our strategic CapEx with operating cash flow. Looking at the balance sheet, the forest assets increased to SEK 90 billion.
Working capital increased to SEK 3.5 billion, mainly due to higher prices, but it was unchanged in terms of days. Capital employed increased to SEK 98 billion. Net debt stood at SEK 8.3 billion or 0.8x EBITDA, and this is a decrease of around SEK 1.3 billion compared to the previous quarter. We had equity of SEK 89 billion and net debt to equity at 9%. As Ulf mentioned, we will start to report renewable energy as a separate segment from the beginning of next year. On this slide, you have the pro forma effects for the first nine months on each segment.
If we start with forest to the left, unprocessed biofuels and wind power leases will, from the beginning of next year, be reported in renewable energy, and the pro forma effect on forest for the first nine months was around SEK 65 million, of which the majority came from the wind leases.
In wood, pellets will be reported in renewable energy, and the pro forma effect was SEK 75 million, and currently we have high pellets prices. Pulp and containerboard sell tall oil to renewable energy for a fossil-based price, and then renewable energy is responsible to maximize the green premium. This had an effect of SEK 60 million in pulp and SEK 45 million in containerboard. In total, renewable energy had an EBITDA of around SEK 240 million pro forma for the first nine months. We'll come back with more financial details in conjunction with our Q4 report. Thank you, and with that, I'll hand back to you, Ulf.
If we then try to summarize the situation, I can state that we are well-positioned for the future. We have a very strong project portfolio that will start to contribute from next year. Kraftliner already there. CTMP start up late this quarter. Bålsta sawmill, a new grading mill, but also CT scanner, which will be up and running in the fourth quarter. We have the biorefinery that will be up and running at the end of next year. As mentioned many times, and as you also can see in the figures, we have a very positive effect of the high degree of self-sufficiency in wood and also energy, but not the least, I would say, in logistics.
We have had major disturbances in the supply chain in not only Europe, but also in other areas. Due to the fact that we have our own logistical company, we have been in a good position here. We are well invested and structured asset base, not the least since we left our the publication paper business, and with that, we also have a very competitive cost position. The forest is growing, bad days and good days, which is good. Last but not least, we have a super strong balance sheet. By that, I think that we can open up for questions. Linus?
Thank you very much, ladies and gentlemen. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We'll now take our first question from Robin Santavirta of Carnegie.
We can start in
The line is open. Please go ahead.
Yeah. I think we start in the room. Linus, please go ahead.
Thank you. A couple of questions on your project pipeline, and just to start off with the very near term with Obbola and Ortviken. Anything to keep in mind for the fourth quarter, just for the very short term in terms of startup impacts on those projects?
If I start with just that in Q4, the volumes will be similar to Q3 in terms of Obbola. In CTMP, we'll continue to have some ramp-up costs in line with Q3. Then for next year, Obbola volume, we previously guided around 500,000 tons.
Great. Thanks.
We are building up also the OCC line, which is needed in order to increase the total capacity, so that will start now, from now on.
Great. Then on the wind business, you're looking to allocate capital, what can you say about the pace of that? I mean, will we see CapEx already in 2023, 2024? You know, what's the pace of CapEx, and what are the returns? What's return on capital employed expected for that investment program, if we call it that?
We will develop our wind business in different ways. I mean, one option is to develop our own projects, and then we are dependent on environmental permissions and things like that, and we don't know when they will come. We have a couple of projects in progress, we will also acquire some projects and then you have to agree on the price and so on. I mean, you will start to see something I think, latest next year. We will not guide for, I think for how much and because that is, of course, depending on what kind of deals we can do.
Sorry, you mean there will be investments already in 2023?
Yeah, I believe that.
Either M&A or organically?
Yeah.
Okay. Thanks. On the announcement of the potential sawmill investment, I mean, is the Rauma sawmill a reference here? I mean, the Metsä Group, let's say around a 50,000-ton mill that just started up, I mean, it was initially supposed to cost SEK 2 billion. I think it was close to SEK 3 billion CapEx in the end. I mean, is that the range, the ballpark range of CapEx that we should be expecting here?
We have just taken the decision to run these feasibility studies. I mean, we will answer these questions in this feasibility study. If you're building up a new sawmill today, I think, you have to look at that size and also by that also that amount of money. I mean, we don't know yet. Just now we're starting up the feasibility study.
Of course. Just overall on CapEx, what's your guidance for the full year 2022 and 2023?
Current CapEx will be a few hundred million more than last year, so about SEK 1.5 billion in current CapEx. In strategic CapEx, it will depend, of course, on timing of some of our CapEx in Obbola, in CTMP, but in the range of SEK 3 billion-SEK 3.5 billion. For next year, I think we'll have about SEK 1 billion left on those ongoing strategic projects.
Okay. It will depend on, you know, potential further.
Yeah
Further decisions.
Yeah.
Okay, great. Thank you very much.
What is good is that we have, I mean, we have now more or less financed all these big projects, so now we can, we have an option. We can choose to invest more, or we can just stop here if it's getting worse, so to say.
Mm-hmm.
Thanks, Josefin. Good morning. Just two quick follow-ups from my side. It's Christian Kopfer from Handelsbanken, by the way. Firstly, on biofuels, you mentioned, Ulf, you look into a number of opportunities there. I just want to see how you view that market now with the new administration in place. Seems like they are a little bit more skeptical, to be frank, on biofuels. W hat's your outlook? Has it been weakened a little bit, perhaps?
I mean, not really. If we look into the project that we are running in Gothenburg, 40% will be biojet, for example. When we look into the project that we are just in the planning phase, but in Östrand, up till 80% can be biojet. I think we have a global market. I mean, short term, of course, you can have some kind of impact on Swedish prices, but globally, not really anything major. We also often have the questions about what kind of impact will it have in the wind power business, and from my perspective, I mean, long term, we definitely need nuclear power, and so I think that is a good decision to start up that progress. On the other hand, in order to get enough of electricity supply short term, the only option is wind. I think you need both wind and nuclear.
Right. Agree on that. Finally for me on sawn wood prices, I'm a little bit surprised to see that you stick your neck out here and call the bottom. What makes you feel so confident? Is it because profitability in the sawmill industry in Europe will be so bad, or is it that you expect the demand to come back again?
Log prices. I mean, the bottom, when you reach breakeven, then it's the bottom because then capacity will start to close down. I mean, for us, we are a low-cost producer, so we will continue to run our mills, but we have already now seen some producers starting to take curtailments and so on, and still we have a decent margin. The price development now, I mean, that will be, it will be another substantial decrease in the fourth quarter, but it cannot really go further down without quickly decreasing prices for sawlogs, and I don't think that will happen so fast.
Okay, fine. Thanks.
Mm-hmm.
Morning. It's Johannes Grunselius here, DNB. A couple of follow-ups for me, but on the expansions, Kraftliner, CTMP, could you help us a little bit on how to look at this for next year? Any sort of incremental volumes, the delta, or any kind of earnings impact there, please?
We can start with the volume, and as Andreas said, what we have communicated is that today, I think the production in Obbola will be around 440,000 tons this year, and that will increase up to around 500,000 ton next year, which is quite unique because normally in this big expansion projects, you have a rather long term where you have to stop the production and then start up again. This will be really strong cash positive during the whole project period, which is a real strength. In CTMP, I mean, I don't know if we have said anything about the volume for next year.
No, I mean, just give some guidance. I mean, we're currently producing 100,000 or a capacity of 100,000 tons, where we said maybe 150,000 tons-200,000 tons in total next year.
A little bit depending on the market, because, I mean, one potential market will be Asia, and we still see an impact from lockdowns and things like that. I mean, again, it is a big uncertainty in the market in general that will have an impact, of course.
I also have a question on your sawmill business and what you see Q4 and beyond that. I mean, in this tough market, are you able to find sort of new markets that can replace the weak do it yourself market at home, so to speak, on offshore markets?
Again, I think we are positioned as a very low-cost producer, and I think that is. I'm not really afraid of us being forced to take curtailments, for at least not for a longer period. For a while, during Christmas and so on, we might close down for a while, but I mean, we can continue to run. No, just now, we have a rather similar situation all over globally, I would say. U.S. a little bit, still a little bit stronger, but we have also seen a decrease in demand in U.S. Asia, rather slow. Again, you have, I mean, I think that is also very much related to the increasing interest rates here. We saw the estimation for new building in Sweden next year was down 24% or so, and we see that kind of figures all over the world just now.
Thank you.
We maybe open up the line.
Thank you. We'll now take our first question from Robin of Carnegie. Your line is open. Please go ahead.
Yes, thank you very much. It's Robin Santavirta from Carnegie. Now, first, just to check perhaps with Andreas on the Obbola volumes. Did you say 500,000 tons expected next year?
Yes
that would then be up, I guess, from something like 440,000 tons this year?
Yes
What is the reason, I guess, do you have a lot more capacity to produce up and essentially installed at the end of this year? What is the reason you cannot produce more next year? When should we expect the full capacity of the expansion to be in production and in play?
The full capacity build will be reached in 2026, as we previously guided, and you have a ramp-up curve. Also we cannot increase capacity beyond a certain point before we increase the fiber volume. We have the recovery fiber line, which will be ready in the Q2 next year. After that, we can start to increase production. We need more fiber.
By that, you will also see a higher production rate in the second half of next year than in the beginning of next year, which might be important.
All right. All right then. I understand, and I guess it's the fiber related to the RCP or OCC you.
Yes, OCC, yes.
Yeah.
Yep. Good. In terms of the containerboard business, what are you seeing at the moment in Europe when it comes to demand and the customer inventory levels? Related to that, I can see the natural gas price in Europe, at least the financial instrument, the forward next day, has come down to a very, very low level compared to historical average levels. Is that now impacting the testliner sort of production in Europe, increasing it? What are you seeing when it comes to the supply demand?
I mean, of course you will have an impact from the energy price, when it comes to the production of testliner. By that, you will also see an impact on the Kraftliner pricing related to the pricing of testliner. As I said, I mean, the delta just now is EUR 120 per ton, and that is on the narrow side. Maybe the normal figure should be 150 or something like that. T he reason now is, I mean, we are on record high prices for Kraftliner. We have also record high profitability. We decreased prices for deliveries in October, November by EUR 30 per ton for unbleached kraft. The reason for that was, of course, that the announced price increase in testliner didn't come through.
Why not? Yes, because the OCC prices went down, and as I said, from EUR 185 a ton in June down to EUR 75 a ton where we are just now. We feel that it might be so that we will face another smaller price decrease in OCC. It might be so. Of course, energy price on the other side, that will also have a big impact on the what kind of production rate we will see in testliner. It is some kind of a combination here. It's hard to predict.
I understand.
Yeah. As it is just now, it's an okay market for us, and the demand is, the stock of orders is on for SCA, it's on a good level, I would say.
I understand. Thank you very much for the detail. The final question I have is related to fiber cost in Q4 and in the winter sort of compared to Q3. What is the output for you guys?
I think we will more or less, at least now for a while, we will stay on this level, I would say. I mean, for us again, we have 50% of what we need in our own forest. We have also. Yeah, we don't import too much, but we have seen, as I explained, I mean, we have seen that the import prices has increased quite substantially since last year, but also since the last quarter and so on, so. I think we will remain more or less on the same level now for a couple of quarters.
Thanks. Can I just check with you call the price low about 25% QoQ in sort of sawn timber. You're quite low cost. When I do the numbers, then sort of I end up with quite low profitability for the wood segment then in Q4, with sort of unchanged cost QoQ. Surely, that must push some of the higher cost producers into negative numbers. Is that how we should expect it, and then perhaps at the reduced production volumes?
That is how it works in a market economy. That's why I'm quite sure that we have now reached the bottom for solid-wood products. Then the question is, when will it start to take off again? I mean, I think that is dependent on interest rates and what kind of uncertainty you have and I mean, related to the war and a lot of things. Already now, I mean, as I said, already now, and as you also saw in the statistics from Sweden and Finland, we have already now seen that producers they have started to take curtailments and so on. I believe that during Christmas, many producers will take curtailments. I think that we will not produce 100% during Christmas. We will talk with our employees and they will take out a couple of days and so on. I mean, that is normal.
Yeah. The economy is not going in a better direction come Q1, nor the seasonality. Let's see where that will take you.
Yeah.
Thank you very much for good answers.
Yeah.
Thank you. We'll now move on to our next question from Martin of ABG. Your line is open. Please go ahead.
Yes. Just to double-check. In Q4, are these two new projects on CTMP and the Kraftliner having a negative ramp-up cost at first, or is that not really the case, and it's rather a positive contribution?
In Q3, I start with Obbola. We had some impact on volume because when we switch from one machine to the other, I mean, you lose a couple of hours of production each time. We're negatively impacted by the startup. In Q4, we will have similar volumes to Q3 in terms of Obbola. In Ortviken, we had some startup costs to CTMP, but we now have the full organization in place at our mills for training, et cetera, and doing all the preparations. We will have that also in Q4. The end of Q4, we'll start up production of CTMP.
Okay. The last question, could you explain why you do a JV on sawmills with Holmen? Because I guess you're big enough both to do that kind of an investment. Is that to keep the wood price low in the area and not compete, or what's the rationale?
The reason for that is, I mean, it is today a rather high investment cost if you should invest in a new sawmill. To reach, let's say, an optimal capacity, then we can use the wood from our own forest models. I mean, already today, we produce around 300,000 cubic meters per year in Rönnvik, and that mill will be closed. I mean, we just transfer that volume into a new mill. By that, of course, we will reduce the investment cost. If we don't build up a new mill, then we will of course invest in the old one, but that will not be as efficient as what we believe a new mill can be. Again, you need to get access to raw material.
70%-75% of the cost for a sawmill is related to sawlogs. This potential investment will increase the value of the forest for SCA, but also for Holmen, but also for all private forest owners in that region.
Thank you.
Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. We'll now move on to our next question from Oskar of Danske Bank. Your line is open. Please go ahead.
Yes. Good morning. This is Oskar Lindström at Danske Bank. Three questions. The first one on the forest land values. When the Swedish forest land market has been very strong during the first half of the year, what are you seeing now in the second half of the year and looking into next year? What's your feeling around forest land pricing? Should I go on with the second question?
Oh, we can start with that one. I mean, we believe that the price level for forest land will remain more or less on the same level. That is what we see in the market just now.
All right. Could you say something about sort of where demand is coming from? What type of assets are most attractive?
All types of assets, to be honest. I mean, we feel that there is a big interest. There's still a big interest for forest land, and I mean, but we are doing a couple of transactions every month, and it is, let's say, rather stable on historically high level, I would say. I mean, the interest is big for forest land. It's a real asset.
Mm.
We cannot really see any impact from increasing interest rates because that is some people think that will have an impact. We haven't seen it yet, at least.
Why do you think we don't see that?
Because I think it is an attractive asset, as I say. I mean, we see a number of people coming in here and all kind of investors coming into forest.
All right. It's just a rather scarce asset class.
Yeah, we don't produce.
Uhm.
Any new land. That's maybe the reason.
Yeah. Second question on capital allocation. I mean, you have a very strong balance sheet and your two of your major CapEx projects have now ended. I mean, do you see any attractive M&A opportunities given lower prices, at least in the public market? Or will you continue to focus on organic growth like the project you announced today or potential project you announced today and other things you have in the pipeline?
I mean.
Yeah
You don't know what kind of options that will appear during coming years. It is always good to have a strong balance sheet. Our main focus is still on. We will continue to buy forest land. We long-term believe in forest land, so that we will do. As you know, we have our ongoing program in the Baltics, and we have done, soon we have done 70% out of that. We will start to invest in renewable energy, as mentioned. Acquisitions and things like that, I mean, that you don't know before you see what's going to happen. We have no really big investments planned for the moment being. We are just now 100% focused on finalizing all big projects that we are running for the moment being.
Okay. My third and final question is on the biorefinery project in Östrand. What's the status of that one? I mean, it's been in your pipeline for a long time and progressing a little bit, I guess, but what's the status and your thinking on that project?
I mean, we took the decision just recently to invest EUR 50 million for building land. The environmental permission is in place. Again, we have said that, commercially, we need to find the right technique in order to optimize this project. I mean, we are not in hurry just now. We are running the biorefinery project in Gothenburg, and that one will be up and running, late next year. We have a couple of different other projects. I mean, that one will come sooner or later, but we will not rush into it.
Do you foresee that being a joint venture or something that you pursue on your own?
I mean, already today we have a joint venture together with St1 and they are also in this biorefinery project in Östrand. I mean, that we already know, and that we have announced. I mean, we don't know what we will invest into, we cannot really decide whether it should be a joint venture or not. I mean, we have to wait and see what kind of conditions we have when we are ready for a decision.
All right. Thank you.
Thank you. We'll move on to our next question from Andrew Jones of UBS. Your line is open. Please go ahead.
Hi, gents. A couple of questions from me. Firstly, just on the market for wood. I mean, basically, can you remind us what your split is between where you're selling a lot of the sawn log product? In the relevant markets, what does that cost curve look like? I mean, how, you know, what does the bottom end look like compared to the top end? How steep is it? You know, what sort of proportion of capacity have you seen idled relative to the fall in demand year-over-year? You know, what amount would you potentially see coming out in the coming months if prices indeed fall 25% as you're expecting in the fourth quarter? I have a second question, so if you could answer that first.
I think that was many questions, but I think the only answer we can have is, I mean, I did show you the slide that we're showing the production rate in Sweden and Finland. As you saw in that slide, the production has started now to decrease in comparison with the average for the past 10 years, and that will continue. I mean, we did some calculation here, meaning that if we will reduce prices with another 25%, and that will come not only for us, but for all producers, I mean, then a lot of capacity will be closed down. Then again, when will it pick up again? Depends, of course, on the pricing and. It is a combination between log costs and the price for solid wood products.
A little bit more than 70% of the cost in a saw mill is related to the log cost, and you have very local conditions for that part. It's impossible to say. I mean, we will see substantial curtailments taken now when the price is coming down, and we have started to see it already.
Mm-hmm.
I mean, we can now see the announcements that you see, official announcements, but we feel it in the market now that.
Mm-hmm.
By that, the balance will be better, of course.
Yeah. Just to follow up on the point that my colleague raised about the land transaction values, I mean, it looks like, you know, if you take your balance sheet value, it's about SEK 120 per share. You know, there's not much value in the rest of the business according to that figure. I mean, clearly the market is saying that the, you know, the land is worth less than it's been put on your balance sheet at. I mean, what is, you know, what is the market not understanding? Because it seems as though, you know, long life, low yielding assets, the interest rates must have an effect on that. I mean, clearly there is demand and transaction values are holding up, but what is keeping them up?
Is it the potential for alternative land use, be it wind or something else? You know, if that's the case, could you quantify potentially, you know, what the uplift of the land value could be if it got permitted for wind? Or like, what's the bull case versus this interest rate argument that people are drinking out of that?
First, I mean, we see a lot of interest in forest land. I mean, a lot of investors think it's a good hedge towards inflation. I mean, we did a study, I think it's in our annual report. I mean, if you look at forest assets from 1950s to today, they've averaged about 10% in yield. You have to look at the price increase, you have to look at the cash flow, but also the net growth. We only harvest around 60% of our net growth, so we get more and more standing volume each year. I think that's many people find that attractive, and we see a lot of interest in forest land. We've also done, I mean, there's fairly limited correlation between interest rates and the forest value if you look at the past 50, 60 years.
Okay. For alternative values, I mean, if you converted some land and you just sited a wind farm on it, I mean, in terms of the value per hectare, I mean, what's the sort of comparison or, you know, how much could that potentially rise if you were to, you know, lease it for use in, you know, as a wind site?
I mean, it's a very high value if you can get a permit to build a wind farm. Today, I mean, it takes eight years to get a permit, and 90% is a no. The wind projects have a very high value. We see that also if you can sell a complete project where you have the permit, you get a lot of money for that. You definitely see increased value from wind power.
Do you see the new government improving permitting materially?
I think that will come in one way or another. I mean, that is also what they have said, that they will shorten the time.
Mm-hmm.
In all areas, not just for wind, but in all areas.
Okay. Thank you.
Thank you. We'll now move on to our last question. At the tone from Cole Hathorn of Jefferies, your line is open. Please go ahead.
Morning. Thanks for taking my questions. I've just got two. I'll take them one at a time. Firstly, on wood products, you know, stepping away from the near term, I'd just be interested in hearing your view, on, you know, what happens if we have a longer term housing slump, and how does that play off versus kind of structurally 10% less supply out of Russia into Europe, regulations, I suppose, building with wood and replacing steel and cement being more favorable. How do you see that kind of balancing the market going forward kind of longer term? And then I'll follow up with one on containerboard. Thank you.
I mean, long term, you will have a positive balance for solid wood products for many reasons. I mean, already today you see that. We haven't been able to supply the market with what they needed for a couple of years now. Also for sustainability reasons, I mean, political reasons within the Union and so on, really supporting the consumption of solid wood products instead of concrete and other building materials. I mean, I think that will be long term, this will be a positive business. It is volatile, which can be good and which can be bad. I think we are, as SCA, well positioned to some extent to benefit from this volatility. Not only in solid wood products, but also in other areas. I mean, but long term, this will be a good business.
Just following up on the containerboard market, I know you've given some commentary and some data on the inventory data for Kraftliner. That data I imagine is only for August, and there's been quite a bit of industry downtime. Can you give us your view of where your system inventory levels are at the moment, or, you know, how you think the industry might be now after taking a fair amount of downtime over August and September.
Following on from that, it was asked earlier on the call about, you know, costs coming down in OCC and gas prices. How do you see this developing? Because while short-term gas prices might be a little bit lower, you know, if we look into next year, the forwards are still elevated. Should we see the kind of prices coming down a little bit with costs and testliner and impacting Kraftliner into next year, or should it just be more of a kind of a gradual impact through the first half? Thank you.
I mean, again, as I said, for SCA, we have a rather normal stock of orders, so we are not stressed by any limitation in that side. We are also now so focused on the ramp up of the new paper machine. The other question, I mean, again, it is of course a combination and relation between testliner and Kraftliner prices. Testliner prices are depending on the price for OCC, and I have described the development that we have seen there. It is also dependent on the price development for energy, and that you know as good as me, that we have seen lower prices.
Due to the fact that we now have filled up some inventories at least for a part of this year, we don't know what kind of winter we will have. We don't know how long the war will remain. We don't know the situation next year and so on. We know that the delta just now between testliner and Kraftliner is EUR 120 per ton. The reason for that is of course that we don't like to see any substitution from Kraftliner down to testliner, and we haven't seen that yet. We will, I think we will, we and other producers, typically, we will follow the delta, and we will also keep the, let's say, the difference on a decent level in order to avoid substitution. I mean, I cannot judge the development for gas and for OCC prices better than you can.
I suppose maybe asked another way, does a short-term decline in gas prices necessarily impact pricing that much if we look out kind of a couple of months, you know, prices will be higher? I imagine containerboard prices wouldn't necessarily fall as much on a short-term basis just because you've got potentially next day gas prices being lower.
I mean, theoretically, yes. I mean, if you have a lower gas price and if you have a lower OCC price, then of course the profit will be t he cash cost will be better. They will be in a better position as a testliner producer. I mean, just now, we have been in a very special place in Scandinavia with the energy supply. The structure we have in the energy supply here in the in this region. That you can also see.
Mm-hmm
On the result that we have. I mean, sooner or later, prices will start to normalize. We saw some adaptation maybe in the last month, where the price for unbleached kraft went down EUR 30 per ton. Now it's stable again in the market. It was unchanged for White Top Kraftliner and so it's hard to say. We feel that the demand is still on the good side, even if we see that the demand in the retail sector mainly has come down a bit. Still on a good level if you compare with the situation before the pandemic and so on.
Thank you.
Thank you. Once again, ladies and gentlemen, if you'd like to ask a question, please press star one on your telephone keypad. Thank you.
Andreas.
I see there are no questions in queue. I will hand it back to you. Thank you very much.
Thank you, operator, and thank you for participating, and welcome back, when we present the fourth quarter results early next year. Thank you for watching.