Good morning. My name is Björn Lyngfelt. Welcome to this press conference where our President and CEO, Ulf Larsson, and CFO, Toby Lawton, will present and comment upon SCA's report for the third quarter. After the presentation, there will be an opportunity to ask questions. Ulf, would you please take the floor? Thank you.
Thank you, Björn, and also from my side, good morning to everyone. When I summarize the third quarter, it looks like this. We have, during this quarter, finally taken the decision to leave publication paper, and we will do that sequentially during the first quarter 2021. At the same time, we have also taken the decision to increase our production of CTMP pulp. Today, we do 100,000 tons at Östrand site. We will move that production over to Ortviken and also add another 200,000 tons. All in all, total production will be close to 300,000 tons. During the third quarter 2020, we have, in comparison with last year, declined sales of 13%, and also our EBITDA was down 24%. We have, during this quarter, clearly been impacted by the decision to exit publication paper.
Obviously, customers, they have found other suppliers. We are also hit by our colleagues and competitors in the business, of course. That was expected. As I mentioned already in the Q2 presentation, we have also been negatively impacted by the unplanned stop that we had in Östrand pulp mill. At that time, we estimated maybe around SEK 150 million. The negative impact was slightly lower, a little bit more than SEK 100 million for the quarter. Otherwise, when it comes to prices, we have lower selling prices in all areas except from solid-wood products. During this quarter, we have also acquired 20,000 hectares of land in Latvia. We have, as we have earlier announced, a long-term program to acquire 100,000 hectares in five years. We have now done 50% of that program in one and a half year.
Last but not least, we have set a new group target for our contribution to fossil-free society. We will, by 2030, reach 50 million tons carbon dioxide per year in comparison with what we have today, 10 million ton per year. When we look at our EBITDA level, we are 24% lower than same period last year, but on the other hand, 3% higher than last quarter, and that gave us a stable EBITDA margin of 24%. Obviously, it's not the industry for the moment being that contributes to our business, and these days, we are very happy to have our forest holdings, which give a stable and strong support to our EBIT and EBITDA level.
Our net debt, in relation to our EBITDA, has went down from 2.1- 2.0 due to a strong cash flow during the period, but also due to the fact that our net debt has been reduced this quarter in comparison with last quarter. If we walk into each segment, starting with the forest, we can summarize by saying that we have a very stable supply to our industries for the moment being. Sales was down this quarter in comparison with last year. Reason for that is, of course, as I said, the decision to exit publication paper, and by that, the capacity utilization at that mill has been substantially lower this year in comparison with last year. We also are negatively impacted by the unplanned stop at Östrand. That was around 50,000 tons, which is similar to around 250,000 cubic meters.
During this period, we have also seen lower pulpwood prices. EBITDA is up 33% due to a higher degree of harvesting from our own forest land. Also, we have a higher earnings from revaluation of biological assets. In business area wood, we have seen a rather stable market, and as I said earlier, this is the business area where we haven't really been negatively impacted by the COVID or corona pandemic. We feel that we have a high demand in the market, and we have this quarter had 1% higher prices, including currency, in comparison with Q2 2020. We forecast also for the fourth quarter, another price increase, so I believe that prices will be up 3% Q4 in comparison with the third quarter, which is, of course, positive. The driver behind this is mainly the builders merchant sector.
We have really strong market in Scandinavia, in general, total Northern Europe is very strong and also U.S., while we see a little bit slower market, at least price-wise, in China and Japan. EBITDA was up 7% quarter-on-quarter. In pulp, as I said, we were negatively impacted by the unplanned production stop in July, on the other hand, since we were up and running, we have had a really strong production after the restart. Sales anyway were down 13% due to prices, also due to lower volumes related to this unplanned production stop. EBITDA was down 49% due to the stop, also due to lower prices, lower energy prices. We have also started up now a planned maintenance stop, and we had a negative impact in Q3 of SEK 20 million. We will have another SEK 125 million impact in the fourth quarter.
We started in the end of September with this planned stop. Sorry. There we have. We have also a rather interesting pulp market for the moment being. As you can see on the left-hand side, deliveries have come down to more normal level. We had, as we mentioned in Q2, a buffering effect in the beginning of the pandemic, but now we are back on a normal level. Prices have been for a while quite flat here. When we look into hardwood pulp inventories, they are on an average level. If we look at softwood pulp inventories, they are a little bit high. On the other side, we know that maintenance stops have been moved from the spring to the autumn, and normally 50% of the stops will be performed in the spring, 50% in the autumn. Majority of producers have five to 30 days stops.
We think that the inventory will, just due to that fact, come down between 5 and 10 days here. We feel positive price signals in the market. China has improved, spot prices there are close to $600 per ton for the moment being. We and also other producers have now announced a $40 per ton price increase from 1st of October, I am quite positive that will come through. In paper, we are still hit by a lower publication paper demand. Structurally, we have had a declining market for many, many years, 5%-10% per year. During the pandemic, we saw that consumption went down 30%-40%, depending on what kind of paper grade we are talking about. That is still the situation, that was also maybe the reason why we took the decision to leave publication paper just now.
As I said, due to that decision, we have had an even lower capacity utilization, and sales were down 24%. As you can see on the left-hand side, prices for kraftliner has also step by step went down from the peak in Q3 2018. In publication paper, prices have been quite flat here. EBITDA, nevertheless, down 58% when we compare quarter-on-quarter. We have a really strong containerboard market. If you look to the left-hand side, we can see that deliveries now are very strong, and prices have been flat for a while. When we then look at the right-hand side, we can see that European box demand has come back to the level before the pandemic, and we have a very strong and positive trend here.
Kraftliner inventories are more or less down on average level, and still we could expect more or less the same effect as we had in pulp, that maintenance stops, they will be performed during the autumn, and that will have a positive impact when it comes to kraftliner inventories. We had a small price decrease in the kraftliner during the third quarter, EUR 20 per ton. Now we have announced a price increase from 1st of November, EUR 50 per ton. We know that testliner producers, they have already come through with EUR 30 per ton for October. All in all, a rather strong market for containerboard as we see it.
We've been talking about the transformation of Ortviken. As you can see on the right-hand side, we said already back in 2017 that we should continue to grow our pulp business. That is exactly what we are doing now. At the same time, we should reduce our exposure to publication paper. We have, in eight years, gone from more or less 2 million tons in this segment down to next year, close to zero. We have followed the strategy here. We have finalized the negotiations with the union, that means that we will sequentially close our paper machines during the first quarter next year. At the same time, as I also said, we will invest 1.45 billion SEK to increase our CTMP pulp production at Ortviken site.
We can use the equipment that we have at Ortviken, not least the rather new TMP equipment. CapEx will be SEK 5,000 per ton. In comparison with the greenfield, that should cost around SEK 15,000-SEK 20,000 per ton. Investment CapEx cost will be very cost-efficient, and we also feel that we will be really cost-efficient when it comes to the cash cost for the production going forward. We have already started up the project, and the startup is estimated to the first quarter of 2023. At the same time, we have also found an agreement with Renewcell to establish a textile recycling site at Ortviken, and we will let out the space and also supply utilities.
That is good in that perspective, but also it's good because we can, in this way, also offer 100- 150 people a possibility to a new job in the region. We're very happy for this cooperation with Renewcell. Last but not least, we have set a new group target when it comes to our contribution to fossil-free society. Today, we contribute with 10 million tons of carbon dioxide per year, and that will increase to 15 million tons per year by 2030. We have three components in this calculation. The first one on the left-hand side is the forest. We continue to invest a lot in our forests, and that give a higher growth, and the higher growth will also bind up more carbon dioxide. At the same time, we will also continue with the program for buying more forest land, not least in Latvia.
That will also have a positive effect, of course. By 2030, we have also increased our production quite a bit, and by that, also possibilities to subsidization, and we will replace, in a higher degree, plastics with paper, fossil-based fuels with biofuels, and concrete and steel with solid wood constructions. Last but not least, when we invest, we always look for the best available technology, and we will, during this period, continue to reduce our emissions. By that, I hand over to Toby.
Thank you, Ulf. Good morning, everybody. I will start here with a slide showing the impact from the exit of publication paper, which was decided in quarter three here. This impact, Ulf has presented the underlying results, but the one-off impacts of the exit of publication paper is the biggest effect in the result this year. I set out the effects here for you to see. You can see, firstly, on the left-hand side, we have an impact on EBITDA of SEK 1.12 billion. This is two components. The first component is the provision for restructuring, which is SEK 870 million. That's the part that impacts on cash flow. We have an impact, which is the write-down of working capital of SEK 250 million as well, with no cash flow impact, but impacting EBITDA.
Then further to that, we're also writing down fixed assets of SEK 671 million, which has an impact then on EBIT. Then finally, we have a positive impact in terms of deferred tax from these effects of SEK 359 million. Those are the one-time effects from the exit of publication paper. We have taken the effect now all in Q3. There may be some fine-tuning as we go through Q4, as we're confirming some of the amounts, but we don't expect any significant changes. This is the one-time effect from that decision that we've taken now in quarter three.
Finally, you can see at the bottom on the left-hand side, also giving some information now that the publication paper, EBIT loss, which has been there since the start of this COVID crisis, has been SEK 40 million to SEK 50 million of EBIT loss basically in both Q2 and Q3. That's the loss rate we have in publication paper, which will continue until we close the operation, as Ulf said, successively in Q1 next year. Then you can see the impact of all these figures on the right-hand side. If I focus on year to date, on January to September, you can see on the right-hand side and on the EBITDA line, you can see our underlying EBITDA for the first nine months is SEK 3.063 billion. When we take the impact of the EBITDA one-off items, we have SEK 1.9 billion.
On the EBIT level, our underlying EBIT is SEK 1.85 billion. There's a bigger impact on EBIT with the write-offs of fixed assets, so that comes down to SEK 61 million. No impact on financial items. A positive impact on the tax line due to the deferred tax impact. Basically down on the net profit also for the year to date, we have an underlying net profit, SEK 1.4 billion for the first nine months, with an earnings per share then underlying of just over two SEK per share. With the one-off impacts, we have a small negative, minus SEK 16 million on the net profit line. That's the impact of all these one-off items, just to set that out for you. Here you have basically the income statement underlying, without these one-time effects.
As Ulf has presented here, you can see the EBITDA we have of SEK 1,032 million. We have an EBITDA margin of 23.8% in Q3, and that's a 24% drop versus Q3 last year, which is primarily the effect of pricing. Then on EBIT, we're at SEK 624 million for the quarter. Financial items, very similar to last year, very stable, SEK 28 million. Tax charge of SEK 121 million, which is an effective tax rate of 20%. Net profit for the period, SEK 475 million underlying, which is an earnings per share of SEK 0.68 per share. Okay. If I just give a bit of guidance per segment and focus most on the trend versus the previous quarter. Here, starting on the top left on the forest business, you can see the effect from the lower publication paper volumes, which have an impact.
We've also, this quarter, we are flat versus the last quarter. We've also had an impact from the unplanned production stop in Östrand. That's kept the internal net sales from the forest division a bit lower than they would otherwise have been. In the terms of bottom line, we're also slightly up versus Q2. We have had less harvesting of own forest this quarter, which means a lower profit contribution from the harvesting of own forest, but we have compensated by a higher revaluation effect in Q3. When we move across to the woods sector, we have a lower top line, lower sales in Q3, which is a seasonal impact. We produce less in Q3, and we've had some less production over the summer period in Q3 this year, with an impact on then net sales.
The bottom line, we have a higher profit margin this quarter, which is really the impact, as Ulf mentioned, of the higher prices coming through in Q3 and the stronger demand, particularly in the building material supply sector, which has been strong this quarter. When it comes to pulp, of course, the unplanned production stop was the main effect when it comes to the top line. We had lower volumes due to the unplanned production stop that we had in Q3. On the bottom line, you can see we are lower than we were in Q2, which is basically the unplanned production stop had an impact of around SEK 100 million. It was less than we previously thought, but an impact around there.
We compensated with a good level of production basically during August and September after we started up after the unplanned production stop in July. That compensated back around SEK 50 of the SEK 100 loss. We ended up just under SEK 50 million lower in the quarter versus the previous quarter. When it comes to paper, you can see over a longer period, you can here also see the impact of the lower publication paper volumes, and that's probably particularly between Q1 and Q2. That was the main impact. This quarter, we have slightly lower prices in Q3, slightly worse FX. That's a slightly lower top line versus Q2. The bottom line is slightly up, which we have, as I say, slightly lower prices, but you're offset by a slightly lower cost for maintenance during Q3 than we had in Q2.
Here, just to then give you the bridge for sales first and then EBITDA on sales. Basically, we have a total decline of 13%. The price impact is 4%, which is basically across all segments, even though you saw wood pricing is now increased versus previous quarter, but this is versus last year. We are slightly lower in all segments in terms of pricing quarter versus same quarter last year. Then in terms of volumes, we have a 10% impact, and this is primarily paper volumes and primarily publication paper effect driving that. Then a small positive currency, and then zero on acquisitions, divestments. Then when it comes to EBITDA, you can see the same effect on price mix on the left-hand side, having an impact on EBITDA of some SEK 291 million.
We have the impact of the volume, which again is paper volumes or mainly publication paper volumes. We have a good positive contribution coming through from the lower external raw material costs from the lower wood prices that we now have, which compensates for a part of that price and volume impact. We have a negative energy variance of SEK 84 million, which is primarily the energy sales from Östrand has an impact as well with lower electricity prices. We don't get the same income on electricity this quarter where prices have been particularly low for electricity, particularly in our area of Sweden. Currency is a positive this quarter. In other, we have an impact. We have to remember in Q3 last year, we sold the Rotterdam terminal, and that had a positive impact of over SEK 70 million in the result.
We also had the unplanned production stop in Östrand, which I mentioned before. All right. As Ulf also mentioned, we had a strong operating cash flow this quarter. Q3 seasonally is usually a good cash flow quarter, but it was particularly strong this year. We had SEK 1.1 billion of operating cash flow this quarter, as you can see. The biggest contribution here is really the change in working capital, where we had plus SEK 821 million. That's basically a seasonal effect partly, but we also have some effect from the lower volumes feed through to a positive effect in terms of working capital. We've also had a very tight control in terms of working capital this year, particularly with the underlying environment being so uncertain to keep a tight control on the working capital, which has led to a stronger cash flow here as well.
Year to date, we've delivered SEK 1.7 billion of operating cash flow, and also then that funds the strategic capital expenditure. Well within our operating cash flow. We've had SEK 1.15 billion of strategic capital expenditure this year so far, which is predominantly the Obbola investment. Here, because of the strong cash flow, we've had a good de-leveraging effect this quarter. We've reduced net debt by over SEK 1 billion during the quarter. From quarter two, which you see on the left-hand side here, we've had the SEK 1.1 billion of operating cash flow, which have reduced net debt. We've had strategic CapEx in the quarter of some SEK 300 million. We have basically a small effect from tax charge and then also a positive effect from revaluation of pension assets.
Overall it's the over SEK 1 billion improvement in net debt, which has driven a deleveraging in the quarter and also a improvement in the net debt to EBITDA ratio, where we were at 2.1 times three months ago. Now we're down to two times debt to EBITDA. Finally, just to show the balance sheet, our forest assets, you can see on the top line, are valued now at the end of September at SEK 71.5 billion. Valued according, of course, to the new method, market valuation of forest assets. Our working capital, you can see, is over SEK 1 billion less than it was at the end of last year, which is the strong effect I talked about in working capital, but a strong focus on working capital. Total capital employed then is SEK 77 billion.
Our net debt versus the end of last year, our net debt is down some SEK 200 million at nearly SEK 8.3 billion and two net debt to EBITDA at two times. We were lower at the end of last year, which is primarily the run rate on EBITDA, because the net debt has come down a bit, but also our run rate on EBITDA has come down, so the ratio is affected by that. Net equity SEK 68.9 or SEK 69 billion. The market price for forest assets, I remind you here, it's the same figure we had in the half year report. We haven't done any update of the market price of forest assets.
We still have the latest number of 281 SEK per cubic meter, which was the latest statistic we had at the end of June, and we will update that again at the end of the year when we get the latest market price of forest assets. It's slightly up at the end of June versus the end of December last year in terms of price per cubic meter. All right. I think with that I hand over to Ulf for a summary.
Best I stand up, or?
No.
Well, when we summarize the quarter, we can say that we are fundamentally reshaping the company. We have now finally taken the decision to leave publication paper, and at the same time, we have also taken the decision to further improve our pulp capacity. EBITDA was down during this quarter. We are clearly impacted by the decision to leave publication paper. Long term, it's the right step to take. Short term, it will have somewhat negative impact. We had this unplanned production stop in Östrand, as we have earlier talked about. Startup was very good, so we are happy about that. We have had, during this quarter, in comparison with last year, lower selling prices in all areas except from solid-wood products. We continue our program for buying forest land in the Baltics.
We have done 20,000 hectares during this period. By that we have reached 50% of the total 100,000 hectares that we have announced in one and a half year. We have also set the new climate target for the group, 2030, reaching 15 million tons of carbon dioxide per year. By that, I think that we open up for questions and maybe start here.
Nothing in the room, I think.
Nothing in the room?
Yeah.
Operator, we can open up the line if we have some questions from-
Yep.
...the audience.
We do. Thank you. Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone keypad, and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Once again, that is star one if you wish to ask a question. Thank you. Your first question comes from Johannes Grunselius from Kepler. Please go ahead. Your line is open.
Yes. Hello, everyone. It's Johannes Grunselius here. A few questions. May I start on the kraftliner, that side? You're pretty positive here, Ulf, on the pricing prospects. Can you confirm that you have these price hikes you're pushing through? Have they been accepted? Because we can't see this, at least in the statistics so far, but I know the statistics is lagging. Also if you could sort of highlight, is this very much demand-driven or what's behind it?
I think you saw that pretty well on the slide that I did show, I mean, the announcement has been down from 1st of November, so you cannot see it in the statistics yet. What you can see in the statistics is that the testliner prices has already went up with EUR 30 per ton. The announcement from our side has been EUR 50 per ton, that has also been done by other producers. Some from 1st of November, some from 15th of November, so on. It's an ongoing negotiation here. As you could see on the slide, we have strong deliveries. We also have a rather strong box demand. We are more or less back on the trend level as we were before the pandemic. I feel that we have, for the moment, a very strong market for containerboard.
We should basically pencil in higher prices for the fourth quarter already?
Still we are negotiating with our customers.
Okay.
Our view is that the balance is strong. Of course, we know that we will have additional capacity coming on stream from the first quarter next year. It's hard for me to judge what kind of impact that will have, but the balance is good just now. Prices are increasing now for testliner, which normally is a strong sign also for kraftliner.
Yeah. I can also see that you had, at least compared to my expectation, pretty favorable operating profit in the pulp business. Is it a lot of lower input cost that is coming through there, or what's behind the low cost? Also how should we be thinking about cost for the pulp division for the coming quarters?
I can take that. Obviously, we had the significant impact from the unplanned stop, which came in July. We had good production in August and September, and a good production feeds through to a good cost position. We've seen that effect come through in August and September.
Okay. That's useful. The final question. If I look at the forestry division, I take the EBITDA, I strip out the revaluation effects. The EBITDA per cubic meter is relatively low in the third quarter compared to previous quarter. Is this mainly effect of price, and can you help us in understanding the price decline year-over-year or quarter-over-quarter, and how we should be thinking about the next few quarters?
I can say that you also have to factor in always the amount of own forest harvest in that calculation as well. When we harvest more of our own forest, we have a significant profit effect from that, because that's where the profit is delivered from, basically, and vice versa, when we have a low harvest of own forest, that has a negative effect. That's one thing you need to factor in. Then, of course, the pulpwood prices and the timber sawlog prices have come down, as you saw in the graph that we showed as well. Over a longer period, that has an impact as well.
How should you think about timber prices, log prices, Q4, Q1 here with Q3 as a base? Do you still see a pressure on prices or is it more flattening it out now?
I would say that we have a rather stable market out there. We look more into details, we have a little bit of oversupply in pulpwood for the moment being. As we have a very strong market for solid-wood products, in some areas, I think some companies, they might have a lack of sawlogs. For us, as a big forest owner, we can adjust a little bit on how we harvest. We are in a rather balanced situation. All in all, I think in the northern part of Sweden, we have a rather stable situation. We have, as it is just now, no impact from the spruce beetle disease and so on. Stable in our area, I would say.
Okay. Thank you very much for taking my questions. Thank you.
Thank you. Your next question comes from Martin Melbye from ABG. Please go ahead. Your line is open.
Yes, good morning. The prospects are good on pulp and containerboard. Not to go overboard in Q4, what kind of price change do you see on kraftliner for Q4 realized, given that prices dropped in the previous quarter? Same question on pulp, if you will, realized price-ish for Q4?
We don't give forecasts, as you know. It is exactly as I say. In containerboard, we have announced a price increase of EUR 50 a ton from 1st of November. We have different agreements. Some of them are related to index movements, and some of them are direct agreements by us and customers. What we know just now we are negotiating, and what we know is that in testliner, they have come through with EUR 30 per ton, and then you have to do your own judgments of the possibility for us here. In pulp, we can also just follow what we know. In China now, prices, they have went up $30 a ton and have reached around $600 a ton as it is just now. That is the spot price.
We know that many suppliers or producers in Europe, they have announced increasing prices from 1st of October, and we are just now negotiating prices for October. We don't know really the outcome of that. We can look at the statistics, and you can do the same and see that we have a rather balanced situation. I think when you look at the inventory days just now in NBSK, you have to take into consideration that more or less all maintenance stops are moved from the spring to the autumn, as I said, and that will have a rather big impact on the inventory level going forward from now on.
I would add, Martin, and I think Johannes had the same question, but there's always a time lag when the prices come through to the bottom line, of course. There's a time lag for it to come through to index. That takes a bit of time. It always comes through a bit later in the result, both up and down than it does directly in the market, so to say.
Okay. To rephrase it slightly, the lower kraftliner price, did you capture everything here in Q3, or is there more to come from that in Q4?
No, it was pretty much all captured in Q3.
Great. Thank you. The last question on the potentially higher forest asset values. How much is that price increase you're looking at for the first half compared to what you had in your numbers?
We have the price per cubic meter, SEK 281. Is that
Yes. You said, you had seen higher transactions than that.
I said no, the SEK 281 is where the market prices were at the end of June. That's up versus where it was at the end of December is what I said. You can see then there's a 5 SEK per cubic meter increase there. What we do so far is we estimate SEK 281 for the end of the year, until we see updated statistics. A lot of the transactions do come through in Q3, Q4, so there's a lot more statistics coming through now, and we see no indication that it is on the negative side, but we have to wait for the statistics to come in and see where it ends up.
Okay. Thank you.
Thank you. Your next question comes from Linus Larsson from SEB. Please go ahead. Your line is open.
Thank you very much. Good morning to everyone. Thanks for providing the guidance on the Ortviken EBIT drag that we've seen the past couple of quarters. Could you also say what the depreciation has been, i.e., what has the EBITDA drag been in Q2 and Q3? Also just to understand this correctly, is all of the depreciation going away now as from the 1st of October in relation to Ortviken?
Basically, the depreciation we've given the EBIT then of SEK 40 million-SEK 50 million EBIT loss in Q2 and Q3. There's a small depreciation in Ortviken and around a little bit over SEK 10 million per quarter. You add that back to find the EBITDA impact. Basically, that depreciation will continue pretty much up until the machines are closed. There won't be a big impact in Q4, Q1.
Great. That's very helpful. Thank you. Also regarding the Ortviken site, you've already announced that you're making a significant investment into CTMP production. You have this cooperation with Renewcell. Are you also looking at other potential options for the site in your own business or as a landlord?
We have a lot of big projects going on just now, so we are very focused on delivering on all these. It was, for us, very positive that we could find an agreement with Renewcell, and that is mainly regarding our personnel that can be very helpful, I think, for Renewcell when they are starting up the new line. We are very happy for that. Otherwise, we are not in a hurry. We will start up now the project with CTMP, and we are in a very good position here. We can utilize the old TMP equipment that was integrated back in 2007, and by that we will have a very low investment cost. Also I didn't mention that, but the fact that we now can close down 2023 the CTMP production at Östrand, that give us an opportunity for further capacity increase in Östrand.
That is also part of the picture, really. Also part of the strategic picture where we say that we shall continue to grow our pulp business and, as I said, also leave the publication paper business. As it is just now we are focused on delivering on the projects that we have announced. We have a fantastic site there, and we will continue to have activities on Ortviken site. For the moment being, we are not planning anything else for the moment being. Long term, it's a fantastic infrastructure that will be used for something.
Just to be perfectly clear, does that mean that also on the next leg of the Östrand expansion, that's not something that is imminent? You will now focus on what's going on the Ortviken site and the previous project at Östrand and Obbola, and the next potential expansion of Östrand is not in focus for the time being?
We have done a lot of pre-studies and feasibility studies when it comes to Östrand, and we know that we can and will continue the journey at Östrand, and we shall do that, of course, as we have already today the biggest line in the world at site. Again, it's a question of market, it's a question of cash flow, and we don't know really what kind of impact the second wave of the COVID pandemic will have and so on. For the moment being, we are focused on what we have announced.
Yeah.
Yeah.
That's clear. Just short-term also on pulp shipments, I guess, were negatively affected by the Östrand boiler breakdown in the third quarter. Are inventories on the low side now that you're going into the fourth quarter? You have a bit of maintenance, in other words, does that mean that shipments to capacity will remain somewhat suboptimal in the fourth quarter as well?
We will be impacted by the planned maintenance. We did start in September, and as I said, we had a negative impact of SEK 20 million in September, and we know that we will have another negative impact of SEK 125 million in the fourth quarter. By that, production will be lower for a while. We feel that we have a strong market as it is just now. We have no limitation in the market for the moment being, but still we have to do this planned stop.
Right. Just one final question. There are a lot of structural changes going on in the company, Obbola, the CTMP, the closure of Ortviken, and the acquisition of forest land in the Baltics. Once all of this has been completed and the dust has settled, what would self-sufficiency will we be looking at?
Obbola, CTMP, and so on, you will remain on around 50%, I would say. The good thing with the CTMP project is that 50%, 300,000 tons of CTMP is around 600,000 cubic meters of wood, but more or less 50% out of that will be birch, which is good. We are over-supplied when it comes to birch. In birch, it will be more than 100%. We will be fully supplied from our own forest. You also have a little bit different mix going forward.
Okay. Thank you. Those were my questions. Thank you very much.
Thank you.
Thank you. Your next question comes from Cole Hathorn from Jefferies. Please go ahead. Your line is open.
Morning. Thanks for taking my question. Just to follow up on the kraftliner market, we've seen the U.S. market calling out good demand and box demand and them pulling back on some of their exports to Europe. Could I get a little bit of your comments on what you're seeing from the U.S. players on their exports? They also commented around stronger produce demand, and I know that's not really where much of your volumes go, but hoping you can give a little bit of commentary on that. Following up on wood products, you talked about better construction demand and some exports to the U.S. Are you still seeing that strong pull in the export markets for wood products? Thank you.
If we start with the import of kraftliner to Europe, normally it's rather stable. It is a couple of 100,000 tons going to Spain and Italy and down there, I feel it's on a rather stable level here and will continue to be.
You mentioned produce as well being strong, but a lot of kraftliner goes to the produce market, so it's an important segment also for kraftliner. We see that effect as well.
When it comes to the U.S. market, I'm maybe not the right person to ask. We do 70,000 cubic meters per year and have done so for 25 years to few customers there. We feel that there is a strong demand. I'm personally a little bit surprised of the strong demand that we still have in Scandinavia and Northern Europe and so on. That is what we have just now. As I said before, see another price increase in the fourth quarter. We also see that we will have a strong market in the beginning of next year. U.S. has been a strong driver for that because big volumes from Europe has went over to U.S. as prices has went up. SCA is maybe more stable with our customer base. We haven't really acted on that.
We have our more or less the same volume in U.S. today as we had before the price increase, so we are quite stable in the mix. I didn't catch the second question. What was that?
Well, I suppose something just following up on the kraftliner side would be, do you have any more color what's driving this acceleration in demand? Is it industrial coming back that you're seeing in your customers?
Yeah. Again, first, I believe that we have also during the pandemic seen a good demand from the e-commerce business that has been strong. What has been negatively impacted is the industry, and we feel that it is a much stronger demand. You also saw the statistics that the box demand is now up on a higher level than it was before the pandemic, which might be a little bit surprising, but that's the case just now. Inventories are also low, and deliveries are super strong in kraftliner. I think very much it's now depending on the second wave, what kind of impact will that have on the industrial production? We saw in the first wave that production, of course, in Germany, not the least, went down and spare parts and things like that.
A lot of our kraftliner is used for that kind of industry. As it is just now, for the moment being, it is a strong demand, and let's hope that will continue. I think that will be pretty much dependent on the development now of the pandemic.
Thank you.
Thank you. Your next question comes from Justin Jordan from Exane. Please go ahead.
Thank you, and good morning, everyone. I've got two completely different questions. Firstly, on the $50, sorry, $40 a ton softwood pulp price hike that you're targeting, I'm just conscious of the fact that some of your Nordic peers have been cautious on this in what they've said in their Q3 results in recent days. Secondly, clearly, there is a very elevated difference between softwood pulp prices in excess of the hardwood pulp prices globally. Does that make it a quite a challenging environment to get this softwood pulp hike through unless you see hardwood pulp prices moving up also? My second question is just buried away in your results release. You're having a Capital Markets Day on December 3rd. What should we expect from that, please? Thank you.
I don't.
Yeah, no. I think Ulf said that really on the softwood pulp price hike. I don't think we can comment anything on what others comment, but we feel a strong market with these maintenance stops also shifting to the fourth quarter. I don't think there's really much more we can add to that. That's I think the feeling we have is how Ulf has presented that. I don't know what more I can add to help you there, Justin, but I think that's our take on the market situation and the prospects on the NBSK side. The second question, I think we gave a little bit of a flavor. We'll give a bit more flavor going forward for the Capital Markets Day.
We expect to show the strategy going forward and the vision for SCA over the next five years is basically the theme of that Capital Markets Day, and we've taken a number of big decisions here, and we want to show how that transforms SCA.
Potential route after that as well.
Okay. Just one quick follow-up on your new 15 million tons of CO2 target, as it were, for 2030.
Do you envisage at some point in the future that you can monetize this carbon capture through, I don't know, some sort of a EU regulatory system or something? Clearly, you've been doing this, I don't want to say for centuries, but clearly, you naturally do this to some degree because you're a fantastic forest owner. Clearly, you don't get frankly any revenue or profit from it directly. Is there any sort of vision of the future where this might become a potential revenue profit stream for you?
Maybe I can start, but I think it's still extremely early or hard to answer that question. I think it's becoming more talked about in terms of the benefit that forest has in terms of carbon dioxide. There are no real concrete proposals that we see for monetizing that. There's a few ideas, but it's still very, I would say, very preliminary in how those kind of ideas might work or might, yeah, pan out in future. It's too uncertain to draw any kind of conclusions or any kind of viewpoint at this stage, I would say, Justin. Yeah. Anything we can say?
Okay.
Yeah.
Thank you. Your next question comes from Mikael Doepel from UBS. Please go ahead. Your line is open.
Thank you. Just a question on the publication paper business. I appreciate the additional data you're giving on Q2 and Q3. These are quite extreme quarters, I would say, from a historical perspective. I wonder if you would mind giving some indication on the long-term EBITDA that business has generated before the pandemic. Maybe just a ballpark figure would be great.
We don't give separate figures for publication paper, I think what we've always said is, basically, the day when publication paper stops contributing, then we'll take action, that's what we've done here. Publication paper during Q2 and Q3 has been a loss-making business and has been then a negative effect on SCA and on the group. Then we've taken the decision to exit publication paper. Before that, publication paper, you have to go back a long time before you get basically a strong bottom line from publication paper, before that, it wasn't a negative impact. It was a neutral or a small positive impact, you could say. I think that's about all I can say, Mikael, about.
I would say it's been extremely volatile because it's also dependent on the currency and so on.
Yeah.
The industry has been, I think, quite good at the closing down capacity. As always, a little bit too less and a little bit too late. Again, I think we have reached a new normal, and I don't think it's enough now with what's done. A lot of capacity closures has now been announced, but we will see more.
Yes, for sure. Then a question still on the pulp market. I appreciate you not wanting to give too much comments on the pricing. If you think about the European and Chinese pulp markets right now, if you compared it to, what would you say are the key differences right now in terms of demand trends and in terms of inventories and so on? Anything you could comment on that?
Just now we see that China, they had a pandemic effect a little bit earlier. They recovered from the pandemic a little bit earlier. The consumption in China has, as I see it, been quite good. We don't do too much to China. We are more focused on Europe and secondly on U.S. Still, as we have seen, that prices now has come up already in China. I think that Europe will come after. I don't know to comment so much more about that.
Most of our customers are in Europe. That's the market that the vast majority of our sales. That's our main market.
Yes. How would you characterize the demand in Europe? I guess the tissue demand hasn't been that strong, and graphic papers remain quite weak. Just looking at the statistics, but how have you seen the demand of pulp.
I mean-
In Europe, in England? Yeah.
You saw it on the slide, more or less. First, you had a buffering effect in the beginning of the pandemic. It was a really strong market out there and strong demand. It has come down to what you can more see like a normal level, I would say. That's where we are just now. In the tissue business, when you also look at tissue companies presenting their results, they have a rather stable demand in tissue. I think the big impact, of course, also in the pulp business has been the effect of the publication paper business decline.
Okay. Sure. Good. Just finally on the working capital, maybe, Toby, if you can give a comment on that. We saw quite a significant release, as you pointed out, in Q3. What do you expect going into the last quarter of the year? Do you expect to see some further release, or how should we think about that?
We don't give forecast either on working capital. I think Q3, as I said, seasonally is a strong quarter and was particularly strong this year because of the tight control and also the lower volumes in Q3 have an impact on working capital. I don't think we'll see that effect twice, if I put it that way. I wouldn't, at this stage, give a forecast of what we expect in Q4.
Okay. All right, good. Thank you very much.
Thank you. Your next question comes from Markku Järvinen from Handelsbanken. Please go ahead, your line is open.
Yes, good morning. I had a few more clarifications, I suppose. To start with the containerboard business. Testliner, you said there is a EUR 30 price increase that has passed. Can you just remind us what was the increase that was sought when that passed?
Sorry, what was the last part?
The increase that was sought.
What kind of increase?
I think they also went for EUR 50 per ton in most cases. Yeah, sorry.
Okay, very good. Kraftliner, where do you now stand in pricing in October compared to the Q3 average?
Kraftliner pricing in October.
For you.
Yeah. Again, that's forecast information, but we don't give out. Basically, there's not a big difference, I would say. Basically, we haven't seen the increase coming through, and as I mentioned earlier in the call.
The time lag effect has come through now during Q3 of the previous drop in kraftliner prices, so that's now fully in.
The drop was-
Okay.
20 per ton in Q3.
Yeah.
Okay. Very good. Then this price increase you've announced for this November, does that impact the P&L primarily from December? How should we think about that?
Yeah, it has this time lag effect, so I think it will be a small impact before December, yes. It will be December 1st that we see the impact of that on bottom line, yeah.
Okay. Very good
It'll be more than in Q1.
Good. Looking into next year, there's quite a bit of capacity increases in testliner and then in the kraftliner. We know that Stora Enso is converting the Oulu plant, and that will come online early next year. How does the supply balance in that market look to you?
It's really hard to say. Oulu will not go from zero to 100% in one quarter. It will be a ramp-up period, of course. Again, I think the biggest question mark will be the demand. As it is just now, as I did show you on the slide, the box demand is back. It's on a higher level today than it was before the pandemic. Deliveries are on a really high level for the moment being. Inventories are on a low level. Fundamentally, you have a really strong balance in the market just now. Of course, the big question mark for all of us just now is what kind of impact the second wave of the COVID pandemic will have on the business.
I think we, in some areas, might have learned something from the first wave, and as it is just now, we don't see too many signs of companies closing down the production. If things get worse, then no one can really answer.
Sure. Industrial demand in containerboard or kraftliner, has that now fully recovered from the pandemic impacts, or where does it stand?
Yeah, it seems so. The e-commerce and e-business is super strong, and maybe the industry part has not fully recovered yet. That is yet to come if and when we come over this.
Okay. Very good. Then pulp, I still had a few questions on that as well. You've now announced pulp price increases from 1st of October, and that those negotiations are ongoing. I suppose Södra followed that increase. We haven't seen an increase from Metsä. Have you seen increases from other players for the European market?
We don't talk with other players. We talk with our customers, and we feel that they understand that prices will come up a bit. We just talk to our customers.
The increase is from 1st of October, but I suppose that would then impact November or how does it look?
Again, we have some customers that are related to the PIX price development, and other customers, they will have direct agreements. It differs. Again, you will have a lagging effect also in pulp.
Okay. Good. China was talked about quite a bit, but where does the net price spread stand at the moment in NBSK between China and Europe after discounts?
If you have China net price now on $600, more or less, official PIX price just now is $840, if you take 70% out of that, you can do the calculation.
Okay. Very good. I suppose you mentioned this on this part of the call, but where do you see sawn timber pricing going to Q4? How much was it up in Q3 now, and what's the move to Q4?
For SCA, that's our own figures.
Yeah.
You have no statistic. For SCA, we had a 1% price increase the third quarter in comparison with the second quarter, including currency. In the fourth quarter, I believe that prices will increase another 3% in comparison to the level that we have had now in the third quarter. We feel also that we have a surprisingly strong market when we also come into 2021. The demand is still there. Of course, somewhat slower activities in the builder's merchant sector, but still a good demand and a stable demand.
Very good. Those were my questions. Thank you very much.
Thank you.
Thank you. Ladies and gentlemen, as a reminder, if you wish to ask a question, please press star one on your telephone keypad. And we will now take our next question coming from the line of Oskar Lindström from Danske Bank. Please go ahead. Your line is open.
All right. Good morning, gentlemen. I have a couple of questions on the pulp side, which I thought was a very strong result here. In the quarter, it seems you had very strong pulp production in August and September, and you say that you lost some 50,000 tons in July because of the boiler problems. If I add back the 50,000 tons to what you actually delivered in the third quarter, that would indicate that it's a record level for the pulp division now in Q3. Does this reflect, in any way, a new normal, new higher production level for Östrand? Or were you more, you had a very good two months, and that's the way we should see it?
I certainly hope that we have reached a new normal, so to say.
As you said, we have a good production in August and September, and one of these months was also a record month. Again, it is now, I feel, on a stable level. We have now just performed the planned stop, and we have done also some work with some bottlenecks and so on. Step by step, it's getting better and better. Still, it is a tough job to ramp up a mill like that. Just now, we are confident with what we have, and we have reached some kind of a new level there now.
All right. Very interesting. A follow-up, you talked a little bit about the CTMP project that you have in Ortviken. How are you progressing on the project of expanding the chemical pulp capacity in Östrand, which you've previously mentioned would be made possible by moving the CTMP line to Ortviken? What's the progress on that project?
Yeah. Again, just now we have taken the decision to invest SEK 1.45 billion to build up CTMP at Ortviken site. That will be, of course, a big project. We have to close down the CTMP production at Östrand in order to be able to continue to develop the Östrand site. We will do that. Definitely we will do that. We will utilize the infrastructure that we have now created around Östrand, so that will happen. Again, now it's more a question of cash, of course, and what kind of impact will the pandemic have on the future market for a while. Timing is important just now. We have a couple of big projects going on now. We have Obbola perfectly on time and budget, will be up and running in the first quarter of 2023.
We have the big project in Bålsta, slightly less than SEK 1 billion, but still a lot of money. We invest now in the closure of publication paper, also in cash slightly below SEK 1 billion, and we put in SEK 1.45 billion into the CTMP production. In addition, we have also taken another step in the Baltics. We have a lot of cash out for a while just now. We have done a lot of work in Östrand just to understand the most clever way to take the next step. We are pretty sure on how to do it. Just now it's more a question about timing, I would say.
Thank you. I appreciate that you have a lot of things going on at the moment, including some rather expensive ones. Just on that expansion in Östrand. Again, I realize it's some time away. What would be the CapEx associated with that? Is it something you would be able to do with a rather small de-bottlenecking investment?
I don't like to speculate in that, I think that will be, if the CTMP project, that will be a very cost-effective one because then we can use the TMP line already. That will be one third of a greenfield. In Östrand, I believe we will be more in line with what a normal cost for expanding a pulp mill.
All right. Thank you.
It does depend on what kind of technology. There are a few options still. It's not that we know exactly which option is.
Still the problem for us in Östrand is the recovery boiler. We need to find a way to release that bottleneck, you can do that in different ways. It's also related to what you can do with the lignin. You can always do energy, but can you do something else, and how can you do it? We have some options, and we also have some time now, I think, to figure out what will be the best for us and the safest way to do it.
Thank you. Just finally on this topic, when do you think you will be able to tell us about what that next step in Östrand will look like?
Maybe when we know about the pandemic and things like that. Let's see. We will come back on it, Oskar.
Thank you.
Yeah. Thank you.
Yes. Just a question on the CTMP project in Ortviken. I know you had a separate press conference on this, something that I've thought about since then. To what extent will you be selling this increased CTMP volume to existing customers? To what extent will you need to find new customers? It's quite a niche product in a relatively small market. I was just wondering about that.
Yeah. It's a good question. CTMP, you have different grades of CTMP, and we are rather specialized in the CTMP that we produce today from Östrand, and we feel that we have a strong customer base already today. Many of these customers, they'd like us to increase the volume, and that is, of course, the first option. We also see an increase in demand, not the least from China and so on, mainly due to the restrictions when it comes to taking recycled material to China. As you say, technically it is a much more easier project than when we compare, for example, with Östrand and the chemical pulp production. The challenge might be in the market for a while. Again, that's also why we haven't really calculated on a fast ramp-up.
We will take it step by step, and we will also try to continue with the balanced market, of course.
All right. Wonderful.
Thank you. Those were the questions I had.
Thank you.
Thank you.
Thank you. We have no further questions at this time. I will now hand back to the speakers for closing remarks.
Thank you for the interest you have shown in this press conference and in our quarterly report. We hope to see and hear from you again, first on our Capital Markets Day, which will take place on the 3rd of December, and then at the year-end report on the 29th of January next year. Thank you.