Good morning, and welcome to this presentation of SCA's third quarter results. With me here today, I have President and CEO Ulf Larsson and CFO Toby Lawton. Please, Ulf, go ahead.
Thank you so much, Anders, and also from my side, good morning and a very warm welcome to this presentation. When I summarize the first quarter, I can state that we deliver our strongest quarter ever. We made SEK 2.7 billion on EBITDA level and a profit EBITDA margin of 53%. We have seen a very strong market during the quarter, underlying strong demand and in all product areas, more or less, and not the least important, we took the decision to leave publication paper last year, and that has also been very contributable to our good profit this quarter. On top of that, we have had a stable cost level and also good production.
During this quarter, we have performed two maintenance stops, and we have also started up a third one, and I will come back to this later on. The impact during this quarter has been around SEK 170 million in comparison with SEK 60 million third quarter last year. Our net sales went up, and the main reason for that is, of course, the price and mix. On the other side, as already mentioned, we took the decision to leave publication paper last year, and we also took the decision to divest our supply operation in wood for U.K. During this quarter, we have also announced that we will invest SEK 700 million in a joint venture together with St1, so we will take a stake in their biorefinery in Gothenburg.
Total capacity in this biorefinery is 200,000 cubic meters, and 80%-40% out of that can reach the quality of biojet. Just to give you some kind of relation, that is approximately 50% of what's needed for the Swedish domestic air flight. In this agreement, we have also said that SCA shall annually deliver 60,000 tons of tall oil into this JV. Finally, I'm happy also to say that we continue to run our two strategic investment projects in kraftliner Obbola and CTMP Ortviken according to plan, when it comes to time and budget. If we take a closer look at some KPIs, as already mentioned, we delivered SEK 2.7 billion, which gave us a strong EBITDA margin of 53%.
If you look to the right-hand side, you can see that that is substantially higher than previous quarters. Our industrial return on capital employed, calculated as an average for the past 12 months, reached 25% during the third quarter. If we just look at the third quarter, our industrial return on capital employed was 46%. Our net debt in relation to our EBITDA went down to 1, and that is of course due to a strong cash flow. I'm pleased to say that we continue to finance our big strategic investments through our operating cash flow. I walk over to our segments, starting with the Forest. I can just state that we have had another quarter of stable supply of wood to our industries.
If you look to the bottom left, you can see that the price development for pulpwood is rather flat. We had a positive effect when we decided and when we took the decision to leave publication paper, but since then it's been quite flat. When it comes to sawlog prices, we have seen gradually increasing prices during the third quarter. We will see it also in the fourth and maybe also in the first quarter next year. Our EBITDA is in line with the last quarter. It's positively impacted by higher revaluation of biological assets that gave around SEK 70 million for the month. On the negative side, we can note that we have had a lower harvesting level from our own forest during this quarter in comparison with last year.
The reason for that was that we had a strong harvesting level in last year, and just now also we have a very strong external supply to our industry. If we then turn over to wood, we can also here state that we have a high level of global demand. We have seen strong markets in Japan, U.K., and also Scandinavia. We have seen slightly less good demand in China, also in Middle East, North Africa, and also maybe in U.S.
Nevertheless, if you look in the bottom left, you can see that we have had a significant price increase during a couple of quarters now, and we have reached definitely a top record level when it comes to prices for solid wood products. I said last quarter that I thought that we should in Q3 reach 50% better prices in Q3 in comparison with Q2, and that was exactly the outcome during this period. I will come back to our forecast for coming quarter. Sales was up 37% due to higher prices due to high prices and also due to the fact that we even if we took the decision to divest our supply unit in U.K.
EBITDA was also substantially up, and we have EBITDA margin of 54%, which I think is highly competitive. Here are some graphs, and if we start top left, you can see the stock level in relation to the average for the past five years in Sweden and Finland. We can now see that we have come back to some kind of normal situation when it comes to the stock level. Bottom left, you can see the production, and also here we can see that we are more or less on a normalized level. Top right, you can see the price development. As I said, prices in the third quarter in comparison with the second one this year is 50% higher. We've reached some kind of record level.
I think now, when we have a combination of a balanced stock, a normal production, and then a seasonal, lower consumption in Q3 and in Q4 and the first quarter, I believe that we will reduce prices now in the fourth quarter by 15%-20% from a very, very high level. If we then turn over to pulp, we've had during the third quarter a good demand in Europe. We have also had a okay demand in U.S. and slightly weaker in China. Nevertheless, we also here are on a record level when it comes to pulp prices. The official PIX listing price now is $1,340 per ton.
We reached the bottom Q1 2020 on 820 USD per ton with a different discount rate, with a different currency, but nevertheless. We have in SCA higher volumes during this quarter in comparison with last year due to stronger production, and our EBITDA was up as much as 380% due to higher prices, due to higher volumes. On the other hand, we had a negative currency effect of about SEK 90 million for the quarter when we compare year-over-year. Here we have also started up a planned maintenance stop. It is a quite long stop, 22-23 days in Östrand, and we had a negative effect in the third quarter of SEK 20 million , and the main part, major part will come in the fourth quarter.
Here are some words about the pulp market development. As I said, we've seen decreasing prices in China. If we compare now China with Europe, one can say that in Europe we have a net price of $900 per ton. The US slightly weaker, $800 per ton, and then China around $700 per ton. So it's quite substantial spread as it is today. We have seen that in China now we have an energy crisis, and it's also very expensive to move products from China over to Europe. I think that's one reason why we feel that the European market is still strong and we see somewhat weaker market in China. For SCA, we are almost 100% focused on the European and the US market.
As you also can see, inventories are today on a normal level for hardwood and on a slightly high side for softwood. On the other hand, we now know that we will see a couple of rather long maintenance stops during the autumn, and I think that will change the situation somewhat in the coming months. As you also all know, supply is impacted by global logistical challenges. For us, focused on Europe, we have managed that quite well. Turning over to containerboard, here we have performed two big planned maintenance stops, one in Obbola, and as you know, we have our ongoing big investment project in Obbola.
I can say now the mill is prepared for the startup of the new kraftliner machine in the beginning of 2023. Everything has went very well there. We had a 12-day stop in Munksund, a planned stop. All in all, the negative impact during the quarter has been for these two stops around SEK 150 million. Sales was up substantially during this quarter when we compare year-on-year, and that is due to higher prices. Volume, of course, lower due to this maintenance stops. EBITDA also substantially up, but again, negatively impacted by a lower volume, of course. If you then take a look at the containerboard market development, we can see that we continue to have a steady growth of European deliveries.
If you look at the bottom left, you can see that inventory days, they are below average. Also here we will see a couple of big maintenance stops coming in during the autumn. Prices has since the bottom November last year increased by EUR 250 per ton. We have had another price increase announced from first of October, and that one will come through another 50 EUR per ton for unbleached kraft. We see that it's still a very good demand for containerboard. Underlying consumption is good. We know that the prices for OCC in Europe has went from 70 up to 170 EUR per ton. Also at the same time, we see that the energy prices is rising.
I mean, that is, good conditions for further price increases also for kraftliner. The delta between kraftliner and testliner today is EUR 150 per ton, which is quite on a normal level. On the top, right, you can see also that we have still a strong box demand and that, I mean, this demand continue well above trend since we had this drop during the first phase of the pandemic. By that, Toby, I hand over to you.
Thank you. Thank you, Ulf. Good morning, everybody. I will start as usual with a bit on the income statement, and here you can see on the net sales line, we've had a growth in net sales of 17% versus Q3 last year. This is also to remember that last year we had around SEK 1 billion of sales from publication paper per quarter. We've obviously taken away the publication paper business, but the strong top-line development driven also by the strong pricing environment has more than compensated. We have an EBITDA of SEK 2,684 million this quarter, so a very strong profit development, EBITDA margin 52.9%, so record level.
Coming further down the income statement, you can see financial items very stable at SEK 24 million this quarter. Then tax at SEK 453 million, which is an effective tax rate of just under 20%. Earnings per share, you can see also strong development earnings per share driven by the net profit for the period at more than SEK 1.8 billion in the quarter of net profit and then SEK 2.59 per share. That means that year to date, we're also SEK 5.85 per share earnings per share. A good development also earnings per share and net profit.
If I just give a bit more detail by segment, and here you see the different segments, and if I start on the left-hand side with Forest and the top left, you can see the net sales is down a bit this quarter versus last quarter. That's a bit due to the maintenance stops that we had during the quarter and at the end of the quarter for pulp as well, which reduces the deliveries of wood into the industries during the quarter from Forest. The bottom line here on the bottom left is driven then mainly by the share of our own forest. That's where the profit is driven by, and we have a seasonal pattern here that we normally have less harvesting from our own forest during quarter three, which we had also this year.
That's the reason for the seasonal pattern, the drop versus quarter two in the Forest division. In the Wood division, you can see a strong growth in net sales, obviously driven mainly by the strong price development that Ulf has already mentioned. That really drops through to the bottom line as well, where we had an EBITDA in the Wood division of more than SEK 1 billion, SEK 1.18 billion this quarter, which is then an EBITDA margin of 54%. A very strong delivery from the Wood division. The Pulp division top line we have is slightly down 1,522, a little bit lowering the deliveries ahead of the maintenance stop to keep a stable delivery also during the maintenance stop.
Bottom line, also a strong increase in margin up to 42% EBITDA margin and SEK 659 million in EBITDA. On the containerboard division, in the sales, well, you can really see, of course, the effect from exiting publication paper, which came from between Q4 and Q1 this year. Basically, pretty flat in top line. We've had price increases, but again, here it's smoothing out the effect from the maintenance stop, so slightly less volume compensating. In the bottom line, you can see also the EBITDA margin has been impacted by those maintenance stops, which had around SEK 150 million of impact in the containerboard division. But despite those, EBITDA margin 27%.
If we come just to the bridge on net sales, you can really see the impact of prices, the 44% impact on basically higher prices in all product areas, all segments, so 44% in total. We've had a bit positive impact from volumes, 3%, mainly from the Pulp division with the higher volumes versus quarter three last year. Currency slightly negative, -3%, and then we have the impact, which is in total 27% from publication paper and also the divestment of the wood supply division in the U.K., which we made in the autumn last year as well. Overall, a 17% increase in top line.
When it comes to EBITDA, you can really see the strong drop-through from the price here, SEK 1.9 billion impact from price and mix. A small contribution from volume as well. Raw material, a slight negative. This is partly due to that we source a little bit less from our own forest this quarter, but also the OCC prices to which we have a limited exposure. Energy is a positive impact. We have increased sales of energy mainly from Östrand this quarter. Negative currency impact, as I mentioned, and other is mainly the maintenance stops impact, which we've mentioned already, which has a negative impact of SEK 149.
I think when we see this bridge, just one reflection is that the decision to exit publication paper, we're certainly happy that we took that decision last year because without that, we wouldn't have seen anything like the same positive impact on price and the same stable cost development. I think that really supports the strong delivery through to bottom line here. When it comes to cash flow, I'll start on the left-hand column here, the quarter. Even if we take the EBITDA and we take away the impact mainly from the revaluation of the biological assets in the EBITDA, that means we have an operating cash surplus of more than SEK 2.2 billion this quarter.
I'm happy with a strong or tight working capital management despite the price increase environment which impacts on the working capital, of course. We've managed to hold working capital a bit lower this quarter with a positive impact of SEK 61 million. Restructuring costs, which is really related to the closure of publication paper, we had SEK 65 million in the quarter. After taking off the current CapEx of SEK 365 million, we have an operating cash flow of SEK 1.872 billion. Again, a strong operating cash flow delivery.
Then when you look to the next line on strategic capital expenditures, you can see that once again, both in the quarter, but then also in the year to date numbers, you can see that we're funding basically the growth of the company and the strategic capital expenditures from our operating cash flow with some margin. Here, of course, the strategic capital expenditures are, it's the largest project is the Obbola expansion, but we also have the growth in the investment in the CTMP expansion in Ortviken as well. All being funded from self-generated cash flow. A few words on the balance sheet. We have the top line, the forest assets, which are now valued to SEK 77.5 billion.
This is valued at basically the market price according to market statistics, which is SEK 300 per cubic meter. Working capital. Here you can see we have just under SEK 3.2 billion of working capital. Even though that's increased since the end of last year, you can see the working capital to sales ratio has come down, and that's what I was talking about with the tighter management of working capital. Then when including the other capital employed and deferred tax, we have a total capital employed of just under SEK 84 billion. Net debt, very stable at SEK 7.6 billion. We've delivered a deleveraging down to 1.0 net debt to EBITDA through the strong cash flow. I'll just come back on that in a moment. Then equity, just over SEK 76 billion.
Then finally, just a few words on the operating cash flow. We've now had actually more than four quarters, but we show four quarters here of strong operating cash flow delivery, more than SEK 1 billion per quarter on average. This quarter, especially, getting closer to SEK 2 billion in operating cash flow. Really strong development in the financial position of the company. You can see that really from the deleveraging line. We've gone down now to 1.0 net debt to EBITDA. A very strong development in the balance sheet. I think the right-hand side of this picture is also very nice to be able to show. This is the new paper machine hall and paper machine under construction in Obbola.
That's what all this cash flow is helping us to finance from own cash flow and at the same time, deleverage the company. So it's a good performance. With that, I will, yeah, hand back to Ulf for a summary and Q&A.
Yes. Well, I don't really have too much to add. I mean, it was, for us, a super strong quarter. It's the best quarter ever. 53% profit margin for the total company, heavily contributed by the decision to leave publication paper. I think we leave it there and open up for questions.
Thank you, Ulf. Thank you, Toby. Today, we are moving into the Q&A session. First, we do have some questions or one or two here in the studio in Stockholm. We start with that, and then we will hand over to our operator, Maria. Please go ahead.
Thank you very much. It's Linus Larsson with SEB. I'd like to start on the pulp division. You gave some color, but maybe first on volumes, you were somewhat constrained by the pending or the planned maintenance shut in the fourth quarter. Looking at volumes in the fourth compared to the third quarter, given that planned maintenance shut, are you expecting stronger volumes? Or, how will that work out?
Maybe I can tell. I mean, we try to smooth out the effect of the volumes in delivery volumes. We do have, of course, significantly lower production when we take a maintenance stop, but we smooth that out. We've taken a bit of that effect in Q3, but we would expect it also to come in Q4. I think it will be tough to have a positive volume development Q4 versus Q3. It's not the full effect of the production stop.
Thanks. Also on price, Ulf, you described the discrepancy we see now between Chinese and European prices, and one would at least under normal circumstances expect that to translate into redirection of volumes into Europe because prices are obviously higher. Are you seeing that, and are you seeing price concessions taking place in Europe in the fourth quarter?
I mean, first, as I said, I mean, we have some kind of energy crisis in China and we also have substantially higher cost for going from China over to Europe and vice versa. I mean, I think we see less of paper and other products in Europe, so that creates some kind of stronger market for pulp, at least for us in Europe. We are not too present in China. I mean, we do the main part in Europe and then some of it in the U.S. So I mean, as I said, I mean, we've felt a really good demand from Europe in the last quarter and of course, long term, I think the prices still, they will come together in one way or another. So.
I mean, we don't know. We have had the same price now for four quarters in a row, and negotiations are ongoing just now.
Okay. Thanks. Just one question on the star performer in the quarter, wood. I think you had return on capital employed of 122% in the quarter. Ulf, you again make a forecast for the.
Yeah.
Wood price in the fourth quarter. Could you describe a bit more what you're seeing among your customers right now? I mean, what's their behavior? Is there a destocking cycle we're entering into? What's real underlying demand? What's the 2022 outlook, do you think?
It's very hard to say. I mean, as you saw, I mean, stock level has now normalized when it comes to. We have statistics from Sweden, Finland, and at sawmills, I mean, we have a normalized stock level, more or less. Production is also reasonably normal because I think the sawmills, they cannot really produce more. You have a limited availability of saw logs, and also, I mean, you have a limited capacity. So that is what we see there. Underlying, the consumption is good, but as you all know, in Q4 and Q1, normally we have a seasonally lower demand. I mean, that is what is just now creating some kind of adjustment of the price level.
I mean, from a record level, we move down 15%-20%, so it will still be a very strong profitability in the sawmill business for the coming, at least for the coming quarter.
Thanks.
Thank you. With that, we will hand over to the operator. Maria, please go ahead.
Thank you. To those who wish to ask a question via the telephone lines, please press star and one on your telephone keypad. Your first question comes from the line of Robin Santavirta. Please ask your question.
Thank you very much and good morning. First off, I would like to ask about the containerboard market. Prices are quite significantly up year -to- date and you said one additional increase in October. Now what do you see in that market going into the winter? Is this now sort of the peak price in October or is there potential for further increases in the winter in Europe?
I definitely think that we will see further price increases in containerboard. I mean, the underlying demand is still very good, and that is one thing. The other thing is, to some extent, we are dependent on the testliner market and I mean, testliner producers today, they see really high energy cost level, and they also see a very high cost level for OCC. As I said, from, I think it's November last year and up till today, the price increase has went from 70 EUR per ton up to 170 EUR per ton. It is a problem for testliner producers to get availability of OCC in the market. I think it's a really strong market, and I see that we will.
I forecast that we will see further price increases in this segment.
All right. Thanks. That is clear. In terms of the wood division, you commented on demand and prices. Thank you for that. What is the outlook when it comes to cost now in Q4 and in 2022?
I think it differs a lot, depending on where you are in Sweden. I mean, for us, as being the biggest private forest owner in Europe, I mean, we have a high degree of self-sufficiency when it comes to saw logs. That is very positive for us, of course. Nevertheless, we buy some volumes from the, let's say, open market. I mean, in that case and for that part, we see some slight increase in prices during the fourth quarter, and that might continue also into the first quarter. It's nothing substantial, but still, the direction is north here. Of course.
Good. Thank you. For Toby, could you comment about the CapEx for this year and potentially for next year? What is the sort of your estimate and how to.
Yeah. No, I can say we expect current CapEx still to be in line with our guidance of SEK 1.2 billion- 1.3 billion for the full year. Strategic CapEx also to be still in line with our guidance. We expect SEK 3 billion- 4 billion of strategic CapEx for the full year. That means we expect quite a big strategic CapEx in the fourth quarter, primarily related to Obbola as well.
Sure. Thanks. 2022, is that around similar numbers to be expected?
Yeah. We expect slightly less in 2022 because I mean, we'll see where we actually come out this year for Obbola. We expect this year is basically the heaviest year of the investment in Obbola, and then it should come down a bit next year. Obviously if we don't take as much in the fourth quarter this year, that will roll forward into next year, so it depends a bit on how things land in the fourth quarter.
I understand.
Mm.
That's all.
Yeah.
Thank you very much.
Mm.
Thank you. The next question comes from the line of Oskar Lindström. Please ask your question.
Good morning, gentlemen.
Mm.
I have three questions.
Mm.
The first one is kind of a general question. We now have or you have record price levels for both pulp and sawn timber, and we're probably heading there for containerboard. As you said, I mean, these are the best earnings that you ever had. I mean, in your opinion, and I suppose this is for you, Ulf, you know, how much of this is a temporary boom driven by, you know, very special market conditions after COVID and money supply increases and all that? You know, how much of it is underlying structural change? I know it's a wide question, but.
Yeah, I know.
Please answer it as you want.
Yeah. It's very hard to answer on that one. I mean, fundamentally, I think we are in the total portfolio we have now, when we have gotten rid of the publication paper business. I mean, we are in growth areas, and we are also favored by the sustainability trend, I mean, to move from plastic over to paper, from concrete over to solid wood constructions and from fossil fuels to liquid biofuels. And that has also been our. We have been striving to reach that position. We are very happy about that. Fundamentally, I think over time you will have a steady, I mean, structurally, it's so hard to say. I feel that we can.
If I give you some view for the fourth quarter, I feel that we are, I mean, we have a strong order book. We are very well booked. We will have some. I already said that we will have some small adjustment in solid wood products, but we will continue on the record level when it comes to profitability. Containerboard will be even stronger than it is just now. Pulp, we don't know yet. I mean, we are, as you say, on a good level, but again, we feel a reasonably strong demand in Europe. Long term, we will not see the spread from EUR 700 up to EUR 900, but what will happen? I mean, I cannot really say.
Yeah.
Mm.
That's fair enough. A second question, which is maybe a little bit easier but not that much, is on capital allocation.
Mm.
You already have a very strong cash balance sheet, and you've got also very strong cash flow at the moment. You know, where are you gonna? Where can you spend the money that's attractive? I mean, what significant earnings growth opportunities do you have? Is there a possibility to expand capacity in your existing facilities? I mean, is there enough wood supply for that in Sweden?
Mm.
Would you need to look at byproducts more or, you know, expansion abroad? Where do you see the most?
Mm.
A ttractive, capital allocation opportunities at the moment?
Yeah. I mean, first, just to remember, I mean, we are just now in the middle of a very big project in Obbola, SEK 8 billion. I mean, the project is perfectly on time, and we are very satisfied with the development that we see there. I mean, we have to finalize that one. The second one is the new CTMP line in Ortviken. We are also in the middle of that project, running according to plan, but it should be finalized. We are also in the middle of a big project in Bollsta Sawmill that is SEK 800 million, that shall also be finalized. We also, during the third quarter, took the decision to invest SEK 700 million into liquid biofuels. I mean, I think we do a lot of things here.
I mean, going forward, of course, I mean, we can further increase capacity at Östrand. We've said it before. When we have fine-tune the production line in Östrand, then we will take that decision. I mean, it's too early to say when. We see lots of opportunities. I mean, we continuously buy forest. We have our program in the Baltics. We have done 50,000 hectares there. We have said that we should reach 100,000 hectares in five years. If we can buy more forest, we will do that. We will also look into new investments in energy. Wind power is one thing, and I think we will maybe start to invest some more money ourselves into wind power.
We also have a lot of ongoing pre-projects and things like that in the area of liquid biofuels. I mean, we have a lot of things to do here. First and most important is to really deliver on the projects that we now have started.
Yeah. Sounds wise. Just a final question from my side, and this is more concrete, is on the pulp. You talked about, you know, long maintenance stops this fall. I believe you were not only referring to your own stop, but to the market in general, that would potentially, or maybe you said it will change the situation in coming months. Could you expand a little bit on that? It sounded as if you were expecting the pulp market to tighten a bit.
Yeah. I mean, as I said, I mean, for us, in the third quarter, we have had rather, if not tight market, but a balanced market. Europe has been quite balanced and, that's the reason also why we have kept prices unchanged for 4 months in a row. We know that. I mean, we will ourselves perform a 22-23 days stop in Östrand, which is quite substantial and which is planned and which we have to do for regulatory reasons and things like that. We know that many others, they have to do exactly the same thing. I think, again, also this year that some maintenance stops, they have been postponed from the spring over to the autumn due to the risk for the pandemic.
I think that will have an impact on the stock level for softwood.
Maybe I could just add.
Yeah.
When you look at that graph that I've showed of the softwood inventories, I think you've seen the last couple of years have had more stops concentrated in the fourth quarter. You see, I mean, it's the trend also previous years that the stock has gone up over the summer ahead of the stops and then come down obviously in Q4 when the stops have taken place. I think, we're seeing the same trend this year that we've seen in previous years.
Do you believe that, you know, the market can handle this? Is that something that you think might cause a, at least a short-term squeeze in the market?
We don't believe we just sell.
Okay. That's great. Yeah.
I think we and others, I mean, we. As I said, to Linus's question earlier, we smooth out our delivery so that, you know, if you like, we take an impact in Q3 and Q4 and Q1, basically from the lower production volumes in Q4. And others do the same. It doesn't create a sort of short-term impact in the same way. It's more smooth effect. Of course, it's volume that's not there in the market.
All right.
Yeah.
Well, you know, thank you. Good answers to some general questions.
Mm.
Thank you very much.
Thanks.
Those were all my questions.
Thank you.
All right. Thank you. The next question comes from the line of Cole Hathorn. Please ask your question.
Morning. Thanks for taking my question. I've got three questions my side. I'll take them one at a time. The first one is around the containerboard market, and I'm hoping you can give a little bit of color potentially what you're seeing from the competitors on the recycled side. I mean, Ulf, you talked about, you know, higher energy prices, OCC availability, causing a bit of problems for some of those recycled producers. Are you hearing of any of the smaller players taking downtime because of energy just not making it worthwhile for them to produce, tightening the market there? And if there's any color you can give on the recycled containerboard inventory levels. I know you've given very helpful data on the kraftliner, is the first question.
Mm.
The second question is around.
Can we please start.
Yeah.
Can we start with the first one?
Go ahead. Mm-hmm.
Otherwise we will not remember. I mean, we are not into details when it comes to the testliner market. But again, I mean, what they've done so far, I think is to drive the price, and that's the reason why I think we will see another price announcement coming up here. As I said, I mean, the delta between kraftliner and testliner prices, they are still on 150 EUR per ton, which is quite the normal level. But if they won't come through with the further price increases, then I think that you will see curtailments taken. That's my view on that. It's not easy today to get access to recycled fiber, I think, in Central Europe and in these regions.
Mm.
Like to add something, Toby?
Yeah, only to say, I mean, it's the testliner suppliers are, I mean, you read they are struggling with both the OCC prices but also a number of exposed to gas and energy prices. So, you know, they. Yeah, they need price increases.
I think another thing for us, it's important to underline that because we have had some questions about the impact from
Increasing energy prices, but I mean, we are totally neutral. Since we closed down our publication paper business, we produce as much as we consume, which is just now a very favorable position. We are not impacted at all by the energy price. It will change slightly when we have Obbola in production and the CTMP plant in production. As I said, then we will continue to invest in energy production. We like that balance.
Thank you. Then if I take the second question, if I look at your business medium term, I mean, you've now completed the Östrand expansion, you've got Obbola and some other projects out there. Is there any color you can give on the EBITDA level you're going to be at, or margin level you're going to be at on a medium term basis? I mean, if I think about normalized pricing levels, I have SCA on, you know, potentially a SEK 7 billion EBITDA business, you know, 2025 medium term. That is, you know, 20%-30% above your 2019 EBITDA levels. I mean, that's a good medium term growth outlook. Is there any color you can give on how you're thinking medium term on a normalized pricing environment?
I mean, I think we don't give forecast call, but what I mean, maybe the color I can give a little bit is we have said obviously the Obbola project drives a bottom line improvement, and we've talked about SEK 800 million-SEK 1 billion EBITDA impact from the Obbola project. You know, we're on a trend pricing level, of course. Yeah, of course, prices vary, but on a trend pricing level from the CTMP, we expect around a SEK 300 million impact. Those are both positive impacts in terms of bottom line development that we, you know, we expect to have an impact.
Also closing, if you look at kind of on a margin basis, we've also talked about closing publication paper and the exit of the UK wood supply business drives a margin improvement. Maybe not obviously not a bottom line improve, but a margin improvement of around 5%. I think all those things we expect to have an impact, but we don't give forecasts, of course. I don't know if yeah.
Thank you. Just the final question is on how you're thinking about the forest business medium term. There have been some questions around a kind of voluntary carbon credits and whether Europe would ever be able to get voluntary rather than being official EU ETS scheme carbon credits. Is there any discussion you're having around voluntary carbon credits on the forest business? Just some color there would be helpful. Thank you.
I mean, you have a lot of discussions around the forest and the European Union. I mean, we saw that it was presented a new forest strategy from the union during summer. It's not a legislation, it is a strategy. Now we are looking forward to see what will come now during the autumn here when suggestions for legislation and things like that. I mean, we feel confident in this situation. I mean, we are the biggest private forest owner in Europe. We have a high degree of self-sufficiency of when it comes to raw material supply to our industries. We are in a good position. I mean, I don't think we should have too much view on it.
I think personally that when we also see a lot of politicians now, they say that forest and forestry, that is a national competence and from Sweden, from Finland, from France, Germany and other countries. I think it will be a balanced solution here at the end.
Thank you.
Thank you. The next question comes from the line of Johannes Grunselius. Please ask your question.
Yes. Hi, everyone. It's Johannes here. Most of my question have been answered, but I can ask you maybe on the cost inflation side, how you look at things for the fourth quarter and next year. You have this very useful picture on page 16 in your presentation deck, SEK -75 million. That's the year-over-year impact from raw material.
Mm.
I mean, how do you sense that this will develop, this component in the coming quarters?
I think we have maybe relative to others a more limited sort of impact to input prices in that our wood we largely source from our own forest, where energy we have a net seller. We have relatively maybe fewer chemicals or other input chemicals is a fairly small share of our input costs. We don't today see a big sort of impact from input cost inflation. Probably, of course, the biggest one for us is when we source wood from third parties.
We've seen fairly stable this year, but as Ulf mentioned earlier, at least on the round saw logs, we do expect to see some, not huge, but some price increases during Q4 to Q1 in particular. As I say, not huge. That's probably what we have visibility of currently going forward.
Yeah, that's helpful. Maybe I can also, you know, ask you about the wood products that's been quite discussed already. Still, do you sense that there is a risk on the volume side here, since it seems to be quite much a wait and see mood in the market where price has gone ahead? Or you're confident that you will, you know, sell out all your production there?
I mean, as always, it's a question about supply and demand. I mean, for the fourth quarter, as I said, I mean, we are more or less sold out. We are on a
We have a strong order book and.
Yeah.
The price is more or less set in the market. I mean, otherwise, I wouldn't have said that we will.
Yeah. Okay. Got you.
Reduce prices by 15%-20%. I mean by that, we have the floor there. I feel that there is a good demand. As I said, it differs a little bit between different markets now, but Japan, U.K., Scandinavia is still very strong. I mean, we have seen U.S. recover a bit. Still rather slow in China and also in the MENA region. I think again, China is maybe hit by this energy crisis.
Mm.
They've been forced to close down some industry and things like that, so.
Yeah.
All in all, it is stable underlying demand for wood products.
Okay. That's very useful comments. Can I just finally ask you, on wood product, how much, roughly speaking, are you exporting out of the Nordics? I mean, overseas market, if you could give us some good, you know, rough numbers there.
Out from Europe, you mean?
Yeah, yeah.
Let's say 25%-30% or something like that.
Okay.
It differs between, I mean, if it's good demand in Japan, China, U.S., then it's a little bit more. I would say in that region.
Yeah.
Yeah.
Got you. Okay. Thanks a lot.
Thank you. The last question comes from the line of Michael Doppel. Please ask your question.
Thank you. I have three short questions. First on the capital allocation side of things, and regarding the biofuels project that you have ongoing, what kind of a revenue and EBITDA contribution would you expect from this to flow through into your P&L? And when could that happen?
I mean, well, the investment is around, in total, around SEK 700 million we expect into the biofuels joint venture project with St1. That's the investment. We don't give a forecast of the profitability of all investments, but we expect this to have a good return and good payback. It won't come before 2023 is the first year that we expect operations to be running. It won't come. The profitability will come obviously when the operations are up and running. I think that's about all I can give for the time being.
Okay. On that same topic, what kind of a capital return requirements do you have in general when you are considering growth projects?
We don't have one number that we say, you know, every project must have a 15% return. It's not that simple. I think we look across a profile of, you know, the risk involved in the project, how long-term the business is and the forecast is. I mean, if you take the energy project we just mentioned, for example, there we would have a higher demand on return because we want to have a quicker payback on those types of projects. When it's a long-term asset, like a forest asset, then we don't have the same view on return, and we don't have the same view on risk either.
It depends. I think we need to get a good return based on the profile of risk.
Okay. Good. Just finally coming back to the containerboard.
Mm.
Market, you said that the demand continues to be good. Is there any particular end use segments you could point to? I mean, for example, do you continue to see e-commerce being strong? Is it the industrial part of the end use that is driving it? Or any color on that front would be great.
I mean, we know that e-commerce has increased substantially during the pandemic, and I think that it's a changed pattern, so that will remain also going forward, I think. I mean, if you compare with the first, second phase of the pandemic, industry is up and running nowadays, even if some of them struggle with the supply chains, but still it's a good pace in the industry as now. I think it's a combination in different areas. I mean, containerboard and packaging just now seems to be very strong. Also in combination, as I said, I mean, you have in some areas problems to get access to OCC and you have increasing energy prices and things like that.
That will also push prices, I think, for a while. Add something, Toby, or?
No, I think.
Mm-hmm.
Okay.
Mm.
Good. Thank you very much. Those were my questions.
Thank you.
Thank you very much.
Thank you.
Maria, we don't have any further questions, do we?
There are no further questions at this time. Please continue.
Thank you. That concludes our presentation of the third quarter results, and welcome back for the presentation of the fourth quarter results. Thank you very much.