Good morning, and welcome to Mercer International's fourth quarter 2021 earnings conference call. On the call today is David Gandossi, President and Chief Executive Officer of Mercer International, and David Ure, Senior Vice President, Finance, Chief Financial Officer, and Secretary. I will now hand the call over to David Ure.
Good morning, everyone. I would like to remind you that in this morning's conference call, we will make forward-looking statements. According to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, I'd like to call your attention to the risks related to these statements, which are more fully described in our press release and in the company's filings with the Securities and Exchange Commission. We achieved record EBITDA in Q4 on strong pulp and lumber sales volumes, high energy sales prices, a much lighter scheduled maintenance program when compared to Q3, and the settlement of the business interruption insurance claim associated with the repair of our Peace River recovery boiler in mid-2021. These positive impacts were partially offset by lower pulp realizations in all markets.
Our Stendal pulp mill ran the entire quarter without the benefits of its turbine generator, which had the impact of lowering our EBITDA by about $30 million at today's electricity prices. However, I'm happy to report that the turbine is being repaired and it returned to service in mid-January. We also experienced modestly higher fiber prices in both Canada and Germany. In addition, our freight costs were up at our Canadian operations due to the increased use of trucking and higher warehousing costs due to extreme weather and COVID-related supply chain slowdowns. Our Peace River mill recovery boiler damage insurance claim was settled in late December, which allowed us to record it in Q4. The total Q4 EBITDA impact was about $32 million.
We are pleased to have this claim behind us and that our 2021 fiscal year includes both the loss associated with the downtime needed to repair the boiler and the insurance proceeds meant to compensate us for that lost income. We regenerated record EBITDA in the fourth quarter of almost $165 million compared to EBITDA of about $148 million in Q3. Our pulp segment contributed record quarterly EBITDA of roughly $143 million, and our wood product segment contributed total quarterly EBITDA of almost $24 million. You can find additional segment disclosures in our Form 10-K, which can be found on our website and that of the SEC. For the full year, we also generated record EBITDA totaling almost $479 million, exceeding our previous record by well over $100 million.
This was achieved despite our Rosenthal turbine being down for almost six months, which negatively impacted EBITDA by over $40 million. On average, softwood and hardwood pulp prices in Q4 were lower than Q3 in all of our major markets. In China, the Q4 average NBSK net price was $1,723 per ton, down $109 from Q3. European list prices averaged $1,302 per ton in the current quarter compared to $1,345 per ton in Q3. NBSK remains at a considerable premium to hardwood, with the average Q4 net eucalyptus hardwood price in China at $562 per ton, down $61 from Q3. In total, average pulp sales realization movements negatively impacted EBITDA by just over $30 million compared to the prior quarter.
Pulp demand was strong in the quarter, and our modestly higher overall production led to higher sales volumes compared to the previous quarter. Our Q4 sales totaled almost 516,000 tons, which is up about 68,000 tons from Q3. We did not take any planned downtime in Q4, while in Q3, our mills were down a combined 44 days for capital and annual maintenance work. This is roughly the equivalent of 43,000 tons of production. The impact of no planned downtime in Q4 compared to Q3's maintenance downtime included higher production and lower direct costs benefited Q4 EBITDA by almost $15 million. Our lumber realizations were also mixed this quarter compared to Q3.
The Random Lengths U.S. benchmark for Western SPF 2x and better averaged $711 per thousand board feet in Q4, which was up $217 per thousand from the last quarter. Our average European sales realizations were down approximately $44 per thousand board feet compared to Q3. The benchmark lumber price in the U.S. is currently $1,275 per thousand. Our wood products business continues to perform well. We sold about 104 million board feet of lumber in the quarter, which is up slightly compared to our Q3 sales volume. Our electricity sales totaled roughly 207 GWh in the quarter, which was up relative to Q3 due to less planned downtime. However, our sales volumes were held back due to the absence of generation at Rosenthal for the entire quarter.
Our Cariboo pulp mill joint venture, which is accounted for using the equity method, contributed another 16 GWh to this total. We reported net income of $74.5 million for the quarter, or $1.13 per basic share, compared to net income of $69 million or $1.05 per share in Q3. For the full year 2021, we reported record net income of $171 million or $2.59 per basic share, compared to a net loss of $17.2 million or 26 cents per share in 2020. Cash generated in the quarter totaled approximately $7 million compared to cash used of $46 million in Q3.
Our cash generation in Q4 was primarily the result of strong EBITDA being offset by working capital movements, primarily in the form of higher accounts receivable and, to a lesser extent, higher inventory balances. Our higher accounts receivable balance is principally the result of timing of sales late in the quarter, along with the recognition of the Peace River insurance claim, receipt of which did not occur until January. Higher inventory was due to finished goods increases in North America due to logistics restrictions and higher priced raw materials, combined with relatively high seasonal inventory levels. We expect the majority of this working capital build to reverse itself in Q1. We invested almost $34 million of capital in our mills this quarter, which put our total capital investment in 2021 at $159 million.
In addition, in 2021, we completed the $51 million acquisition of Mercer Mass Timber, our cross-laminated timber production facility located in Spokane, Washington. David will provide updates on this business and our CapEx program shortly. At the end of the quarter, our liquidity position totaled about $631 million, comprised of $346 million of cash and $285 million of undrawn revolvers. Our strong liquidity position will support our planned working capital movements along with our ambitious 2022 high return capital spending programs. In January, we entered into a new CAD 160 million revolving credit facility for our Canadian operations. This new syndicated facility has a five-year term and replaces the CAD 260 million Canadian facilities for our Celgar and Peace River mills.
This will be a lower cost facility secured by working capital and gives our Canadian operations significantly more financial flexibility. In addition, we have commenced discussions with our property insurer on a business interruption claim for our Rosenthal turbine downtime and expect settlement sometime in the second half of 2022. We are pleased to highlight that our board has approved a 15% quarterly dividend increase, which will increase it to $0.075 per share for shareholders of record on March 30th, 2022, for which payment will be made on April 6, 2022. That ends my overview of the financial results, and I'll now turn the call over to David.
Thanks, Dave. Good morning, everyone. Let me begin by saying how pleased I am with our overall operating results this quarter. We benefited from our global operating footprint as strong European pulp market conditions helped mitigate the impact of supply chain restrictions that we experienced at our Canadian operations. While our strategic core focus to maintain only low-cost assets keeps our costs and carbon impact low in normal times, in times of high energy prices like we are experiencing at the moment in Europe, our net energy export position is a tremendous differentiator for us. In Q4, our operations generally ran well, and the year ends with a number of operating records, including record quarterly EBITDA. We will also remember 2021 as being a year of considerable evolution as a company with the addition of mass timber and engineered wood products and steady expansions of lumber capacity.
While we continue to diversify our products, we also remain committed to our legacy as our Stendal pulp expansion will attest. These results reflect the hard work of our team during the period under often challenging operating conditions, along with the benefits of our recent investments. Again, our mills generally ran well this quarter, and strong production combined with overall steady demand for our products were key drivers behind our record Q4 results. In fact, our results would have been even better, but for the complete absence of power generation at the Rosenthal to conduct turbine repairs.
While the lengthy downtime was unfortunate, we took the opportunity to pull 84 days of planned turbine maintenance from 2022 into 2021, and this decision will reduce our insurance claim for the period, but we also expect it will result in a net benefit to the mill, given that electricity prices in Germany are much higher today than they were back in 2021.
While still relatively strong, average pulp prices fell modestly in Q4 as negative sentiment in parts of the market caused by fears of new eucalyptus hardwood capacity, a general negative economic outlook, and logistics restrictions for paper products that made it challenging to ship product economically all started to weigh on the markets. However, the sentiment seems to have shifted in the early days of Q1 due to supply chain restrictions for pulp producers in Western Canada, along with a labor dispute affecting NBSK production in Finland.
These supply side restrictions have created upward pricing pressure, and most pulp makers have been able to implement some modest price increases. In addition, we believe that low consumer inventory levels, heavy pulp producer maintenance levels, and new hardwood supply coming to market more slowly than anticipated, excuse me, will create average pricing conditions that are sequentially higher in Q1 and possibly Q2.
Lumber markets, like pulp, are relatively strong but variable. Average lumber pricing in both Europe and the U.S. weakened modestly during the quarter, though U.S. pricing has shown considerable strength since late in Q4. While the midterm backdrop for U.S. pricing conditions remains solid with relatively low housing inventory, low borrowing costs, as well as strong homeowner demographics, the dimension lumber market is currently characterized by short-term weather events, inflexible supply chains, along with labor and home construction supply shortages. Add to this the sometimes inconsistent supply from Canada, and you have the market that we are currently witnessing, which is long-term growth with intermittent volatility. Looking ahead, positive home builder sentiment remains despite the expectation that mortgage rates will rise in 2022, which is consistent with our view that we will continue to see strong lumber demand based on expected steady U.S. home construction.
The variability of European pricing is much less pronounced. As expected, prices in the European market have moderated, following a trend that has developed over the past few years of European market changes generally lagging those of the U.S. Consistent with that trend, after reaching a modest trough in Q4, we are seeing pricing in Europe now recovering to early 2022 as European producers, despite the small numbers, begin to direct some production to the strengthening U.S. market. We will continue to optimize our mix of lumber products and customers to achieve the strongest sustainable realizations that we can. In Q4, 46% of our lumber sales volumes were in the U.S. market, with the majority of the remainder of our sales in the European market.
Although we feel our logistics strategies put us at a competitive advantage to many of our competitors, we experienced some freight cost increases in Q4. This primarily came in the form of increased use of trucking and higher warehousing costs in North America caused by extreme weather and pandemic-related shipping delays, which has reduced the availability of rail cars. These delays forced us to take our Cariboo mill down for 3 weeks in December, and at times slow production modestly at Celgar and the Peace River mills in December and into early 2022. We expect the situation to begin to ease once temperatures begin to moderate. Looking forward, our turbine generator at Rosenthal was put back into service in mid-January. We are pleased to once again have our mill producing its own electricity and selling surplus production into a very strong German electricity market.
Having the turbine down for almost six months negatively impacted our annual operating results by approximately $41 million. Having a world-class energy balance has never been more important. I'm sure that most of our listeners are aware of the steep rise in European energy prices over the last few quarters. This affects our business in a few ways. First, we are net electricity sellers. In the last year, the gray market energy price has on average, more than tripled in price. As a result, you can expect our revenues to grow in Q1 relative to Q4 now that the Rosenthal turbine is back online. Further, we believe that the conditions that are giving rise to the current power prices are not likely to abate in the near term.
Germany remains on pace to decommission its remaining nuclear power plants, and the perceived natural gas supply threat and this tension between Russia and the West now do not seem to offer an opportunity for a quick retreat of power prices. While fossil fuels have become a relatively small source of energy for us, limited to our lime kilns, we are impacted by higher gas prices, which have increased dramatically. We are expecting a knock-on effect of high gas prices in the coming months, as we expect that many central European households will turn to alternative supplies to heat their homes, such as wood pellets, which will put some upward pricing pressure on our main raw material, low-cost pulpwood. However, we believe the benefit of higher electricity prices will more than offset the impact of higher gas and potentially higher wood costs.
Our wood products segment achieved another solid production result, producing 111 million board feet of lumber, which was up 9 million board feet compared to Q3. We are pleased with the rate that our wood products segment investment is developing, particularly as we've been forced to regularly interrupt production during our ongoing construction project. As I mentioned, we believe that we have the conditions in place to see improving pricing for all of our products, power, lumber, and pulp, and we are aware of inflationary pressure on the cost side at the moment. Inflation has been limited to natural gas, some elements of our delivery channels, and more recently to fiber costs. In Germany, we are seeing strong demand for both pulpwood and sawlogs, which is driving increased fiber costs.
Demand for pulp logs is being driven by pellet producers, as I mentioned, as high European energy prices are creating more demand for wood-based heating solutions. While sawlog demand and pricing appears to be peaking, we are expecting increases in the prices we pay for lower value pulpwood to rise over the next two quarters. In Western Canada, reduced harvesting due to extreme winter weather combined with COVID-related hauling limitations, which pushed pulpwood prices up modestly in the quarter. However, we're beginning to see incremental harvesting activities, and we are optimistic COVID restrictions will begin to ease, trends that we believe will limit Canadian fiber cost increases in the near term. Despite not having any annual major maintenance in Q4, we did continue to invest in our operations.
In Q4, capital expenditures totaled $34 million, mostly in high return projects like upgrading the wood rooms at our Peace River and Celgar mills. We are excited about the benefits these projects bring, including improved fiber resource utilization, reduced greenhouse gas emissions, and lower fiber costs. We are using our liquidity and strong balance sheet to continue to pursue the growth aspect of our strategic plan in areas where we have core competencies. Specifically, we have refocused our growth in building products, green energy, market pulp, and chemical extractives, and we will continue to do so in 2022. We have another ambitious capital expenditure plan in 2022. We expect to invest approximately $175 million in our mills this year, the majority of that being on high return projects that will drive new product development, ESG advances, productivity improvements, and input cost reductions.
Our two wood rooms at Celgar and Cariboo will be completed late this year, and we will be making additional investments in our German wood procurement infrastructure that will add to our competitive advantage. We have one more sorter to add to our Friesau mill to maximize the benefits of our new planer by allowing for even greater grade differentiation. While most of the Stendal 740 pulp expansion project is complete and running as expected, we will complete the final element, some modest modifications to the pulp machine wrapping line in 2022. You can also look to us to take steps on our carbon strategy in 2022, as we expect to commence construction of a lignin extraction plant, a leading-edge technology that will allow us to look at commercializing derivatives of lignin, products that have historically been limited to biomass fuels.
Of course, we remain committed but cautious in our approach to solid wood expansion. We continue to develop our Stendal sawmill project, but we need more stable equipment supply conditions to emerge before launching this project, conditions that we expect to return when the pandemic wanes. We have long recognized the importance of sustainable operations in planning for the long term. We are proud of our sustainable performance, and we are applying a lot of resources to ensuring that our ESG performance continues to improve and that our performance and objectives are transparent. We're looking forward to the publication of our sustainability report in early 2022, which will further support our messaging regarding our sustainability reports and values.
Our 2022 annual maintenance schedule will be significantly less intensive than 2021 due to the Peace River recovery boiler rebuild being completed, and we will be running through Q1 without any planned maintenance downtime. The timing of our scheduled downtime for the remainder of the year is as follows. In Q2, Stendal will take a three-day mini shut. Celgar will have its regular 15-day shut. Peace River will have a 16-day shut, and Cariboo has a six-day maintenance shut. In Q3, Rosenthal has its regular 14-day shut planned, and in Q4, Stendal has a 14-day maintenance shut scheduled. In total, we are planning for about 67 days of major maintenance in 2022. The 2021 highlight of our growth strategy was our acquisition of Mercer Mass Timber.
We remain very excited about the potential of this business, and it fits well with our value add carbon focus solid wood strategy. We continue to build up the order book for the plant's core product, cross-laminated timber panels. We're already producing long length finger joint and lumber, and we're studying the plant's ability to produce other complementary engineered wood products. This facility has an annual production capacity of approximately 140,000 cubic meters of CLT, which represents about 30% of the current CLT manufacturing capacity in North America. We feel that the environmental and construction flexibility benefits compared to traditional steel and concrete construction methods make this product right for future growth.
Looking forward, our record 2021 operating results, liquidity position, and strong balance sheet leave Mercer well positioned to use that financial flexibility to add shareholder value by continuing to execute on our growth strategy. Finally, as Dave mentioned, our board has approved a 15% dividend increase this year. I believe this emphasizes the confidence we have in our ability of our world-class assets to generate strong cash flow throughout the cycle.
The term we're using a lot within Mercer these days is fit for the future, a commitment to being on the right side of the climate change challenge. Given our role in managing forests and producing physical goods and green power from renewable resources, along with our focus on human talent and our strategy to operate only top performing modern mills, we believe and expect Mercer will be a welcome industrial player for the future.
This will not be the case for everyone operating in our space, and therein lies the opportunity. Now, let me conclude by remarking that the safety of our people continues to be our focus as COVID-19 variants spread globally. We are committed to our safety protocols to ensure the safety of our employees, contractors, and the ongoing operation of our mills. In keeping with one of our core values, I encourage everyone to get COVID-19 vaccine to keep your families, friends, colleagues, and neighbors safe. Thanks for listening. Be safe. I'll now turn the call back to the operator for questions.
Thank you, sir. We will now begin the question and answer session. To ask a question, you may press star one on your telephone. Again, it's star one on your telephone keypad. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Sean Steuart with TD Securities. Please go ahead.
Thanks. Good morning, guys. Appreciate all the detail as always. A few questions. You gave a lot of detail on cost trends, freight, and fiber. I might have missed it, but can you give us some context on what you're seeing with chemical costs through your pulp mills right now, quantify the pressure you might be seeing for that element?
Thanks, Sean. Yeah, go ahead, David.
Yeah. I'd say at this point, Sean, in 2021, we haven't experienced material changes in our chemical costs. As you might imagine, we have some chemicals that are derivatives of petrochemicals, particularly natural gas and electricity. We are expecting some inflationary pressure in 2022, probably as early as Q1 and Q2. At the moment, 2022, the increases were not material. Yeah, we're expecting some in the future for sure.
Okay. Thanks for that. On the Rosenthal generator, a couple of questions. The business interruption insurance claim that you expect to receive compensation for in the second half, can you quantify that? I think the context you gave was if that generator was running in the fourth quarter, that would have been an incremental $30 million. Can you clarify that as well?
Maybe start with the latter part of your question there, Sean. $30 million in the third quarter, another $10 million in the second quarter, hence the $40 million or $41 million in total for the year. There's really two elements of that, as you might imagine. One, we're not selling to the grid at the moment when the prices are particularly high. In fact, we're actually buying. We have been buying some power from the grid. It's sort of a bit of a double whammy. Those both of those conditions will be gone here in Q1.
In terms of the business interruption, yeah, this is definitely an insurable loss, and we'll be working with our insurer to develop a claim. It is a fairly complex claim. There are elements. As David had mentioned, we had planned on doing a maintenance shut on this particular turbine in 2022, so that'll roll into the size of the claim. It's a fairly complex claim and one that we're just beginning discussions with the insurer. I think it's a little bit too early to estimate the total value of the claim. Possibly in the next quarter, it'll be a little bit more clear.
Okay. One last one on shipping logistics. Do you have any sense that things are starting to improve on that front at all? Do you have any clarity on, I suppose, getting back to normal is a ways off potentially, but any sense that things are improving at the margin on that front at this point?
Well, CP's improved a lot for the Celgar mill. You know, CN is the company that's still struggling. It's you know, these things just wind their way out. For Peace River, we've been using more trucks and we've been redirecting tons east, you know, out of Edmonton, that kind of thing. Yeah, it's kind of costing us roughly, you know, on average about 12,000 tons a month at the Peace River mill in terms of slowing the mill down when we can't get logistics sorted out. It's you know, it's annoying, but it's not catastrophic. That's the way I'd describe it. Yeah, it you know, we would expect it to unwind itself over the next one or two months, I would guess.
Okay. Thanks for all the detail, guys. That's it for me.
Your next question comes from Hamir Patel with CIBC Capital Markets. Please go ahead.
Hi. Good morning. David, can you maybe help us just understand maybe the magnitude of how energy prices that you receive in Europe how they may have changed or how they're tracking in Q1 versus Q4?
Sure. Yeah, maybe just some metrics, Hamir. In the middle of the pandemic, the gray market, which is the rate you can sell at as a generator, not green, just normal, was about EUR 40 a MWh. The green rate, the tariffs that we've had at both Rosenthal and Stendal are roughly EUR 90 a MWh. Now remember, Rosenthal came off its 20-year tariff last year. Today, the gray rate is about 180. In December, we saw it at times above 200. It's a very dramatic increase. Both Rosenthal and Stendal are selling today at the gray rate. We have the right to clip off the green rate tariffs onto the gray market at our discretion. It's double what the green rates were on average.
Great.
Yeah.
Thanks. Thanks, David. That's helpful. I just wanted to ask about the acquisition pipeline and just given where we are in the cycle, wanna get your thoughts on whether you see more attractive opportunities in pulp or lumber. Within the lumber side, is the focus on Europe, or is North America of interest as well?
Yeah, I think I don't think you should plan on us chasing pulp mills right now. You know, our strategy is to operate world-class, you know, modern mills fit for the future, and there just aren't many like that, and those that exist are not for sale. On the lumber side and the mass timber side, you know, we definitely see a bright future, and it's all about being disciplined and picking the right lane and some of that has to do with synergies with pulp assets as well. We're open to lumber in Europe and in North America, and we're also very focused on mass timber engineered wood products. We've got quite a bit of work to do at our Spokane plant.
We're making long length finger joint today. We're getting a tremendous amount of interest on CLT, but there's other engineered wood products that can come out of that plant as well. Similar to what we did with Friesau when we bought it, you know, as we build our team up and we, you know, get going here, I think we're going to have some pretty exciting projects we can implement at that facility. You know, it's gonna take a little while, but I'm really super excited about that whole mass timber space. I think that's a place for us in the future, for sure.
Thank you. Great. Thanks for that.
Mostly lumber and mass timber, I mean, would be the focus right now.
Right. Okay. Well, that's all I had. I'll turn it over. Thanks, David.
Your next question comes from the line of Andrew Shapiro with Lawndale Capital Management. Please go ahead. Hi. Thank you. A few follow-ups to Mr. Patel's and Mr.
Yeah. Thanks, Andrew. Good morning. You know, from a burn perspective, I'd say it's immaterial to the Mercer scale.
Mm-hmm.
We're selling. Basically, we're buying boxcars of lumber and converting it into a value-added product called long lengths finger joint lumber. And there's a margin on that that's really helping to cover the cost as we ramp up the facility. You know, when we bought the facility, there really we didn't have any employees. This will be an extensive ramp-up period, you know, building the team to be able to successfully execute on CLT and other associated products. But I think what investors should expect is the internal rate of return for the investment in the facility, through as soon as we get through ramp-up, which is, you know, probably six to nine months, is okay.
It's a good internal rate of return. With the additions and the strategy that we're developing for reasonably modest investments, we're gonna really knock it out of the park. We're really excited about it. That'll be something that'll progressively and, you know, happen over the next couple of years, similar to, you know, very similar to how it occurred at the Friesau's facility. It's something to look forward to, Andrew. It's not a burden on the company at all today.
Really what we're doing is building a team that can execute on these high value or high return capital projects that are coming, and also help us develop our strategy for growth in that area, you know, so that we can be really smart about it and you know, and turn this into a platform.
Okay. The follow-up to Mr. Steuart's line of questioning, I'm just trying to make sure if it's from dealing with apples to oranges. Your press release spoke about a logistical delay of about 35,000 tons of pulp from Canada to Asia. You spoke of about 12,000 tons a month of pulp that I think was going eastbound instead of westbound, perhaps.
No, no.
Are these one and the same?
No, no, they're different. I think.
Okay.
Might have mischaracterized the 12,000 tons for you, so I'll correct that.
Yeah. Okay.
There's sort of three things going on. We had a vessel slip from December to January, and that's just gonna push it in. You can't record the revenue until the vessel leaves the berth, and that's, so that's pushed from Q4 into Q1. We also have an inventory, unsold pulp, that's higher than normal because it's taking longer to get it to the ports and to customers at the Canadian mills. I'd say, you know, both the Canadian mills are running with finished goods inventory in and around the 60,000 ton range. They should be closer to 40,000 tons. Kind of under normal conditions, they'd be 35 to 40 each, and they're both at 60-ish.
Then the 12,000 tons I was referring to was because it's winter and it's very cold, where these mills are located, we would never dream of allowing them to. You can't shut them, but they have to run to stay warm, to keep things from freezing. When we're short of boxcars and, you know, we're, you know, you have nowhere left to put the pulp, per se, we slow the mills down a bit.
Just produce less than their normal operating rate, and that's the $12,000 a month for Peace River. Celgar's running flat out again. We had some modest curtailments during this last couple of months. Nothing really significant, but, you know, maybe for a few days at a time, you'd slow the mill down. At Peace River, we're losing about 12,000 tons a month on average, December and January. I expect the same for February because of the shortage of railcars.
As you're describing this, it's fair to assume then that this shifting into Q1 doesn't impact or force the shifting of Q1 into Q2. This is something that can get made up in Q1 or gradually between Q1 and Q2 be made up. Is that right?
That's right. Yeah. I mean, the vessel that slipped, for sure, that'll be, well, that's happened already. It's a shipment and recorded in the first quarter. There's no challenge selling pulp right now. We can sell every ton two or three times. So we just need the logistics to work through, you know, what's sitting in our warehouses. I think we'll get through most of that this quarter. Maybe some of that will get into the second quarter.
Call it Q1 and Q2, there's a little bit of a kind of a surge, a carryover from the Q4. When that happens, are we dealing with the higher Q1 net prices, or these are already contracted out at the Q4 price level?
That's a mix of both. Well, the vessel that slipped would have been Q4 pricing, and that's going to Asia. Yeah, you're right. There was a price increase in January and February and in March for China. There's also some that is unsold today that we'll commit when we know we've got a logistics path to get it to the customer. Yeah.
I mean, are we dealing with perhaps a $20 million or more revenue surge opportunity?
Yeah, I haven't done the math, but yeah, we got a nice tailwind coming, I think. You know, we're increasing prices, and we got lots of inventory to sell, so.
Okay. Moving on to my final two here. It's been about half a year since I last asked, so I do wanna just ask if you might give us an update on the status of the BioFilaments joint venture, and the status progress and the timing of cash flows that are in that emerging business.
Well, the BioFilaments, you know, it continues to be, you know, a research and development project. We still see lots of potential in it. It's not, you know, we don't have any real customer opportunities today. It's a small amount of money. I think there's something in it. We're gonna stick with it for a little longer and see what we can make of it. On the sandalwood side of things, the other small sort of on the smaller side biochemicals project. When we come out of winter, we get into harvest season, this is going to be the year that we start that bigger harvest.
As we go towards the end of this year and into next year, and as I've signaled before, this is when we'll really start to notice the benefits of that operation on the sale of higher volumes of Sandalwood oil. That's the update there.
Okay. Yeah, I wasn't gonna ask about that one until next quarter, and I'll hold this one off for another half year. Lastly, you know, as I've been here for years, and you're doing a great job with all this. Lastly, what are your upcoming plans for virtual or in-person IR activities in the coming quarter or two?
Yeah. Well, I'll let David speak to that in a second. You know, one of the things we're recognizing is that, you know, we think we can do a lot more on the whole ESG story, and we need to get out more in Europe and look for, try to get more of the retail and family office, get on, you know, some of these more social media type promotion methodologies. That's gonna be a real focus for the next couple of years. We're frankly quite struggling with the multiples that the analysts give us. All the analysts on the call, I apologize for calling you out like that, but I just think you've got it wrong.
Mercer should have a much higher multiple based on the quality of its assets and the energy story, the biochemical situation. What's gonna happen to all the high cost mills in our space? We're really gonna put a kinda whole refreshed IR move on. Maybe we need to get out to a slightly different audience, audiences that have more understanding of how important fit for the future really is. That's in the works. We're doing a lot of thinking and planning for that, looking for some consulting support to help us. Dave, maybe you could jump in on just a little bit of the more traditional investor relations activity you've got planned.
Yeah. Andrew, it'll be fairly quiet over the next couple of months. We don't have any large formal conferences booked over the next couple of months. We are taking a lot of calls right now. Just a reminder to folks, if you wanted to talk to us, we're always available, David and I, and I'd be happy to take calls from investors or folks wanting to learn more about the company. Please reach out to us, and we'll make sure that happens.
Great. Thank you guys. ESG stuff, you know, call me offline. I might obviously have some ideas given the governance and ESG as a very important part of Lawndale's mission for the last three decades.
Great. Thank you, Andrew. Yeah, we'll do that for sure.
Your next question comes from DeForest Hinman with Walthausen & Co., LLC. Please go ahead.
Hi, thanks for taking my questions. As we look at the power situation in Europe, I know you talked about selling it to the gray market. There's a lot of uncertainty out there. Is there any opportunity to enter into a power purchase agreement, either in the short term or long term?
Yeah, there may be some room there. We're looking at it, DeForest, but we're at spot today for a bunch of reasons. More to come in the future, I would guess.
Okay, that's helpful. I was checking my notes on the last fourth quarter call. We discussed the wood room projects. Your prepared comments made it sound like there was some amount of wood room spending done in the 2021 period. Can you tell us the amount that was spent in 2021 on those projects, the amount planned for 2022? I believe there was a previous discussion about grant realization on some of those projects. Can you give us an update there and if those will be earned in 2022?
Yeah. Well, you know, I'd say that for Celgar, the most of the capital spending will be 2022. I mean, there was engineering and ramp- up and orders made that a big chunk of the civils and the installations will be this year. Similarly for Peace River, it's a little. They got more done in 2021. I think they got close to $10 million into the ground and 2022 will be the remainder. Yeah, the guidance we gave for both of those was. Remember, this is getting better resource utilization, which is with a centralized chipping versus remote chipping, you get a wood recovery of, you know, could be 8%.
For every log you process, you keep the bark for fuel when you do it in a central location, and you get about 8% more wood from the chipping exercise. On Celgar, what we're doing is we're bringing in waste wood that used to be left behind, so that's all reasonably cheap wood. The only thing you're paying for really is the logistics and the processing. In Peace River, rather than bringing in tree-length logs to satellite yards and shipping them there and shipping the chips to the mill, we're putting cut-to-length on 10-axle trucks which carry, you know, it's like 100 tons of payload all the way to the mill and shipping at the mill.
Both projects coincidentally are expected to reduce our wood input costs by about $20 million each per year, including all the greenhouse gas reductions and resource utilization efficiencies. It's also part in the Peace River situation a much more attractive type of a job driving truck where you're coming back to the mill all the time because it means they can go home at night. It'll be easier to develop our own fleet and for contract partners to develop their driver fleet when it's a circular traffic route where they could be at home at night, which is a big deal for a lot of them. Just makes us more competitive for the steer trucking market as well.
Okay, that's helpful. Just on the grant realizations, is that still feasible?
Oh, yeah. All the grants that have been committed will be collected in due course as part of the projects. Yeah.
Okay. That's just upon completion and they're up and running. Is that how it's gonna work? Is there some sort of monitoring after those are committed?
No. Each one has a contribution agreement. Each one is slightly different, and we'll disclose them as they fund. You know, there's, and some of them, we have some of the money already. Each contribution agreement has milestones that need to be reached for funding, but it's all on track.
Okay, that's very helpful. On the Stendal sawmill project, I know there was a discussion at the board level, and you did touch on it in the prepared remarks, but can you just give us an update in terms of, you know, what you're thinking now, what you think the pricing number is potentially to do that project? You did talk about equipment availability as well. I mean, what are some of the things that in your mind need to get better before, you know, we're looking to do this project?
Yeah. Well, maybe I'll even go right up to a hundred thousand feet, DeForest. The Stendal project is one of the really attractive components of having sawmilling capacity up at Stendal region is a lot of that forest is becoming nice mature timber and will be for some extended period of time. It's an underutilized saw log timber basket that we wanna take advantage of, and we wanna make sure nobody else does. We're ready to go with the Stendal sawmill. It's all engineered. The land is. We own the land, and it's. Everything's ready to go. It's a slow return on investment because of these long delays with equipment suppliers.
There's no rush to do it today. We don't need to rush at it. There are also some M&A opportunities in Northern Germany that with our logistics we could take advantage of and would have strategic opportunities that the existing owners might not have. We focus on those kind of opportunities as well. We also have Friesau, which we're currently on track to produce about 550 million board feet of lumber this year. As we get our sorter completed, that'll creep up again. We could also put a third shift on. If we had a third shift at that facility, we could take it up to the 700 million board feet of lumber. We're also focused on that. It's...
That's really a human resource issue. Like it's making you know, when you're running a sawmill on three shifts, you've got to have all your operators really well trained. You don't wanna have anybody making mistakes. You've got to have some excess capacity to deal with illnesses, to make sure you can cover every shift. You've got to have a pretty robust maintenance team and strategy because you're running the mill harder, so you've gotta really be on top of your maintenance. That's where we're heading. You know, we're working towards that. That's 200 million board feet of lumber by putting a third shift on. Think about that compared to, you know, building up a, you know, a whole greenfield sawmill. We're gonna do the right thing at the right time and take it in steps.
I'm really, you know, pleased that we know what the Stendal situation is. Nobody's gonna be able to come in and start planning something and beat us. They all know that. They know we're ready to go. We kind of protected the timber resource there, and we just have so many really great strategic opportunities as a company. We just have to evaluate them and do them all in the right order and timeframe and be clever about it. Hope that helps.
Okay. Thank you for taking my questions.
You bet.
Your next question is from Andrew Kuske with Credit Suisse. Please go ahead.
Thanks. Good morning. You talked a little bit about fiber costs and a bit of the tension there. I guess on the positive side, you see Canada costs going down a little bit because of COVID restrictions coming off and then, you know, maybe some issues from a German standpoint.
Maybe if we could just dive into that a little bit more, because if I go back, I don't know, it was seven, eight years ago when fiber costs kind of got out of control because the pellet market in Germany. It doesn't seem like those incentives are in place right now, you know, for people to consume the pellets to the same degree as they were back then. Your business is not being patronizing about it, but your business is just better positioned. If you could just give us some thoughts on fiber costs, both North America and then in Europe, it'd be great?
Yeah. Well, I think the, you know, in Germany, sawlog prices have, you know, moved up quite a bit from, say, the early part of 2021 to, you know, what you're seeing in Q4. It's quite different from what it was in Q2 when we had all the beetle wood. Now what we're really, you know, what the market is seeing is primarily, you know, fresh greenwood. It's back up to what I would say would be more normal sawlog pricing. We don't see a huge amount of further inflation in 2022, maybe 10% at the most, something like that. On the pulpwood side, we've been enjoying really cheap pulpwood for a couple of years now with the beetle situation. That's unwound itself.
There's not a lot of calamity wood at the moment, and there's, you know, pretty strong demand in the winter anyway, from the pellet side. We didn't have a ton of inflation in 2021 from, you know, maybe Q2, Q3 up to Q4. It might have been, you know, 7% rise. In 2022, it's gonna be more significant. I'm thinking, you know, pulpwood could get up to maybe as much as $60 a cubic meter, which could be roughly 30% increase from what the calamity level was. That's more normal from pre-calamity levels. That I think that's kind of the peak that we'd see.
If we get a dry summer, we get some beetle kills coming back or, you know, then things will obviously soften up a bit as well as the, you know, the pellet demand is more a seasonal thing, so that pressure will come off as things warm up as well. That gives you the kind of the full pulse there, I hope.
It does. That's very helpful. You know, maybe for the second question, if we could talk a little bit about the potential in the higher multiple and, you know, just the positioning on the CLT facility and, you know, it's a great position and once again, not being patronizing about it, but you've got a great market share in the North American market. Is this something that you really see yourselves as a little bit of the, maybe the wedge on where you can grow this business, not just in CLT, but in some other areas, and be more exposed to higher multiple, more stable market positions without the volatility?
Well, yeah, the mass timber will definitely deserves a much higher multiple. It's a value-added product. I mean, the amount of sorting and drying and scanning capacity in this facility is enormous. We've got a very large CLT press with a side press as well. I was actually out at a building yesterday that was under construction from panels that were produced in the Spokane facility. The owner of that project was telling me this is the best CLT he's ever seen. He's building an office for his engineering group that provide engineering services to mass timber owners. What's unique about our press is that it's got a side press on it. Like, it squeezes sideways without...
It's not a side glue, it's a side press with bottom glue. That's one thing. Very high quality, excellent, big operation already, 30% of the capacity of North America. It also, the sawmilling. Well, it's not sawmilling, but the infeed gradings, drying, sorting, trimming, and all of that kind of planing, there's enough capacity there. We can add a second press, you know. You don't have to build the whole facility, you can put a second press in. We've got this huge upside in terms of capacity.
What I'm thinking is we put a smaller press in that's more flexible, so we can do the full spectrum from the big floor plates, the bigger panels that can be cut into all sorts of different products, but we can also custom smaller panels, you know, for the more the catalog things, you know, for like log housing and the smaller, you know, smaller applications. We've also got the space and the capacity to put in glulam and make other engineered wood products on the site. So I see this as a really big deal. Within a couple of years, we're gonna be fully up and, you know, really making people notice. I also think that, you know, with our pulp mills and our sawmill and just.
Our logistics and, you know, compared to who we're competing with, like we're in the wrong zip code. Like, we've gotta find a different audience because we're not getting recognized for the quality of our assets right now. That's what I was trying to say.
I appreciate the thoughts and the detail on the CLT. I think that, you're well positioned there.
Great. Yeah. Thanks, Andrew.
Once again, to all participants, if you have a question, please press star one on your telephone keypad. Again, it's star one on your telephone keypad. Your next question is from the line of Paul Quinn with RBC Capital Markets. Please go ahead.
Yeah, thanks very much. Morning, guys. Just a question, a little confused on these global pulp markets. You know, yesterday we had World 20 pulp stats. Softwood's at 43 days, hardwood's at 40 days. Don't seem particularly low, but we're seeing all kinds of price increases, you know, for January, February, and now March. What do you make of the market, and how sustainable is it?
Yeah. Good morning, Paul. Well, I think, you know, I think in China it's, you know, they're concerned about supply. Like, I think it's really a supply story. I mean, demand is off quite a bit in China right now, as everybody knows. You know, if we can get through COVID and get back to anything close to normal, I think there's a huge pent-up opportunity there. But just at the moment, I think what's impacting paper producers over there is, you know, for those who are running, they're worried about whether they can get pulp. You know, there's a bit of speculation in the market from that perspective. The Shanghai Futures is something they all look at, and it's popped up.
You're right, it's been the $800, $850, $880 type of thing. In Europe, it's a really strong market, and I think that has a lot to do with the absence of competition on the paper side caused by logistics challenges. I think the Finnish situation is also, all those paper machines are down in Finland, so those Pan-European accounts that have operations in Germany as well will be running those very hard. The U.S. market, yeah, spots moved up there as well. It tells us something. I'm not sure I fully understand it. I think it's mostly supply and logistics driven, as things
As we come out of COVID, I think on the demand side, we're gonna see quite a tick up because it's, there has been some pretty significant curtailments that have had to happen a lot for a lot of the paper guys. I think, I worry a little bit about the cost side for some producers. These energy costs in Europe are tough on paper guys, obviously. Great for us, but tough on them. I think one of the things to watch going forward is to see how successful the paper guys are in getting the prices up because they really need to. I know they're working on it, but it takes a little bit of time. I'll stop there, Paul, see if you wanna drill into anything else on that.
No, that's good there. Just sounds like you're equally confused. Just maybe on the European end.
Thanks for that. Sure.
On the European energy side, just what are you guys generating on an annual basis in Europe? You know, thanks for the color on the increased prices. I'm just trying to see what the incremental revenue or, you know, EBITDA could be.
Well, yeah, maybe the way I could answer that is in a way that's helpful for the audience is, you know, in the past, you know, you always just thought of Mercer as having this $100 million of revenue that was flat. You know, it was 80-ish of it was energy and 20 of it was biochemicals, right? And that was at a time when the EEG rates were averaging around EUR 90. So at today's rates, like just today, that 80 becomes 160, right? Like, it's a double on average. That's how significant it is.
That is, material. Thanks for that, and best of luck going forward.
Great. Thanks, Paul.
Your last question is from Cole Hathorn with Jefferies. Please go ahead.
Morning. Thanks for taking my question. Just to follow up on the European pulpwood costs and then kind of a longer-term demand question. On the pulpwood, you talked about there being less calamity wood available and, you know, demand from the pellet producers. That 30% number kind of off the lows, how should we think about German pulpwood costs relative to other regions? I mean, if I look at Sweden and Finland pulpwood, it's going up, but the increase is a little bit more muted because there's a lot of sawmill demand, and there is that pulpwood available. I'd just like to kind of put that pulpwood increases into context. I'll follow on with the demand question.
I'd say the German wood cost is gonna be a little bit higher than Scandinavia, but our energy side of the business and the proximity of our customers to our mills are both significant advantages relative to them. In Canada, wood costs will be maybe think about it on a per ton of pulp basis. You know, we'd be $70-$80 lower in Canada compared to Germany. You know, we've got a very distinct wood advantage, but we're a little further away from our markets, and we don't get as much for power.
If I think about wood and construction demand in Europe, you know, we've got EU commentary, the EU Forest Strategy, various other documents coming out of the EU talking and prioritizing kind of the CO2 sink and the benefits of wood construction, really trying to promote that as kind of the first use of wood. How do you see this playing out? When do you expect to start getting legislation that really supports demand o r are you involved in any kind of discussions of how you'd like to see regulation to support demand of wood-based construction in Europe? And do you think this is gonna be a kind of a underappreciated multi-year kind of demand boost for wood-based construction? Thank you.
Yeah, I do. You know, I think it's gonna really help the engineered wood side of things. You know, as we move further and further into the future, you know, I think system building, you know, factory-built components going into buildings is you know, is gonna become more and more, you know, how it's done, like a lot like Japan is miles ahead of us, right? Like everything gets built in a factory, and it gets taken out, and it goes up like Lego, very little waste. You know, I think that's gotta be the future, you know, in all of the developed economies. I mean, that's why we're seeing such high growth rates in North America around mass timber.
Yeah, I think you know we have to be involved in the policy development to make sure the governments all get it right. A forest, you know, I'm not talking about old growth here, but, you know, a typical forest, like a Central European forest or the Boreal Forest where we operate or a southern British Columbia forest, these forests need to be managed. Like, if you leave the forest alone too long, the trees just get to an age where they become susceptible to droughts, to pests, to forest fires, and you have huge problems. I think society's got to figure out if it's properly managed and it's, you know, planted and looked after, it's a tremendous renewable resource.
Of course, the most important thing is to get the maximum value out of the resource that you can. You know, we're rewarded for resource efficiency, for making high value-added products versus commodity products, utilizing the waste to make heat and steam and electricity and, you know, in the future, we'll be making biochemicals out of our black liquor and all these other sorts of things. We're really, I believe, on the right side of this whole climate thing. You know, I think our operations will evolve to, you know, really participate well in both looking after the forest and producing as much high value material as we can from it. I think the pure conservation argument is not gonna win. You know, people are gonna see forest fires.
They're gonna see calamity waiting. You gotta deal with the forest. You can't just leave it sit there. Really good examples are all over the place. Like in Canada, when they left our national parks like Jasper and Banff and said, "Nobody can harvest anything in here. We just gotta let it be a natural forest." Well, when you get into fire season, you can't even visit the parks anymore because it's so dangerous. I think, you know, there's a whole movement towards, you know, ecosystem-based management, you know, doing the right thing, promoting a, you know, more vibrant, healthy, biodiverse forest and creating value from those renewable products. I think those products are gonna be more and more in demand in the future for all these different reasons.
Thank you. I suppose, I mean, not just focusing on the CO2 sink benefits of the forest, but you know, the substitution effect, which is I think often underappreciated. If we think about cross-laminated timber, your competitors like Stora Enso and Södra in the U.S., you know, they really talk up the benefits and the blue skies there and the CO2 reduction in buildings. I'd like to get some color of how you perceive it in North America. Are you getting similar traction from kind of your architects and support there to build in cross-laminated timber? Thank you.
Yeah, I think so. You know, as I was saying earlier, I was visiting a building yesterday that's still under construction. I said, "So what's the heating source in here?" The owner said, "We don't need a heating source. Humans and laptops are our heating source." Like, they got, like, R-48 or whatever it is on the walls. It's just cross-laminated walls and ceiling. The outer components come with the insulation and the rain screen already applied. The whole building, four stories, went up in 10 days. It's incredible. He's all about, you know, demonstrating the environmental benefits of building this way. You know, he's got all kinds of pretty cool features in there.
You know, more and more, you know, all these organizations with a conscience are gonna wanna be thinking about having passive buildings like this and homes that are energy and carbon efficient and both in terms of their construction and you know, CLT sequesters a lot of carbon, right? Like, there's a renewable carbon sink that's turned into a building, and it sits there for 100 years. It could usually be potentially repurposed whenever the building like this needs to be renovated or whatever. Yeah, I think society is gonna grow a conscience more and more and that's a big part of the story.
Thank you.
As there are no further questions in the queue, this concludes today's question and answer session. I will now hand the conference over back to David Gandossi, President and CEO, for any closing remarks.
Yeah, great. Thanks, Paul, and thanks, everyone, for joining the call. As usual and as always, if you have any further questions or wanna connect with us, don't hesitate to give us a call. Otherwise, we'll look forward to speaking to you again on our next call in April. Thanks very much, and bye-bye.
That concludes today's conference call. Thank you for your participation. You may now disconnect. Stay safe and well. Have a great day.