Svenska Cellulosa Aktiebolaget SCA (publ)

Good morning and welcome to this presentation of SCA's first half year result for 2022. With me here today I have President and CEO Ulf Larsson and CFO Andreas Everts to go through the results and take your questions.

Over to you Ulf. Thank you for that Anders and also from my side a good morning and a warm welcome to the presentation of the results for the second quarter 2022. We have delivered another strong quarter in fact this is the best ever and our EBITDA reached 3.1 billion during the quarter and that gave an EBITDA margin of 53% and actually this is the fourth quarter in a row with an EBIT margin over 50%. In a turbulent time, we can state that we benefit from our unique control of the supply chain. And here again, I'm thinking about wood, energy, but also logistics. On top of that, we can just point out that we have had a very strong quarter for all our products during the second quarter when it comes to market. As already said, we have no operations of direct exposure from sales or purchasing in Russia, Belarus or Ukraine. Nevertheless, our product markets have and will continue to be influenced in different ways. Short term, so far, mainly positive. Long term, of course, big question mark. Sales increased 23% versus Q2 2021. Main reasons for the sales increase are generally high demand and of course high prices in all product areas. When comparing our EBITDA level for the second quarter this year with the outcome for the second quarter last year, we can see an improvement of 38%. Apart from higher sales prices, we have delivered a high level of sales to defined core markets. generating a good profit for us. With a high degree of self-sufficiency we have also been able to mitigate some of the cost inflation which has helped to build this solid profit. SEA has based evaluation of the forest holdings on completed transactions in the region and the market in this area continues to be strong. and during the first half of 2022 the value has increased another 4% or between 3 and 4 billion SEK. Last but not least important, I would like to conclude this summary by stating that our two major investment projects in Åbole and Ortviken both are progressing on budget. In addition, I can mention that the project in Obola is ahead of time and the startup of the new paper machine is now planned to be during the fourth quarter this year instead of the first quarter next year. The OCC line, which is needed to reach full capacity in Obola, is scheduled according to the original plan and that one will be up and running during the first half of next year. Then I turn over to some financial KPIs, and as already mentioned, we delivered 3.1 billion SEC on EBITDA level, and that corresponds to 53% EBITDA margin. And as I said, if you look to the right-hand side, you can see that this is the fourth quarter in a row where we reached a margin over 50%. Our industrial return on capital employed came out on 54% for the second quarter and calculated for the last 12 months 46%. The leverage went down to 0.8 despite a large ongoing investment program and by that we continue to finance all our investments including strategic projects with our operating cash flow. I will now make some comments for each segment starting with forest and due to the Russian invasion of Ukraine between 8 and 10 million cubic meters on yearly basis mainly pulpwood and wood chips will no longer come to Europe and that in combination with the fact that the Finnish strike now is over will generally put an increase in pressure on the wood supply As we in SEA harvest around 50% of what we need from our own forests, and as we also buy the main part of the remaining volume from private forest owners in our region, we are not heavily impacted by this situation. During the second quarter, we have had a stable supply of wood to our industries, and as you can see in the graph on the bottom left, prices have started to come up, not least for pulpwoods. When we compare quarter on quarter, EBITDA has decreased 10% in forest and the main reason for that is lower harvesting volume on our own forest during the second quarter. But we also see higher transport and harvesting costs mainly related to higher fuel prices. We have had stable deliveries from business area wood in the second quarter. Prices went up approximately as much as we guided for when comparing Q2 with Q1. Customers have decreased their stock levels during the second quarter because they did expect lower prices in the third quarter which we also will see and I will come back to that. Price levels for solid wood products peaked in Q3 2021 at the historically high level which you also can see in the graph on the bottom left. Average prices dropped by just under 15% between Q3 and Q4. A seasonal low demand during the winter period pushed down prices by another 12% during the first quarter 2022, and during the second quarter prices went up again by approximately 18%, but will now decrease during the third quarter by between 25% and 30%. We have had and still have a turbulent market in wood. On the one hand, we all know that sanctions against Russia and Belarus have been effective from July. On the other hand, we can see increasing interest rates, cost inflation and so on. Nevertheless, we have during the second quarter seen a weakening market in all regions more or less. However, in the U.S., it seems, at least for the time being, to have bottomed out on a relatively good level when it comes to demand and price. Generally, we believe that a reduced Russian supply in combination with the need from customers to fill up inventories will stabilize the market during the autumn season. As for SEA, we have had a good production during the second quarter at the same time somewhat slower deliveries since we had a lower stock level this year in comparison with the same period last year. The profit level was very good in the second quarter and we reached $933 billion on EBITDA level and that was up 49% in comparison with the same period last year. In comparison with the second quarter last year, we have seen sharply increasing log price. On the other hand, for us, the negative effect has partly been mitigated by a higher raw material yield in the production in our sawmills. Today's stock level of solid wood products in Sweden and Finland is in relation to the average for the last five years described at the top left on this slide. And we note that the inventory volumes are now on a normal level. As can be seen in the diagram to the bottom left, the Swedish and Finnish sawmills production has been on the high side. On the other hand, Canada, as an example, is 11% behind when comparing year on year up till May. And we also know that the sanctions against Russian and Belarusian would have been effective since July. When looking at the diagram to the top right, we can see that the price peaked in the third quarter 2021, but that prices still are on a historically high level. But as already said, we believe that prices will decrease with 25% to 30% in the third quarter. So during the second quarter, we have delivered our best quarter ever in terms of result in business area pulp. We have seen a continued strong market with successively higher prices combined with a high demand and also strong deliveries. Sales were up during the second quarter by 23% and EBITDA increased by 44% during the same period. And on the positive side, We have seen increasing prices, increased earnings from renewable byproducts, and also positive currency effects. On the negative side, we have seen higher costs for pulpwood chemicals and so on. As mentioned already in the beginning, our ongoing project to build up a CTMP line at Tortviken is progressing on time and budget, and that one will start up in the first quarter next year. The pulp market in Europe and U.S. is tight today with a good demand and limitations on the supply side due to these logistical challenges, production disturbances, etc. On the other hand, we can see a weaker market in China. SEA has a very low direct exposure to the Chinese market as Europe and U.S. are core markets in pulp. Today we have a similar price level in Europe and US, but a slightly weaker price picture in China. As you might remember, we went into this year with an official European Picks price of 1260 USD per ton. We have stepwise seen higher prices, 1400 for deliveries in May, 1435 for June, 1485 for July and we have now informed our customers that our position for deliveries in August will be 15-25 USD per ton. As you also can see, inventories for softwood pulp have come down and by that we have a normal stock level for both soft and hardwood pulp. Turning over to container board and the sales and EBITDA for the container board business are up 32% and 84% respectively in the second quarter 2022 when comparing with the same period last year. And this is mainly due to increasing prices where we now have reached an all-time high level as you can see in the graph in the bottom left. The prices for OCC have almost tripled since the bottom in November 2020, and this affects the result negatively, but together with the large increase in prices for energy, it also supports the price development for test liner and thereby also indirectly for craft liner. During the quarter, we have performed the planned maintenance stop in Obola. Among other things, we have prepared the mill for the coming start up of the new paper machine. The negative result effect of the stop is calculated to around 70 million sec. We see a stable underlying short and long term growth in Kraftliner and the demand for boxes has continued to be solid and the demand has flattened out on a high level. Inventors for Kraftliner are on a higher level than last year. We continue to note lack of shipping capacity for deliveries outside Europe, leading to higher inventories, although this has had a minor impact on SEA. SEA has a balanced stock level and has only limited exposure to markets outside Europe. We have seen slightly increased prices during the quarter since the prices bottomed out in Q4 2020. The price for Unbleached Craftliner has so far risen by approximately 400 euro per tonne, while White Top Craftliner has increased by 275 euro per tonne during the same period. So, I said initially that the expansion project in Obola is on budget and ahead of time, and we have already delivered four sub-projects as you can see on this slide. The most complex and challenging sub-project by far is of course the new paper machine and that sub-project was scheduled to be finalized during the first quarter next year. We now see that we will be able to start up in the fourth quarter this year. However, the OCC line is needed to reach full capacity in Obola and that one will be built according to the original plan and by that be up and running during the first half of next year. With this early start of the new paper machine, we have, I would say, created extremely good conditions for a very successful project. As we are building up the new paper machine in parallel with the old one, this project will be unique in the way that we will have almost no downtime due to the project. By that, we will also have a strong cash, positive cash flow as well as an uninterrupted customer service throughout the whole expansion. On top of that, we will have a high production volume already next year in comparison to previous years. So by that, I hand over to You, Andreas?

Thank you, Ulf, and good morning, everybody. I will start off with the forest valuation. Forest prices in northern Sweden continue to increase, and the average three-year price in SCS region increased by about 6%, from 324 to 342 SEK per cubic meter. The valuation of SCS forest assets increased by over 3 billion to 88 billion. And of this, approximately 900 million went through the P&L in the first half year. If we move on to the income statement for the second quarter, net sales grew by 23% to 5.9 billion, mainly driven by higher prices and improved mix. And the majority of the sales increase went through to EBITDA. EBITDA increased to just above 3.1 billion, corresponding to a margin of 53%. And this is the fourth straight quarter, as Ulf mentioned, with an EBITDA margin of above 50%. The EBIT margin increased to 46%, and financial items totaled minus 5 million. We had an effective tax rate of around 20%, bringing net profit to 2.2 billion, or just above 3 sec per share. On the next slide, we have the financial development by segment. Starting with the forest segment to the left, sales decreased slightly compared to the previous quarter, mainly due to lower volumes to SCS Industries because of the planned maintenance stop in Obla. EBITDA increased to 675 million, mainly due to seasonally higher harvest from SCS-owned forests compared to the previous quarter. Both pulpwood and solar prices have increased the last couple of quarters, but effects have been offset by increased fuel costs. In wood, we have had several strong quarters since the beginning of 2021. In Q2, both price and volume increased compared to the previous quarter. Sales increased to 2.2 billion and EBITDA increased to 933 million corresponding to a margin of 42%. In pulp, the prices have continued to increase since the beginning of the year. In Q2, both price and volume increased compared to Q1, and sales totaled just above 1.9 billion. EBITDA increased to 866 million, corresponding to a margin of 45%. Higher income from renewable by-products has helped offset increasing wood and chemical costs. In container board, craft lining prices have increased since the end of 2020. In Q2, the planned maintenance stop in Obola impacted both sales and EBITDA. EBITDA was 756 million, corresponding to a margin of 43%. Adjusting for the effects of the planned maintenance stop of minus 67 million, EBITDA increased compared to the previous quarter. On the next slide, we have the sales bridge between Q2 last year and Q2 this year. Higher prices had the largest impact, 27%, and prices increased in all segments. We had slightly lower volumes, again, mainly due to the maintenance stop in container board. Currency had a positive impact of 3%, and exit publication paper had a negative impact of 3%. In the EBITDA bridge, we see the effects of our integrated value chain. we had a big impact from price mix of 1.25 billion, while the effects on higher raw material costs was more limited due to our high degree of self-sufficiency. The higher raw material costs related mainly to higher wood costs and higher costs for chemicals. Energy costs had a slight positive impact, which really shows our high self-sufficiency post exit publication paper. We had a positive impact from currency, and a negative impact from the planned maintenance stop and higher fuel prices. In total, as I mentioned before, EBITDA increased to 38% to record high 3.1 billion SEK. We continue to have a strong operating cash flow, 1.9 billion in the quarter and over 3 billion for the first six months, almost a double compared to last year. This means we're continuing to fund our strategic investments with operating cash flow. Looking at the balance sheet, the value of the forest increased to $88 billion. Working capital increased to $3.8 billion due to high prices. But in terms of days, working capital was unchanged. Total capital employed increased to $96 billion and net debt stood at $9.5 billion or 0.8 times EBITDA. The net debt increased compared to Q4 last year because of the dividend, but decreased compared to the previous quarter. Equity increased to 86 billion SEC, and net debt to equity was 11%. And with that, thank you, and I'll hand back to you, Ulf.

So, thank you for that, Andreas. And, well, the summer again, we made a record result. And I think structurally we have improved SAA by focusing very much on growth areas. The closure of our publication paper business is a very strong reason for us now performing as we're doing just now. We also feel that we benefit very much from our strong supply chain. We've been talking about wood energy, but not the least I would say our logistical company that helps us very much to perform in a good way to our customers. And last but not least, our big project in Obola is on budget but ahead of time. So by that I think that we open up for questions.

The first question comes from Linus Larsson at SCB. Please go ahead.

Yes, good morning. Thanks for taking my questions. Maybe starting off on the wood project. division and you continue to guide very helpfully on the price aspect of the business outlook. How do you see the volume outlook in the third quarter and how are you planning to run your own operations, please?

I mean, I can just talk for myself and for SEA, and we have a normal stock level in our mills, and the plan is to run our sawmills in the way that we normally do. We run our sawmills during the whole summer. As I said, we feel now that the stock level among our customers are on the normal to low side, and we also think that... All customers did expect a price decrease in the third quarter, which they also will see now. On the other hand, we also know that from 8th of July, we will see the full effect of the Russian sanctions. So I think we will have a rather balanced market from now on.

Okay, great. Thanks. And then maybe quickly switching to container boards. It's been a fantastic market for quite some time now. We're seeing some signs of normalization in different ways and recycle-based container board price declines taking place. How do you see that outlook in the second half for Kraft Liner, for your if you try to describe the market outlook, price trends, order situation and so forth.

We see a rather stable market for Kraftliner and we came through with the price increases that we did announce in the second quarter. Maybe we haven't really seen the full effect of that up until now. I think that the development, I mean underlying we have a good consumption, I would say that the stock level is more or less on a normal level and the price development will be very much dependent on the price for energy but also for OCC. And again, if we look at the OCC market, we have seen that the price has, as I said, tripled in a rather short time. And it is on a rather stable level, as far as I can understand. And I think you can judge maybe better than I can do the energy price development going forward, because energy and OCC together will set the price for test liners. And of course, you know that we have a dependency between test liner and craft liner prices.

Yes, great. And maybe finally on that note, when it comes to the European energy situation and the potential natural gas availability constraint, even more than it already is going into the later part of this year, I mean, as you have highlighted, you don't have much direct exposure. You're highly self-sufficient on energy. But when it comes to the indirect exposures, how do you see, A, your exposure when it comes to suppliers in chemicals, for instance, and, B, exposure to customers in products? maybe other businesses as well, where there might be indirect exposure, risk of closures, etc., later this year?

I mean, that is very hard to predict. I mean, I can't talk about our own situation. As you say, I mean, we have 100% self-sufficiency here, and we are very happy for that. And it's not really easy to foresee what's going to happen now during the autumn. I don't know if you'd like to add something, Andreas?

No, I mean, we think the chemical costs have peaked now, but we had a project where we tried to look at where do we have the most risk in chemicals and try to secure all those chemicals. I think we have a good position to secure the supply.

Okay, great. That's helpful. Thank you very much.

The next question comes from Robin Santavita at Carnegie. Please go ahead.

Thank you very much. Good morning, everybody. First, a question related to the input cost. Now you have a quite nice integrated setup, which helps you a lot, but Still we can see when I put in the Q2 numbers in the model that you have some increases in cost per ton in your industrial operations. What is the outlook when we go into Q3 related to the input cost? I think about wood, raw material cost, OCC, chemicals and logistics.

In terms of pulpwood, we see some continued price increases in Q3. In terms of soil logs, we think that the prices will be quite stable. Also for OCC, the prices will be quite stable. In terms of chemicals, I think the costs have peaked, but you have some lag effects within sodium hydroxide. Otherwise, it's stable and some chemicals are coming down. in transportation. We also think that the costs have peaked, but there we see quite volatile oil prices, which of course will affect transportation.

All right, thank you Andreas. Another question I have related to the wood segment, which has been exceptionally strong now. and then you go for a bit lower prices now in Q3. The question I have is, I understand there are structural trends out there supporting wood building and the usage of wood, raw material in construction, but isn't there still some risk that we go back to quite low levels? Isn't sort of the history supporting this a bit boom-bust sort of pricing in this area? and certainly we have even an economic recession in your export market, I would assume that construction activity and DIY activity would be quite low. So how do you see if we go into 2023 a bit further out? Could you provide some kind of reflections of where do you think the prices will essentially bottom out?

We will not give you a forecast. But I mean, again, fundamentally, we believe in wood long-term. And I mean, we have a healthy growth in wood. And we can also see that we gain market shares in wood in comparison with other materials. So we believe that will continue. But of course, I mean, short-term, the price will be set related to the supply-demand balance. And short-term... We feel, as I said, I mean, we feel still a rather good demand out there, even if we have to decrease prices now. But interest rates and cost inflation and things like that, I mean, that might give for a short time a different situation in the market. But I mean, we have to handle that. in a good way. Long term we believe in wood, we believe that is a growth area and we will continue to invest in that business area. We think it's strategically right to stay in wood, of course.

I understand. Thanks. A final question I have is related to the ramp-up of the machine, the crash landing machine in Obola. Very well done on even coming in before expected time, the machine startup. Now, how should we model Q4, Q1 in terms of any additional costs and maybe perhaps sort of focus on Q4, which is closer now already on this side?

We will have quite a limited impact on volume for the startups. I think we'll have similar deliveries to last year in both Q3 and Q4 so the effects would be quite minor.

And I mean that is the unique thing with this project I mean we are building up the new line in parallel with the old one and by that we can continue to run the production if something goes wrong I mean then we also have a possibility to swap over to the old machine again And by that, we will have a strong positive cash flow during the whole ramp-up period. And we believe that already next year, we will produce a substantially higher volume than we do this year and we did the year before. So, I mean, this is a really strong project.

Good. Thank you very much. Thanks.

The next question comes from Justin Jordan at BNP Paribas Exam. Please go ahead.

Thank you. Good morning, everyone. Clearly well done and a record key to and welcome, André, to the new CFO room. I've just got one quick question that Lena hasn't quite covered. Just firstly on pop market outlook, I think of you in your prepared remarks, you talked about an additional US$40 a ton increase, informing clients of that for August 1525 and 1485 in July. Can you just help us understand I suppose you're confident in achieving that given, as you quite rightly stated, Chinese bull prices look like they're easing and clearly Chinese bull futures have been easing of late. Can you just help us understand how that's possible to get further price increases in Europe against that backdrop of easing Chinese bull prices? Thank you.

Yeah, I mean, we are, as I said, I mean, we are mainly focused on the European and U.S. market, and we feel that we have a rather strong demand in this market. It is, actually, it is a tight supply situation in Europe. So, I mean, if we could, then we could deliver much more pulp than we... than we do today. So, I mean, that's the reason why we go for another price increase in Europe and the US. We have a slightly different situation in China. And I mean, that is maybe due to logistical challenges. We have seen that some parts of China has been closed down for a while due to COVID. And that might happen again in some areas. We don't know. But as it is just now, I mean, we have a super strong market in pulp in Europe. And in addition, we have seen some disturbances for other producers and that have also contributed to this, I would say, favorable balance as we have just now. Great.

Thank you. And just one quick follow-up, probably for Andreas, on FX. You had a 179 million positive FX tailwind in EBITDA in Q2. Can you just remind us where the key FX exposures are? I'm assuming it's probably in pulp. Is there some in container board as well? And just how should we think about that given recent FX movements for the second half of 2022, please?

If we start with pulp, I mean, there we are. The main currency is dollars. There we have a large impact of US change in US dollar. In container board, the prices are mainly set in in euros so that's euro in terms of wood i mean it's euros sec and british pounds depends on what segment but the largest exposure is in in dollars and in in euros in our report you can find we have hedged around 70 to 85 percent of our exposure in the coming six months we can find the figures in in the report great thank you thank you

The next question comes from Martin Melby at APG. Please go ahead.

Good morning. My questions have been answered now, but one on the forest side. There we have some lower harvesting and higher costs, yet prices are moving up to wood. So how should that segment progress into the second half?

I mean, the reason for harvesting less volume on our own forest is it's just... Let's say a mix. We have to harvest what we buy from small private forest owners, and that has been prioritized now for the first half of this year. But the balance will be, as we've said, on the whole year. Then I didn't catch maybe the second question. Was that about the price development?

Yeah, have you catched the price increase on wood in that segment? in this quarter, or is that yet to come in Q3?

Maybe. But as Andreas said, when it comes to log prices, we believe that the price will be rather flat coming quarters now. And in pulpwood, as you also saw on the slide, you could see that prices have come up and will come up a little bit further in the third and fourth quarter. That's the best guess we can have just now. Yeah, I think I'll stop there. Okay.

The next question comes from Oskar Lindström at Danske Bank. Please go ahead.

Yes, good morning. So three questions for me. First off, maybe I didn't hear quite clearly, but On wood, did you say that you expected the market to stabilize during the autumn? And does that mean that we should expect prices to stabilize during Q4 as well? So that's my first question. Do you want me to go ahead with the other ones?

I take them one by one. What we have said is that we know that prices will come down 25% to 30% in the third quarter. And what will happen in the fourth quarter... I don't know, and it's hard to say, but what I was saying was that we have a rather, the stock level is quite okay out there. We believe that customers, they have a rather low stock because they, of course, they did foresee that this price decrease would come in the third quarter. So, I mean, they are on the low side when it comes to the stock level. And in addition, we also know that the Russian sanctions will be valid from July, and that will also have a negative effect on the supply side. But on the other hand, as I said, I mean, now we see that interest rates, they are coming up. We know that the DIY sector has been quite slow this year in comparison with last year. And I mean, that will not recover in the fourth quarter, of course. As we feel, professional building activities are on a rather high level. But long term, if we see a completely different interest level and growth, strong cost inflation that might have an impact on building activities. So, I mean, I think that you can judge that better than I can do. But I mean, for the third quarter, we know 25 to 30 percent down. And for the fourth quarter, we don't know the price development for the fourth quarter. But we feel at that time that the market should be more stabilized.

All right. Thank you. That's a clear answer. My second question is on investments and capital allocation. I mean, with Obola project coming to an end a little bit earlier than expected and Otviken set to start up next year, you have a strong balance sheet and at the moment you're making very good cash flow. Where do you see opportunities for attractive investments and where are your priorities? I mean, I know you're looking at You've talked about possible pulp debottle banking in Östrand, buying forest land in the Baltics, wind power, buy a refinery. You know, where do you see these also in terms of timeline? I mean, are some of these more immediate, others further away? Yeah.

My focus just now is to fulfill the investments that we have started up. I mean, you have Obola. As I said, that one will now be started up a little bit earlier than we thought. But the Bolsta project, a big project in the grading mill in Bolsta, which is the biggest pine saw mill in Sweden, that one will also be finalized during the autumn. I mean, the CFMP project, we have talked about that one, and that will be up and running latest first quarter next year. And then we also have the big project together with SD1 that is planned to be up and running in the second half of next year. So, I mean, we have 100% focus on delivering on what we have promised in this era. So that is absolutely the main focus. And then you mentioned, I mean, we have no really big projects that we are looking into just now. but you mentioned some of the areas where we are interested and i mean we have said that if if we see opportunities in wind then we will try to take them continuously we are buying forest land in the baltics and and we will continue to do that of course and and we are also looking into some as you call them bottleneck projects and and But short term, we will not announce anything big in this field. Okay.

Thank you. Good. And my final question, also a bit of a general question, is on the overall industry. I mean, the sector in Europe, the overall pop and paper sector in Europe has been hit by, as you mentioned, higher fiber and energy costs and something that you've been able to largely avoid. I mean, Do you believe that the higher fiber costs, especially for recovered fiber, is a structural change and that this then in that case would sort of hold up or set a higher floor for paper and board prices in Europe, even if demand weakens?

It's really hard to say. The only thing we can say is that this war will create... I think, different conditions for many years to come now. And the first thing we have to do is to reduce the dependency on Russian oil, gas, and raw materials in general. And that is what we can say. And otherwise, it's hard to predict OCC prices and so on. We cannot really do that.

Okay. Thank you very much.

The next question comes from Johannes Grunzelius at BNB Markets. Please go ahead.

Yes. Hello, everyone. It's Johannes here. I have two questions. And the first one is on the forestry, the value uplift on your own forest land. Because you have the mythology to roll three years transaction data in your relevant areas. Have you now included your expectations of 2022 in that three-year period? Or could you comment on that? Maybe I missed it before. I'm sorry for that in that case.

We have included the transaction that happened for the first half of this year. So we have a three-year average applied on our total volume. So this year the prices have gone up. They've been quite small volumes, but then we'll see how it develops towards the end of the year. But we have included a free average from the second half of this year and then three years back.

Understood. Am I right that you are indicating a similar value uplift as things look at the moment by the end of this year?

Yes, I mean, our changes in biological assets have been 900 million for the first half year, and we expect something similar for the second half year.

Okay, thanks for clarifying. I was also wondering about the... higher electricity prices are impacting your pulp division because you have this big long position there. Is it 500 gigawatts or 600 gigawatts or something like that? Did you see a positive delta here in your Q2 numbers? Can you comment on that? And how should we think about Q3, Q4? Let's assume electricity prices stays where they are or something for the sake of simplicity.

We have in our pulp division, we are a net producer of electricity around 500 to 600 gigawatt hours. So when the electricity prices in Q2 was fairly high, that gave a positive impact in offsetting some of the other cost increases we saw in chemicals and wood raw material.

But how should we think about that in the dynamics? Are you exposed to market prices? And should we then look at the sort of regional prices in northern Sweden and assume you're fully exposed on that pricing, on your excess volumes on electricity and power?

We are fully exposed for the next quarter to the market prices in the region north, northern Sweden, in that price region. But if you look at the entire SCA, we are basically neutral in electricity, so we have higher prices in pulp benefits, but then we have a higher cost in container boards, so in total we're quite balanced.

And a final question, you mentioned it yourself that it's a big positive to have your own logistics operations Could you just remind us about, I know you talked about the long-term contracts you have with sort of external parties when it comes to logistics. Should we assume that those long-term contracts will simply continue for the next few quarters at the same levels or any uplift potentially on the new contracts coming or the renegotiated contracts?

They will be on a similar level.

Yeah, okay. Okay, thank you.

The next question comes from Cole Hathorn at Jefferies. Please go ahead. Cole, are you there? Please unmute.

Morning. Thanks for taking my question. When we're thinking about the wood products prices, If we assume 25% to 30% decline, does that take you broadly in line with the US futures prices for lumber?

Yes, I would say so, approximately. I mean, it is different products, really, so you cannot really compare them like for like, but similar level, I would say.

Again, just to follow up on the container board market, You alluded to the recycled players getting cost support and energy and OCC. How do you see the producers taking commercial downtime to manage softer demand and inventory levels at the moment?

I mean, it's always a question about cost curve. And I mean, for us, with the investments that we have done and the status that we have on our mills, I mean, we are on the left-hand side with a very low cost level. You have other producers which are not there. And I mean, at some stage, they have to take some downtime due to profitability, I would say. I mean, we haven't really seen decreasing energy prices in Europe up to now. We haven't seen decreasing OCC prices. And the underlying consumption, again, it is good for at least for craft liner, and I believe the same for test liner. And we look at the boxes. I mean, the demand has flattened out, but on a very high level. So I think the demand is still there.

Thank you.

And as a reminder, it's 01 on your telephone keypad if you have a question. The next question comes from Harry Taitonen at Nordea. Please go ahead.

Yes, good morning. One question. A lot of ground has already been covered. But just sort of the SD1 project, I remember you talked about alternative potential feedstocks with that. different technologies, just sort of if you care to give an update or if there's sort of development on that, I mean, crude tall oil versus solid biomass versus other potential raw materials, is there anything to kind of highlight?

Well, I mean, what we're doing just now and building up in Gothenburg together with ST1, that one will be based on tall oil, of course, is perfect. But you also can use used cooking oils, vegetable and animal fats and things like that. So that is the feedstock for that meal. When it comes to solid biomass, I mean, then that we are talking about in the project that we have discussed in Östrand. But again, that one is further away. So different techniques, yeah. Yeah, sure. Okay. Thank you.

And as a reminder, it's 01 on your telephone keypad if you have a question. 01. There are no further questions at this time. Please go ahead, speakers.

And thank you very much. And that concludes this presentation of the half-year results. And we'll come back at the third quarter results in October.