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10/28/2022
Good morning and welcome to this presentation of the third quarter SCA results. With me here today I have President and CEO Ulf Larsson and CFO Andreas Evert. Over to you Ulf. Thank you for that Anders
and also from my side of the world to this presentation. When I summarized the second quarter I can state that we for the fifth quarter in the row reached an EBITDA margin of 50%. We have a continued strong cash flow in the company and by that we also finance all investments, not just our strategic investments but also our current CAPEX through our operating cash flow. Last quarter I said that the big OBOLA project was on budget and ahead of time. That goes also now for the big PULT project, the CTMP expansion in Oortviken. That one is also on budget but one quarter ahead of time. So we will start to ramp up this line in the fourth quarter. The new paper machine in OBOLA is now running 24-7 and we have started to deliver paper to our customers. We have also seen well boxes produced from this paper with good quality which is I would say a real success. Sales was in line with Q3 last year. Volume wise we have had a weaker market in solid wood products as we guided for already in Q2. We have also seen some negative impact from the ramp up in OBOLA but that is more a lagging effect. Due to the fact that we are ahead of the time schedule. Otherwise we have seen a positive currency and price mix effect. EBITDA is down 7% in comparison with Q3 last year and that is due to already mentioned lower prices on wood products, somewhat lower delivery volumes. And of course we are also hit by cost inflation and mainly in distribution and also we have seen price increases when it comes to wood raw materials. On the positive side we can note PULT prices and Kraftdiener prices which both have reached record high prices during the third quarter. And also we have had lower energy costs this quarter in comparison with last year. This morning we have sent out the press release saying that we will from 1st of January next year present renewable energy as a separate segment. And the reason behind this is that we are already today a leading producer of renewable energy. And we will continue to grow this segment. And you know that we have already today 20% of installed wind power capacity on SCA land. But from now on we will start to invest our own money into wind power. And we also have a couple of ongoing projects within the field of liquid biofuels. So some KPIs. We did close to 2.5 billion on EBITDA level which gave us a healthy EBITDA margin of 50%. The return on capital employed for our industrial operations calculated as the average for the last 12 months was 44%. And the leverage this quarter landed on 0.8 despite our large ongoing investment program. And as I said we finance all our investment not only these big strategic projects but all our investments with our operating cash flow. Then I will say some words about each segment starting with the forest. And in forest we have seen increasing wood prices. Especially when we compare the situation we have just now with what we had one year ago. As you can see in the bottom left in the graph. We have also seen increasing prices sequentially. So when we compare Q3 with Q2. Especially for pulpwood we have had a price increase of 50 sec per cubic meter in softwood and 70 sec per cubic meter in hardwood. We don't import too much wood as we have a high degree of self-sufficiency in this area. But nevertheless if we compare the price level today with what we had one year ago. For softwood we have gone from 40 euro per ton up to more like 90 to 100 euro per cubic meter. In birch from 50 up to 125 and we look into energy wood we have gone from 25 to 90 euro per cubic meter. Otherwise sales was up due to higher prices and same thing with ABTA. We have a positive revaluation effect of our biological assets. Around 70 million sec. And we have also this quarter harvested around 90,000 cubic meter more in comparison with last year. And as said we have also seen cost inflation mainly in the forest side due to higher fuel prices. Which have had of course negative impact in transportation but also for harvesting. Wood. Well I said already last quarter that we have a lower global demand in our wood business. And by that also reduced deliveries. And the reason behind this is of course that we have uncertainty in the market due to cost inflation, due to higher interest rates and so on. And we have seen that not the least the demand in DIY and village merchants has not been, that has been especially weak while new construction still is on an okay level. But of course before new projects will be started there will be people hesitating for that of course. On the other side we have also during this period now seen start to see curtailments and by that also decrease in production. The estimation from my side during second quarter was that we should see reduced prices by around 25% in the third quarter in comparison with the second quarter. That was for SCA more like 20% due to the fact that we agreed on prices in the second quarter but deliveries came in the third quarter so some kind of lagging effect but also positive currency effect. My best guess for the fourth quarter now is that we will see another price decrease of 25% which is equal to 600-700 SEK per cubic meter. And by that my best guess is that we have reached the bottom. So if we start on the top left we note that the stock level in Sweden and Finland is on a high level in relation to the average for the past 10 years. In the bottom left we can on the other hand see that production has started to decrease and on the top right hand we can see the price development and this one is only updated until September I would say. So as mentioned we will see another substantial price decrease in the fourth quarter. But again by that I believe that we have seen the bottom in solid wood products. So turning over to PALP and as mentioned already the CTMP project at Ortviken is on budget and ahead of time. So we will start up, we ramp up the new line during the fourth quarter which is one quarter ahead of time. Very positive of course. Sales was up as much as 25% during this quarter due to higher prices and also due to a positive currency effect. EBITDA is up for the same reason but as mentioned earlier we see now that we have a higher cost for wood raw materials. During the third quarter we also started up a planned maintenance stop at Östrand which had a negative EBITDA impact of around 25 million SEK during the third quarter. If we start on the top left side we can note that we reached record high prices in PALP during the third quarter. So the official European PIX price was around 1500 USD per ton for deliveries in September. Prices have started to normalize a little bit and we see that PIX prices for deliveries in October will stay at around 1480 USD per ton. When we look at the inventory level we can see that for hardwood it's more on the normal level while it has increased a bit for softwood PALP. We can definitely now see less disturbances in the supply chain and by that also I think that we see increasing inventories. The stock of orders for SEA in this market is to be honest very good. But again a lot of uncertainty from energy crisis in Europe and also we see some effect from continued lockdowns in China. So in container board the OBOLA craft lining machine is now up and running and it is now producing sellable products. As already said the first paper has already reached customers and we have produced well boxes with good quality which is really nice. On the other side the fine tuning will of course continue for a number of quarters now. But nevertheless we will deliver as much volume in the fourth quarter as we've done in the third quarter. So that is a positive thing. We also in container board had a planned maintenance stop during the third quarter and that was in Munchsund and the negative EBIT impact of that was around 60 million SEC. Some words about the market in container board and also here we reached record high craft liner prices in the third quarter. Prices decreased in October-November for unbleached craft by 30 euro per tonne while on the other side white top craft liner remained on the same level. Why? Well one reason is that the OCC price has collapsed. In June we had a price of 185 euro per tonne for OCC. The price today is around 75 euro per tonne and we believe that we can come down another 25 euro per tonne so reaching 45 to 50 euro per tonne in OCC. The price difference between craft liner and test liner today is around 120 euro per tonne which is on the narrow side I would say. Demand not the least in the retail business has come down but on the other side we also know that production has started to decrease now. Nevertheless we have somewhat increasing inventory level for craft liner as it is today. So last but not least we have decided to start to report renewable energy as a new segment from 1st of January next year. And we believe that we are well positioned to capture growth in renewable energy. We think that we can contribute to the transition towards the fossil free Europe. And we also see that we will have a significant increase in demand for green electricity and renewable biofuels going forward. Already today we are a leading producer of renewable energy. We have 20 percent of installed capacity of wind power on SEA land. We will start to invest our own money into wind power. We already today produced 12 terawatt hours of bioenergy and by that we are one of the biggest producers in Europe. And last year we also produced 1.4 terawatt hours of green electricity which is around 1 percent of the total consumption in Sweden. So by that I hand over to you Andreas.
Thank you Ulf and welcome everybody. I will start off with the income statement for the third quarter. And net sales declined 1 percent to 5 billion where lower prices in wood was offset by higher prices in container board and pulp. EBITDA totaled 2.5 billion corresponding to an EBITDA margin of around 50 percent. And this is as Ulf mentioned our fifth straight quarter with an EBITDA margin of around 50 percent. The EBITDA margin was 42 percent. We had an effective tax rate of around 20 percent bringing net profit for the period to just below 1.7 billion or 2.3 SEC per share. On the next slide we have the development by Segvent. And if we start with forest to the left net sales were in line with the previous quarter at around 1.6 billion where higher prices were offset by lower delivery volumes to our sawmill. EBITDA declined slightly to 623 million which was due to seasonal lower harvest from our own forest. In wood we have had several strong quarters since the beginning of 2021. In Q3 prices declined 20 percent as Ulf mentioned bringing net sales to 1.4 billion and EBITDA to 382 million corresponding to a margin of around 27 percent. In pulp we have had steadily increasing prices throughout the year and in Q3 we had record high prices. Sales totaled 1.9 billion and EBITDA was unchanged at 865 million corresponding to a record high EBITDA margin of 46 percent. When we started the maintenance stop in the end of the quarter which had a slight negative impact on volumes. In container board the prices have increased since the end of Q4 2020. In Q3 volumes were negatively impacted by the maintenance stop in Mung Sund and the start up of the new paper machine in Obola. Net sales totaled 1.7 billion and EBITDA of 743 million corresponding to a margin of 43 percent. As Ulf mentioned the maintenance stop had a negative impact of 43 percent. On the next slide we have the sales bridge between Q3 this year and Q3 last year. We start to the left. Prices increased 1 percent. Higher prices in pulp and container board were offset by lower prices in wood. Volumes had a negative impact of 6 percent again because of a weaker wood market and start up of PM2 in Obola. We had a positive impact from currency of 5 percent and a negative impact from exit publication paper of 1 percent. If we move on to the EBITDA bridge again starting to the left. Higher prices in pulp and container board was offset by lower prices in wood. Volumes had a negative impact of 130 million again because of lower volumes in wood and a start up of PM2 in Obola. Higher cost of wood raw material and chemicals had a negative impact of 186 million. We had a positive impact in energy which shows our high self-sufficiency post our exit publication paper. We had a positive impact from currency of 190 million and we had a negative impact from higher fuel costs and start up cost of Ortviken. We now have the full CITMP organization in place. In total EBITDA declined 7 percent to just below 2.5 billion and again an EBITDA margin of 50 percent. On the next slide we have the EBITDA bridge for the first nine months. Price mix had the biggest effect of 2.5 billion where prices increased in all areas. This was only partly offset by lower volumes and higher wood costs. Again energy had a positive impact and a positive impact from currency and a negative impact from higher distribution costs. In total EBITDA increased 30 percent to 8.2 billion corresponding to a margin of almost 52 percent. We continue to have a strong cash flow almost 1.9 billion in the quarter and 5 billion for the first nine months. This means we are continuing to fund our strategic capex with operating cash flow. Looking at the balance sheet the forest assets increased to 90 billion. Working capital increased to 3.5 billion mainly due to higher prices but it was unchanged in terms of days. Capital employed increased to 98 billion. Net debt stood at 8.3 billion or 0.8 times EBITDA. This is a decrease of around 1.3 billion compared to the previous quarter. But equity of 89 billion and net debt to equity at 9 percent. As Ulf mentioned we will start to report renewable energy as a separate segment from the beginning of next year. On this slide you have the pro forma effects for the first nine months on each segment. If we start with forest to the left unprocessed biofuels and wind power leases will from the beginning of next year be reported in renewable energy. The pro forma effect on forest for the first nine months was around 65 million of which the majority came from the wind leases. In wood pellets will be reported in renewable energy and the pro forma effect was 75 million and currently we have high pellet prices. Pulp and container board sell tall oil to renewable energy for a fossil based price. And then renewable energy is responsible to maximize the green premium. This had an effect of 60 million in pulp and 45 million in container board. And in total renewable energy had an EBITDA of around 240 million pro forma for the first nine months. We will come back with more financial details in conjunction with our Q4 report. Thank you and with that I will hand back to you Ulf.
So and if we then try to summarize the situation I can state that we are well positioned for the future. We have a very strong project portfolio that will start to contribute from next year. We have a new scanner already there. CTMP start up late this quarter. Bolstas SoMil, a new grading mill but also CT scanner which will be up and running in the fourth quarter. And then we have the biorefinery that will be up and running at the end of next year. As mentioned many times and as you also can see in the figures we have a very positive effect of the high degree of self sufficiency in wood and also energy. But not the least I would say in logistics. We have had major disturbances in the supply chain in not only Europe but also in other areas. But due to the fact that we have our own logistical company we have been in a good position here. We are well invested and structured as a base not least since we left the publication paper business. And with that we also have a very competitive cost position. The forest is growing bad days and good days which is good. And last but not least we have a super strong balance sheet. So and by that I think that we can open up for questions. Thank you very
much ladies and gentlemen. As a reminder if you would like to ask a question please press star 1 on your telephone keypad. Thank you. We will now take our first question from Robin of Carnegie. We can start in the
room Linus please go ahead.
Thank you. A couple of questions on your project pipeline and just to start off with a very near term with Abula and Ortviken. Anything to keep in mind for the fourth quarter just for the very short term in terms of startup impacts on those projects? I
can start with just that in Q4 the volumes will be similar to Q3 in terms of Abula. In CTMP we will continue to have some ramp up costs in line with Q3. And then for next year Abula volume will be previously guided over around 500,000 tonnes.
Great thanks.
The limitation
will be the we are building up also the OCC line which is needed in order to increase the total capacity so that will start now from now on.
Great. And then on the wind business and you are looking to allocate capital. What can you say about the pace of that? I mean will we see capex already in 2023, 2024? What is the pace of capex and what are the returns? What is returning capital employed expected for that investment program if we call it that?
We will develop our wind business in different ways. One option is to develop our own projects and then we are dependent on environmental permissions and things like that and we don't know when they will come. We have a couple of projects in progress. We will also acquire some projects and then you have to agree on the price and so on. But I mean you will start to see something I think latest next year. But we will not guide for I think for how much and because that is of course depending on what kind of deals we can do.
Sorry you mean there will be investments already in 2023? Yes I believe that. Either M&A or organically? Yes. Thanks and then on the announcement of the potential sawmill investment. I mean is the Rauma sawmill reference here? I mean the Metze Group 750,000 ton that mill that just started up. I mean it was initially supposed to cost 2 billion. I think it was close to 3 billion krona capex in the end. Is that the range the ballpark range of capex that we should be expecting here?
We have just taken the decision to run this feasibility studies. I mean we will answer these questions in this feasibility study. But if you are building up a new sawmill today I think you have to look at that size and also by that also that amount of money. But I mean we don't know yet. Just now we are starting up the feasibility study. Of course.
And then just overall on capex what's your guidance for the full year 2022 and 2023?
In current capex will be a few hundred million more than last year. So about 1.5 billion in current capex. And in strategic capex it will depend of course on timing of some of our capex in Obola in Sittinpi. But in the range of 3.5 billion. And therefore next year I think we will have about 1 billion left on those ongoing strategic projects.
Okay and then it will depend on potential further decisions. Okay great. Thank you very much.
What is good is that we have now more or less financed all these big projects. So now we can choose to invest more or we can just stop here if it's getting worse so to say.
Thanks Josefin. Good morning. Just two quick follow-ups from my side. It's Christian Kopfer from Handelsbanken by the way. Firstly on biofuels you mentioned Ulf. You look into a number of opportunities there. I just want to see how you view that market now with the new administration in place. Seems like they are a little bit more skeptical to be frank on biofuels. So what's your outlook? Has it been weakened a little bit perhaps?
I mean not really. If we look into the project that we are running in Gothenburg 40% will be biojet for example. When we look into the project that we are just on the planning phase but in Östrand up to 80% can be biojet. So I think we have a global market. I mean short term of course you can have some kind of impact on Swedish prices but globally not really anything major. We also often have the questions about what kind of impact will it have in the wind power business. From my perspective I mean long term we definitely need nuclear power. So I think that is a good decision to start up that progress. But on the other hand in order to get enough electricity to supply short term the only option is wind. So I think you need both wind and nuclear.
Right, I agree on that. So finally for me on saw and wood prices I'm a little bit surprised to see that you stick your neck out here and call the bottom. What makes you feel so confident? Is it because profitability in the sawmill industry in Europe will be so bad or is it that you expect demand to come back again? I
mean low prices. I mean the bottom when you reach break even then it's the bottom because then capacity will start to close down. And I mean for us we are a low cost producer so we will continue to run our mills but we have already now seen some producers starting to take retainments and so on. And still we have a decent margin but the price development now I mean that will be another substantial decrease in the fourth quarter. But it cannot really go further down without fastly decreasing prices for saw logs. And I don't think that will happen so fast.
Okay, thanks. Good morning, it's Johannes Krenzillis here, DNB. A couple of follow ups for me but on the expansions, Craftliner, CTMP, could you help us a little bit on how to look at this for next year? Any sort of incremental volumes, the delta or any kind of earnings impact there please? We
can start with the volume and as Andreas said what we have communicated is that we will, today we will, I think that the production in Åbolla will be around 440,000 tonnes this year. And that will increase up to around 500,000 tonnes next year. Which is quite unique because normally in this big expansion projects you have rather long term where you have to stop the production and then start up again. But this will be really strong cash positive during the whole project period which is a real strength. In CTMP, I mean, I don't know if we have said anything about the volume for next year?
No, but we just give some guidance. We are currently producing 100,000, a capacity of 100,000 tonnes. Or we said maybe 150 to 200,000 tonnes in total next year.
A little bit depending on the market because I mean one potential market will be Asia and we still see an impact from lockdowns and things like that. So I mean again it is a big uncertainty in the market in general that will have an impact of course.
I also have a question on your Somnil business and what you see Q4 and beyond that. I mean in this tough market are you able to find sort of new markets that can replace the weak do it yourself market at home so to speak on offshore markets?
Again I think we are positioned as a very low cost producer and I think that is, so I'm not really afraid of us being forced to take retainments. At least not for a longer period. For a while during Christmas and so on we might close down for a while but I mean we can continue to run. But just now we have a rather similar situation all over globally I would say. US is still a little bit stronger but we have also seen a decreasing demand in US. Asia rather slow and again you have a, I mean I think that is also very much related to the increasing interest rates here. So we saw the estimation for new building in Sweden next year was down 24% and we see that kind of figures all over the world just now. Thank you. So then we maybe open up the line.
Thank you. We will now take our first question from Robin of Carnegie. Your line is open please go ahead.
Yes thank you very much. So it's Robin Santavilta from Carnegie. Now first just to check with Andreas on the obola volumes. Did you say 500,000 tons expected next year?
Yes. That
would then be up I guess from something like 440,000 tons this year. What is the reason I guess you have a lot more capacity to produce up and essentially installed at the end of this year? So what is the reason you cannot produce more next year and when should we expect the full capacity of the expansion to be in
production and in play?
I think
the capacity will be reached in 2026 as we previously guided and you have a ramp up curve and also we cannot increase capacity beyond a certain point before we increase the fiber volume. We have the recovery fiber line which will be ready in Q2 next year and after that we can start to increase production. So we need more fiber.
So by that you will also see a higher production rate in the second half of next year than in the beginning of next year which might be important.
Alright, I understand and I guess it's the fiber related to the RCP or OCC. Yes, OCC. Good. Then in terms of the container board business, what are you seeing at the moment in Europe when it comes to demand and the customer inventory levels? And related to that I can see the natural gas price in Europe, at least the financial instrument, the forward next day has come down to a very, very low level compared to historical average levels. Is that now impacting then the test line and sort of production in Europe increasing it? What are you seeing when it comes to the supply demand? I
mean of course you will have an impact from the energy price when it comes to the production of test liners and by that you will also see an impact on the craft liners pricing related to the pricing of test liners. And as I said the delta gas now is 120 Euro per ton and that is on the narrow side. Maybe the normal figure should be 150 or something like that. But the reason now for, I mean we are on record high prices for craft liners, we have also record high profitability. We decreased prices for deliveries in October, November by 30 Euro per ton for unbleached craft. And the reason for that was of course that the announced price increase in test liners didn't come through and why not? Yes, because the OCC prices went down and as I said from 185 Euro per ton in June down to 75 Euro per ton where we are just now. And we feel that it might be so that we will face another smaller price decrease in OCC, it might be so. Then of course energy price on the other side that will also have a big impact on what kind of production rate we will see in test liners. So it is some kind of combination here. And it's hard to predict. As it is just now it's an okay market for us. And the demand is, the stock of orders is, for SEA it's on a good level I would say.
I understand, thank you very much for the detail. And then the final question I have is related to fiber cost in Q4 and in the winter sort of compared to Q3. What is the output for you guys?
I think we will more or less, at least now for a while we will stay on this level I would say. And I mean for us again we have 50% of what we need in our own forest. We have also, we don't import too much but we have seen as I explained, we have seen that import prices have increased quite substantially. Since last year but also since the last quarter and so on. But I think we will remain more or less on the same level now for a couple of quarters.
Thanks. Can I just check with you, you call the price low by 25% Q on Q in sort of sawn timber. And you're quite low cost and when I do the numbers then I end up with quite low profitability for the wood segment. Then in Q4 with sort of unchanged cost Q on Q. Surely that must push some of the higher cost producers into negative numbers. Is that how we should expect it and then perhaps sort of reduce production volumes? That
is how it works in a market economy. That's why I'm quite sure that we have now reached the bottom for solid wood products. And then the question is when will it start to take off again? I mean I think that is dependent on interest rates and what kind of uncertainty you have. And due to, I mean related to the war and a lot of things. But already now, as I said, already now and as you also saw in the statistics from Sweden and Finland. We have already now seen that producers, they have started to take curtailments and so on. I believe that during Christmas many producers will take curtailments. I think that we also will, we will not produce 100% during Christmas. We will talk with our employees and they will take out a couple of days and so on. I mean that is normal.
Yeah, but the economy is not going in a better direction compared to Q1 nor the seasonality. But let's see how well that will take you. Thank you very much for good answers.
Thank you. We'll now move on to our next question from Martin of ABG. Your line is open. Please go ahead.
Yes, just to double check. So in Q4, are these two new projects on CTMP and Craftline having a negative ramp up cost at first? Or is that not really the case and it's rather a positive contribution?
In Q3, we started with Obola. We had some impact on volume because when we switch from one machine to the other, I mean you lose a couple of hours of production each time. So we were negatively impacted by the startup. And in Q4, we will have similar volumes to Q3 in terms of Obola. In Ortviken, we had some startup costs to CTMP where we now have the full organization in place at our mills for training and doing all the preparations. And we will have that also in Q4. And then at the end of Q4, we will start up production of CTMP.
Okay. And the last question. Could you explain why you do a JV on sawmill with Holmen? Because I guess you're big enough both to do that kind of investment. Is that to keep the wood price low in the area and not compete? Or what's the rationale?
The reason for that is, I mean it is today a rather high investment cost if you should invest in a new sawmill. And to reach, let's say, an optimal capacity, then we can use the wood from our own forest models. I mean already today we produce around 300,000 cubic meters per year in Rundvik. And that mill will be closed. So I mean we just transferred that volume into a new mill. And by that, of course, we will reduce the investment cost. And if we don't build up a new mill, then we will of course invest in the old one. But that will not be as efficient as what we believe a new mill can be. But again, you need to get access to raw material. 75% of the cost for a sawmill is related to saw logs. But this investment will increase the value of SCAs and this potential investment will increase the value of the forest for SCA but also for Holmen. But also for all private forest owners in that region.
Thank
you. Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. We'll now move on to our next question from Oscar of Danske Bank. Eleni Serpen, please go ahead.
Yes, good morning. This is Oscar Lindström at Danske Bank. Three questions. The first one on the forest land values. The Swedish forest land market has been very strong during the first half of the year. What are you seeing now in the second half of the year and looking into next year? What's your feeling around forest land pricing? Should I go on with the second question?
We can start with that one. We believe that the price level for forest land will remain more or less on the same level. That is what we see in the market just now.
Could you say something about where demand is coming from? What type of assets are most attractive?
All types of assets to be honest. We feel that there is still a big interest for forest land. We are doing a couple of transactions every year. Every month. It is rather stable on a historically high level. The interest is big for forest land. It's a real asset. We cannot really see an impact from increasing interest rates. Some people think that will have an impact. We haven't seen it yet. Why
do you think we don't see that?
Because I think it is an attractive asset. We see a number of people coming in here. All kinds of investors coming into forest.
It's just a rather scarce asset
class. We don't produce any new land. That's maybe the reason. We are not seeing any impact. We are seeing a lot of growth.
A second question on capital allocation. You have a very strong balance sheet. Two of your major projects have now ended. Do you see any attractive opportunities given lower prices? At least in the public market? Or will you continue to focus on organic growth? Like the project you announced today. Or potential project you announced today. Other things you have in the pipeline.
You don't know what kind of options that will appear. It is always good to have a strong balance sheet. Our main focus is still on forest land. We long term believe in forest land. We have our on-going program in the Baltics. We have done 70% out of that. We will start to invest in renewable energy. We have no big investments planned for the moment. We are 100% focused on finalizing all big projects. We are running for the moment.
My third and final question is on the biorefinery project. You have a biorefinery project in Östrand. What is the status of that one? It has been in your pipeline for a long time. Progressing a little bit. What is the status and your thinking on that project?
We took the decision to invest 50 million euro for building land. The environmental permission is in place. We have said that commercially we need to find the right technique to optimize this project. We are not in a hurry. We are running the biorefinery project in Gothenburg. That one will be up and running late next year. We have a couple of different other projects. That one will come sooner or later. But we will not rush into it.
Do you foresee that being a joint venture or something that you pursue on your own?
Already today we have a joint venture together with ST1. They are also in this biorefinery project in Östrand. That we already know and that we have announced. We don't know what we will invest into. We cannot decide whether it should be a joint venture or not. We have to wait and see what kind of conditions we have when we are ready for a decision.
Alright, thank you.
Thank you. We will move on to our next question from Andrew Jones of UBS. Your line is open. Please go ahead.
Hi, Jones. A couple of questions for me. Firstly, just on the market for wood. Basically, can you remind us what your split is between where you are selling a lot of the sawn log product? And in the relevant markets, what does that cost curve look like? What does the bottom end look like compared to the top end? How steep is it? What sort of proportion of capacity have you seen idle relative to the fall in demand year over year? What amount would you potentially see coming out in the coming months if prices fall 25% as you are expecting in the fourth quarter? I have a second question, so if you could answer that first. I
think that was many questions, but I think the only answer we can have is... I did show you the slide that was showing the production rate in Sweden and Finland. As you saw in that slide, the production has started not to decrease in comparison with the average for the past 10 years. And that will continue. We did some calculation here, meaning that if we will reduce prices with another 25%, then that will come not only for us but for all producers. I mean, then a lot of capacity will be closed down. And then again, when will it pick up again? Depends, of course, on the pricing. And it is a combination between log costs and the price for solid wood products. A little bit more than 70% of the cost in a sawmill is related to the log cost. And you have very local conditions for that part. So it is impossible to say, but I mean, we will see substantial curtailments taken now when the price is coming down. And we have started to see it already. And we can see the announcements that you see, official announcements, but we feel it in the market now. And by that, the balance will be better, of course.
Yeah. And just to follow up on the point that my colleague raised about the land transaction values. It looks like if you take your balance sheet value, it is about 120 sec per share. There is not much value in the rest of the business according to that figure. I mean, clearly the market is saying that the land is worth less than its put on your balance sheet. I mean, what is the market not understanding? Because it seems as though long life, low yielding assets, interest rates must have an effect on that. I mean, clearly there is demand and transaction values are holding up. But what is keeping them up? And is it the potential for alternative land use, be it wind or something else? And if that is the case, could you quantify potentially what the uplift of the land value could be if it got permitted for wind? What is the bull case versus this interest rate argument that people are bringing out of
the land? Firstly, I mean, we see a lot of interest in forest land. I mean, a lot of visitors think it is a good hedge towards inflation. And I mean, we did a study, I think it is an annual report. I mean, if you look at forest assets from 1950s to today, they have averaged about 10% in yield. But you have to look at the price increase, you have to look at the cash flow, but also the net growth. We only harvest around 60% of our net growth, so we get more and more standing volume each year. I think that many people find that attractive and we see a lot of interest in forest land. And we have also done, I mean, there is fairly limited correlation between interest rates and the forest value if you look on the past 50, 60 years.
Okay. And for alternative values, I mean, if you converted some land and you just sited a wind farm on it, I mean, in terms of the value per hectare, I mean, what is the sort of comparison or how much could that potentially rise if you were to lease it for use as a wind farm? And
it is very high value if you can get a permit to build a wind farm. Today it may take 80 years to get a permit and 90% is a no. So the wind projects have a very high value. We see that also if you can sell a complete project where you have the permit, you get a lot of money for that. So you definitely see increased value from wind power.
And do you see the new government improving permitting materially?
I think that will come in one way or another. I mean, that is also what they have said that they will shorten the time in all areas, not just for wind, but for in all areas.
Okay. Thank you.
Thank you. We'll now move on to our last question. Averton from Cole, have them off, Jeffrey. Your line is open. Please go ahead.
Morning. Thanks for taking my questions. I've just got two. I'll take them one at a time. Firstly, on wood products, stepping away from the near term, I'd just be interested in hearing your view on what happens if we have a longer term housing slump and how does that play off versus structurally 10% less supply out of Russia into Europe. Regulations, I suppose, building with wood, replacing steel and cement, being more favorable. How do you see that balancing the market going forward longer term? And then I'll follow up with one on container wood.
Thank you. I mean, long term, you will have a positive balance for solid wood products for many reasons. I mean, already today you see that we cannot really supply. We haven't been able to supply the market with what they needed for a couple of years now. And also for sustainability reasons, I mean, political reasons within the Union and so on, but really supporting the consumption of solid wood products instead of concrete and other building materials. I think that will be long term, this will be a positive business. It is volatile, which can be good and which can be bad. But I think we are, SSEA, we are well positioned to some extent to benefit from this volatility, so not only in solid wood products, but also in other areas. But long term, this will be a good business.
And then just following up on the container wood market, I know you've given some commentary and some data on the inventory data for Craftliner. But that data, I imagine, is only for August and there's been quite a bit of industry downtime. Can you give us your view of where your system inventory levels are at the moment or how you think the industry might be now after taking a fair amount of downtime over August and September? And then following on from that, it was asked earlier on the call about cost coming down and OCC and gas prices. How do you see this developing? Because while short term gas prices might be a little bit lower, if we look into next year, the forwards are still elevated. Should we see the prices coming down a little bit with costs and test liner and impacting Craftliner into next year or should it just be more of a gradual impact through the first half? Thank you.
I mean, again, as I said, for SCA, we have rather normal stock of orders, so we are not stressed by any limitation in that side. We are also not so focused on the ramp up of the new paper machine. The other question, I mean, again, it is, of course, a combination and relation between test liner and Craftliner prices. Test liner prices are depending on the price for OCC and I have described the development that we have seen there. And it is also dependent on the price development for energy and that you know as good as me that we have seen lower prices. And due to the fact that we now have filled up some inventories, at least for a part of this year, we don't know what kind of winter we will have. We don't know how long the war will remain. We don't know the situation next year and so on. But we know that the delta just now between test liner and Craftliner is 120 euro per tonne. And the reason for that is, of course, that we don't like to see any substitution from Craftliner down to test liner. And we haven't seen that yet. And we will, I think we will, we and other producers, typically we will follow the delta and we will also keep the, let's say the difference on a decent level in order to avoid substitution. But I mean, I cannot judge the development for gas and for OCC prices better than you can.
I suppose maybe asked another way, does a short term decline in gas prices necessarily impact pricing that much? If we look out kind of a couple of months, prices will be higher. I imagine container board prices wouldn't necessarily fall as much on a short term basis just because you've got potentially next day gas prices being lower.
I mean, theoretically, yes, I mean, if you have a lower gas price and if you have a lower OCC price, then of course the profit will be, the cash cost will be better. They will be in a better position as a test liner producer. I mean, just now we have been in a very special place in Scandinavia with the energy supply that we, the structure we have in the energy supply here in this region. And that you can also see in the result that we have. And I mean, sooner or later prices will start to normalize. We saw some adaption maybe in the last month where the price for unbleached craft went down 30 euro per ton. Now it's stable again in the market. It was unchanged for white top craft liner. And so it's hard to say. We feel that the demand is still on the good side, even if we see that the demand in the retail sector mainly has come down a bit. But still on a good level if you compare with the situation before the pandemic and so on.
Thank
you. Thank you. Once again, ladies and gentlemen, if you'd like to ask a question, please press star 1 on your telephone keypad. Thank you.
Anders.
I see there are no questions in queue. I will hand it back to you. Thank you very much.
Thank you, operator. And thank you for participating. And welcome back when we present the fourth quarter results early next year. Thank you for watching.