speaker
Conference Call Host
Moderator

Good morning and welcome to this presentation of SCA's interim report presentation for the third quarter of 2023. With me here today, I have CEO and President Ulf Larsson and CFO Andreas Evert. Now over to you Ulf. Thank you

speaker
Ulf Larsson
CEO and President

Anders and also from my side, good morning and welcome to the presentation of SCA's result for the third quarter 23. So when I summarize the quarter, I can state that we have delivered a stable result with a strong cash flow, not least driven by a profitable growth in renewable energy, a stable performance in forest, but also resilience against cost inflation. And the latter, that is of course partly due to our high degree of self-sufficiency in our wood and energy supply, but also in logistics. We see a stabilizing demand in the market for our products. Prices for solid wood products decrease as expected during the third quarter, but will as an average remain on current level also in the fourth quarter. Container board prices have been flat since May this year, while prices for pulp have bottomed and started to increase also as expected. EBITDA decreased in comparison with the third quarter last year, but reached 1.4 billion SEC and by that a healthy EBITDA margin of 33%. So when I compare the third quarter this year with the third quarter last year, I can note that sales decreased by 14% and the EBITDA by 43%, and that is mainly due to lower prices. On the positive side, we have seen a high result in forest, a high result in energy, and that is combined with higher delivery volumes due to commission strategic investments and also positive currency effect. Finally, I can remind you that we recently have announced an acquisition of a wind park, Fasikan, and the total cost is estimated to 1.7 billion SEC, and the yearly production will be around 0.33 TWh, and the commissioning will be early 2026. Turning over to some financial KPIs related to the third quarter, EBITDA decreased 17% in comparison with the last quarter, but reached 1.4 billion SEC, and that corresponds to 33% EBITDA margin. Our industrial return on capital employee came out on 12%, calculated as the average for the last 12 months. The leverage is at 1.4, and that is despite our almost finalized large ongoing investment projects in Obola, Ortviken, Bolsta, and also Gothenburg. And by that we also continue to finance all our investments, including strategic projects with our operating cash flow. I will now make some comments for each segment, and I like to start with forest. During the third quarter, we have had a stable supply of woodrow materials to our industries. In general, we can note the continued high demand for saw logs, while the demand for pulpwood has begun to weaken. As can be seen in the graph in the bottom left, prices for both pulpwood and saw logs have steadily increased during a long period, and we now feel that they even out on a historically high level. In the Baltics, we also see that raw materials prices have started to decline. When we compare Q3-23 with the same period last year, sales were up 17% and EBITDA was up 20%, and that is mainly due to higher prices. But we also have a positive effect due to higher harvesting level in our own forest. Turning over to business area wood. In general, we have a continued slow underlying market for solid wood products. DIY activities had a seasonally positive effect on the demand in the second quarter, but have now come down as expected in the third quarter. New harvesting starts are in a decreasing trend with the US as an exception. However, stock levels in the market are low, so demand in the end-use market will create orders back to the sawmills. I estimate that the price should come down in the third quarter and reach the level we had in the first quarter, and that also happened, and we have seen a 7% price decrease in the third quarter in comparison with the second quarter. I now feel that we have reached the bottom and expect unchanged prices in the fourth quarter. Sales and EBITDA were substantially down, Q3-23 in comparison with Q3-22, and that is due to price and cost of wood raw material. 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. We note that the inventory volumes are on a normal level. SEA has also maintained good deliveries during the third quarter, and by that we have a balanced and also normal stock level. As can be seen in the diagram to the bottom left, the Swedish and Finnish sawmills production has been below normal level, approximately 5% less than last year's same period. Outside the Nordic countries, we have also seen continued production containment, mainly in Germany, but also in Canada, and we can expect further production containment during the coming quarter. When looking at the diagram to the top right, we can note that the price peaked in the third quarter 21, and that was on historically high level. Prices have come down substantially since then, and at the same time the prices for sawlocks have increased with a major, of course, negative effect on profitability. So over to PALP. First, I'm happy to say that our CTMP expansion continues according to plan regarding production ramp up and sales growth. Sales and EBITDA were down 14 and 80% respectively when comparing the third quarter this year with Q3 22. We can note lower prices and higher woodrow material costs on the negative side, while currency and also volume have had a positive impact in this comparison. We did start up plan maintenance stop at Östrand in the third quarter with a negative result, the impact of approximately 50 million SEC in the third quarter. We have seen a quarter with increasing demand of PALP in China, and prices have also been rising lately, especially in China. Profitability has improved for Chinese deliveries. The increase in demand and turnaround of prices is an effect of low inventories by customers and also limitations of capacity from high-cost producers for deliveries to China. The market in Europe has also improved in September. Customers are asking for increased volumes. Therefore, SEA has also announced a new base price of $1,200 per ton that is effective from October. The global inventories are on a stable but somewhat high level. SEA inventories are on a medium to low level after the planned maintenance stop. And we are also expecting prices in the US to start increasing as of November. The prices of CTMP have also increased with approximately US$75 per ton in Asia. The closure of the CTMP line at Östrand was accomplished in September as planned. And by that all CTMP production has now been transferred to the new line at Oortviken. From competition we note that METSOS new milling came and started up and Stora Enso's milling zone has been announced to be closed. We have also noted that substantial BSK PALP capacities have been closed in Canada. In total, we by that estimate that the market balance to be more or less unchanged. Moving over to Container Board. The ramp up of the new craft lining paper machine in Åbolla is running according to plan. The new recovered fiber line, which is a necessity to reach full capacity, is also progressing according to plan. And the ramp up of this line has started successfully. And as earlier communicated, we expect to reach full capacity in Åbolla by 2026. Sales was down quarter on quarter by 18% due to lower prices, while EBTA was down by 65% mainly due to lower prices and higher raw material costs. Box demand has been stable in Q3. European demand of craft liners has also been stable in the third quarter this year, which indicates that pipeline effects have come to an end. We believe now in the stronger demand of Container Board step by step. On the other hand, there is additional supply and test liners coming on stream in the next quarters, which will put maybe some extra pressure on the supply demand balance. Prices for brown craft liners have been stable in the third quarter this year. Prices for craft liners at the white top have also been stable in Q3. And we have now seen unchanged prices for both brown and white craft liners from May until today. And probably we have also reached the bottom in this segment. Container Board and especially craft liners inventories have been very well balanced by reduction of supply. Despite significantly lower demand, inventories have been stable or slowly decreasing in the first two quarters of 2023. And the current stock level will support a rather sharp volume and price recovery when the demand comes back. Availability of OCC is still good because of historically high supply of corrugated boxes and lower current demand of test liners. Today's PPI index price is around 75 euro per ton, which is 110 euro per ton lower than the peak in July 2022. Since we see the amount to be stable and strong in the second half of the year, we can assume that OCC prices will start to increase again based on the limited supply at the end of the year. Renewable energy. SEA continues to grow in wind power and has recently announced an acquisition of a wind project 100 kilometers west from Sundsvall. The total investment cost is 1.7 billion SEK. All turbines will be located on SEA land and the production capacity will be a little bit over 0.3 terawatt-dollars per year. The commissioning will start early 2026 and I will come back and give you some more details in a short while here. In business area renewable energy, we continue with another quarter of strong profitable growth and higher prices in comparison with the same period last year. Due to increasing prices and high demand, the sales were up 27 percent and the EBITDA level by 89 percent when we compare with the same period last year. The market for solid biofuels is stable. Volumes are also expected to increase in the coming quarter due to seasonal effect. In wind power, land lease agreements on SEA land reached 8.3 terawatt-dollars in Q3 and that is exactly in line with the communicated plan. We have seen lower energy prices in the northern part of Sweden during Q3 and that is due to warm weather, strong wind and also strengthened hydrological balance. Finally, the bio refinery in Gothenburg is under construction and the first product to tank is planned during Q4 this year. So by that I hand over to you Andreas.

speaker
Andreas Evert
CFO

Thank you Ulf and good morning everybody. I will start off with the income statement for the third quarter. Net sales declined 14 percent to 4.3 billion driven by lower prices. EBITDA reached 1.4 billion despite a weak market driven by growth in renewable energy and high results in our forest division. The EBITDA margin was 33 percent. Depreciation increased to 404 million due to activation of the new paper machine in Obola and the new sitting P-Mill at Ortviken. EBITDA margin declined to 21 percent and financial items totaled minus 111 million. We had an effective tax rate of below 20 percent bringing that profit to 663 million or 0.96 SEK per share. On the next slide we had a financial development by segment. I start with the forest segment to the left. Net sales totaled 1.9 billion and EBITDA decreased to 724 million due to seasonally lower harvest from our forest compared to the previous quarter. In wood, prices decreased in the third quarter compared to the second due to the seasonally lower demand. Net sales decreased to 1.2 billion and EBITDA totaled 161 million corresponding to a margin of 13 percent. In pulp, prices bottomed out after several quarters of declining prices and we announced a price increase in October. Net sales declined to 1.6 billion and EBITDA decreased to 173 million corresponding to a margin of 11 percent. Lower pulp prices, lower energy prices and ramp up volumes from sitting P-Ortviken had a negative impact on earnings. At the end of the quarter we started plain maintenance stops at Östrand which had a negative impact of 47 million. In container board, craft line prices have been stable since May. In Q3, net sales totaled 1.4 billion and EBITDA increased to 253 million corresponding to a margin of 18 percent and the plant maintenance stop in Munchsund had a negative impact of 68 million. Renewable energy with another strong quarter with EBITDA around 155 million and a margin of 48 percent despite a seasonally weaker quarter and lower electricity prices. On the next slide we have the sales bridge between Q3 last year and Q3 this year. Prices declined 40 percent with lower prices in wood, container board and pulp. Volumes increased 9 percent driven by the new paper machine in Obla and the new sitting P-Mill at Ortviken. And lastly, currency had a positive impact of 7 percent bringing net sales to 4.3 billion. Moving on to EBITDA bridge and starting to the left, price mix had a negative impact of 1.6 billion and higher volumes had a positive impact of 152 million. Higher cost for mainly wood raw materials had a negative impact of 51 million while energy had a positive impact of 36 million which really shows a high sales efficiency in both energy and wood raw material. With a positive impact from currency and a positive impact from lower distribution costs and Q3 last year was also negatively impacted by transformational costs at Ortviken. In total EBITDA decreased approximately 1.4 billion corresponding to a margin of 43 percent. We continue to have a strong operating cash flow, 1.2 billion for the quarter and 3 billion for the first nine months. And this means that we are continuing to fund our strategic investments with operating cash flow. Look at the balance sheet. The value of forest assets increased to 99 billion. Working capital decreased to 3.6 billion driven by lower prices and maintenance stops in Q3. Total capital employed increased to 107 billion. Net debt was stable at around 10 billion corresponding to 1.4 times EBITDA. And we have now almost finalized a large ongoing investment project in Obola, Ortviken, Bolsta and Gothenburg. Equity increased to 97 billion and net debt to equity was 10 percent. Thank you. With that we'll hand back to you Ulf.

speaker
Ulf Larsson
CEO and President

Thank you for that Andreas. And with this slide I would like to show you our project priorities for the moment being. And the base is to maintain our superior asset quality and by doing so we can continuously improve productivity, cost efficiency in our operations and by that stay competitive over time. As already mentioned we have several already decided and ongoing projects and we will stay 100 percent focused in delivering on these projects. When we are now looking forward we see good opportunities for further profitable growth. In Wood we have announced a feasibility study together with Holmen to invest in Rundvik sawmill which is located in Västerbotten. In Munchsund Norrbotten we have started up pre-projects to evaluate the potential of a rebuild of Munchsund sawmill but also the Munchsunds container board mill respectively. And in Wind we see good business opportunities and here we will work with three different business models to create maximum value. The first leg will be to produce energy on our own and the aspiration we have is to be 100 percent self-sufficient in terms of green renewable electricity. With the newly announced acquisition of project Fasikan in Jämtland we will reach approximately 100 percent degree of self-sufficiency when that one is up and running in 2026. The second leg will be project development and here we talk about both greenfield and repowering projects. And here we can decide whether to invest ourselves or sell developed and permitted projects. The third leg finally will be to continue to lease out land areas well suited for wind power and as mentioned before we already have between 8 to 9 TWh on a sale land which is equal to 20 percent of installed capacity of onshore wind power in Sweden. So and finally some details about Fasikan the project we have just acquired in Jämtland. The total investment cost will be 1.7 billion SEK and as already said with this investment we will reach 100 percent degree of self-sufficiency of green renewable energy by 2026. The production in this wind park will reach 0.33 TWh per year and all 15 turbines will be located on SEA land. Installed capacity is 105 MW or 7 MW per turbine. The location here is very good with excellent wind conditions and the fact that we have permission for 240 meters tip height will together with 7 MW turbines result in a very low production cost. So to summarize I mean we believe that we have delivered another strong quarter 33 percent profit margin in a rather challenging market situation. So I think by that we open up for questions.

speaker
Call Moderator
Q&A Facilitator

Thank you. Ladies and gentlemen if you like to ask a question please press star 1 on your telephone keypad. To withdraw your question please press star 2. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Charlie Mulesance from BNB Paribas. Your line is open please go ahead.

speaker
Charlie Mulesance
BNP Paribas

Good morning. Thank you for taking my questions. I'll stick to just two topics. The first one on your wind park investment the 1.7 billion Krona could you just tell us a little bit about the phasing of the CAPEX spend there and moreover what we might expect in totality approximately for CAPEX next year. And on these kind of investments what kind of hurdle rates of return are you setting yourselves for those. And then secondly on the wood market quarter on quarter the cost of brownwood and pulpwood in Sweden has continued to rise. Are you seeing any signs that that might start to roll over as we've seen in neighboring Finland and linked to that. And then your wood products division actually the production cost per ton seemed to fall slightly despite this dynamic. I wondered if you could explain that. Thank you.

speaker
Andreas Evert
CFO

Yes I can start with CAPEX guidance. So current CAPEX this year we expect somewhere between 1.5 to 1.6 billion for the full year in 2023. And for current CAPEX for next year we expect also around just about 1.6 billion. In terms of strategic CAPEX next year it depends on what we do but with the ongoing project we expect around 1 billion. And in terms of the allocation of the wind CAPEX we will have some CAPEX at this year around 300-400 million. And then we will have some during next year around 400 million and then the most part during 2025. But of course it can very go over the year. And then in terms of hurdle rate for the wind power what I can say is that this project has a very low OPEX. So we expect margins of 70 to 80 percent. But our aim here is to have a very low production cost and we will be 100 percent self-sufficient as Ulf mentioned. So with high electricity prices then we make more money in our energy division. And with lower electricity prices we will make more money in our industrial operations. But we expect a margin of around 70 to 80 percent and then it depends on what electricity price you assume. And here you also have to remember that you currently have quite good income from the origins of guarantees which are now currently around 5 to 9 euros per megawatt hours. And then the last question maybe Ulf. I can take

speaker
Ulf Larsson
CEO and President

some words about the raw material costs as I understood. Then I mean as I said the Solog prices are they are even evening out just now but they are on historically high level and I think they will remain there for a while. We see some indications when it comes to pulpwood prices that they will start to come down slightly. We have seen it already in the Baltics but they are also still on a very high level. But Finland we don't know we don't purchase wood in Finland really so I'm not updated on that.

speaker
Charlie Mulesance
BNP Paribas

Yeah and just a slight discrepancy in the fact that your production cost per ton in the wood product division is falling despite those high and seemingly rising round wood prices.

speaker
Andreas Evert
CFO

Yeah I can add to that. I mean firstly we have low electricity prices which benefit when we are almost self-sufficient but the benefits would then contain the board while low electricity prices gets worse on pulp and our energy division. So we have low electricity prices we also have higher income from our byproducts and we also had during the quarter strong results from our foreign supply business.

speaker
Call Moderator
Q&A Facilitator

Thanks. We will take our next question from Johannes from DNB Markets. Your line is open please go ahead.

speaker
Johannes
DNB Markets

Yes hi everyone it's Johannes here. I have two questions. My first question is on your self-help your investments into the refinery Gothenburg the big investment in Opola. Could you help us a little bit in indicating what kind of earnings tailwind we can expect for next year on the back of those investments. That's my first question.

speaker
Andreas Evert
CFO

So in terms of Opola what we have guided is that with trend price it will give once fully ramped up around 900 to 1 billion in EBITDA. And then we have guided also that this year we will have an Opola around 500,000 tons of production and then in 2026 we will reach 725,000 tons and then the ramp up will be gradually. But the earnings will of course depend on price and we will not give any more guidance than that.

speaker
Johannes
DNB Markets

Andreas if you would assume today's prices are we talking about clearly a sort of earnings contribution from the new volumes or is it more sort of smaller extra profits or is it sort of meaningful in this environment.

speaker
Andreas Evert
CFO

We still have a healthy margin or container board business. We had an 18% EBITDA margining container board in Q3 so all extra volumes are still contributing.

speaker
Ulf Larsson
CEO and President

And the Gothenburg. Yes,

speaker
Andreas Evert
CFO

so we are starting up that at the end of this quarter and we have previously guided on that when it's fully ramped up it will contribute with around 200 million in terms of EBITDA. But of course it depends on prices. Now prices have gone down a bit for the buyer refining margin but over time I would say around 200 million was fully ramped up.

speaker
Ulf Larsson
CEO and President

And also I'd like to add to this new projects I mean you will have some extra costs during the ramp up period. They are all now running according to plan but still of course you add some extra costs when you ramp up.

speaker
Johannes
DNB Markets

Okay, absolutely. Then my other question is on pulp. I think you said here Ulf that you have seen higher demand from clients. That is one of the reasons I suppose why you go on price hikes. Could you maybe give us some color on how this is received among your clients and are you expecting to do more on the pricing side considering that Chinese demand seems to be extremely active at the moment?

speaker
Ulf Larsson
CEO and President

I mean what we have seen now is an increase in demand in China as I said and there we also have seen prices coming up step by step. The reason for us announcing price increase in Europe is that we have a rather steady demand. Still again I mean it depends what you compare with but I mean we have a steady demand in Europe as it is just now and we also feel that it is picking up a little bit in US. It's nothing dramatic but it was enough for us announcing a 50 US dollar per ton increase in Europe. We believe also that prices will follow in US in November.

speaker
Johannes
DNB Markets

Yeah, I mean do you think that the inventories in Europe are like normal at the moment or any thoughts on that on pulp?

speaker
Ulf Larsson
CEO and President

Yeah, as I said I mean for SEA we are on the very low side because we have had our planned maintenance stop and we have also had good deliveries. As you saw on the slide I mean we are a little bit on the high side for MBSK still while the stock level for short fiber has come down and is I would say on a normal level. We have also seen in the market I think we have been rather disciplined in all areas both in wood and in pulp and also in container but I mean inventory levels in general are normal to in some areas also on the low side. So I think that is beneficial when the underlying consumption is coming up here. So I mean then we can have a rather fast turn in some areas I would say.

speaker
Johannes
DNB Markets

Okay, thank you very much for your answers.

speaker
Call Moderator
Q&A Facilitator

We will take our next question from Martin Melby from ABD. Your line is open please go ahead.

speaker
Martin Melby
ABD

Yes, good morning. Could you expand upon the seasonality in the forest segment for Q4? Usually that's like 200 million better but you've harvested more year to date than last year. So how will that seasonality look like?

speaker
Andreas Evert
CFO

Yeah, we still have a seasonal effect but it will be less than previous years as now when we are ramping up our harvest from our own forest it tends to we have more evenly spread during the quarter than previously. So we'll have some seasonality effect but it will be less compared to previous years.

speaker
Martin Melby
ABD

Thank you. And the same on the renewable energy segment. We have very little historical information. Is there a seasonality pickup or a flatish for Q4? I

speaker
Andreas Evert
CFO

mean usually Q1 is the strongest quarter in terms of renewable energy and the summer is the weakest. So I think Q4 usually is slightly higher season of demand compared to Q3 especially during the end of the quarter when we approach the winter season. But currently the electricity prices and energy prices are fairly low. So if these prices continue to be as low as now then we expect a more flatish but normally you will have a slight seasonal pickup in Q4 but again it depends on the development of electricity and energy prices.

speaker
Martin Melby
ABD

Thank you.

speaker
Call Moderator
Q&A Facilitator

We'll take our next question from Oscar Lindstrom from Dan's Bank. Your line is open. Please go ahead.

speaker
Oscar Lindstrom
Dan's Bank

Good morning. Three questions from my side. The first one is more a general one. I mean we see now prices likely trotting at historically quite high levels in most segments and we still sort of good profitability for you. I mean reasonably cost curves have shifted up and become steeper with your position at the lower end becoming more profitable. My question is, is this a structural shift that sort of lays the foundation for future cycles or is there something else going on?

speaker
Ulf Larsson
CEO and President

That's my first question. And by that we have also kept the balance but I mean we are favored now by the currency. That is one thing but also of course we have done for SAA we have done a lot of investments and we haven't seen the full effect from these investments yet but the status in our mills and sites are very good of course. Great.

speaker
Oscar Lindstrom
Dan's Bank

Thank you. My second question is on Craftliner. You say, I mean and we can see it as well, that prices have been essentially stable since May and you say that the stock levels both your own and your customers are historically or low or below average. How much of a demand pick up do we need for price increases to materialize or do you think that the, I mean you did mention the new test liner capacity. Is that enough to sort of counterbalance this or how should we think about this Craftliner pricing outlook?

speaker
Ulf Larsson
CEO and President

It is a little bit hard to say. I mean as you say I would say that we are more or less on a normal level when it comes to the stock level but Craftliner pricing is of course impacted by what's happening in test liner and I believe now that we will see, I mean we have already started to see OCC prices coming up and I think they will continue to come up. And then I think the test liner pricing is also dependent on what will happen with energy prices and they are still on a very low level and depends on the winter very much. But on the other hand, I mean when you see the consumption of boxes, they are now back on the trend line which we had before the pandemic and they are now slightly increasing trend which is of course positive. But again you have a number of different facts which you cannot really impact but when it picks up then my view is that then we will have a rather sharp price increase due to the balance in the market. Thank

speaker
Oscar Lindstrom
Dan's Bank

you. And just my final question, you mentioned the Munchsund investment and I remember the sawmill investment in Munchsund. I think you also mentioned a container board mill investment or rebuild project which I can't right now and recollect what that is. Is that something new or? I

speaker
Ulf Larsson
CEO and President

mean when we have finalized the Oberla project, I mean then we of course will go on with the next one and Munchsund is a very strong mill. A mill that has generated strong cash flow over the years and we are now looking into first to increase the capacity a bit. We have some reinvestment but also increase the capacity but also create some kind of flexibility and use somewhat more OCC in the feedstock. But as I said, it is a pre-project so nothing is decided yet. We will now wait and see and see what will happen with cost inflation and things like that and we will keep an eye on the balance sheet and we will not risk anything as it is just now.

speaker
Oscar Lindstrom
Dan's Bank

Would that be a major project if it is decided to go ahead with it on the size of what you did in Oberla for example? No,

speaker
Ulf Larsson
CEO and President

I mean it's in comparison with Oberla that is a minor project.

speaker
Oscar Lindstrom
Dan's Bank

Wonderful. Thank you. Thank you.

speaker
Call Moderator
Q&A Facilitator

We will take our next question from Linus Larsson from SEB. Your line is open. Please go ahead.

speaker
Linus Larsson
SEB

Thank you very much and good morning to all and to Jule from Andreas as well. Another question on renewable energy and maybe an update on your wind strategy. You have mentioned previously the figure more than three terawatt hours in ten years time. And with reference to slide 22, which is a very good one by the way, I am a bit curious to hear your current thinking around electricity self-sufficiency, which is what you seem to highlight on this slide -a-vis becoming a net seller of electricity. And I do appreciate that you will evaluate project by project, but just your general thinking around potential becoming a net seller of wind power. Yeah,

speaker
Ulf Larsson
CEO and President

and we will not be a net seller of electricity. I mean, when I said three terawatt hours, that was in the light of potential by refinery in Östrand because then we need around three terawatt hours of renewable green energy. What we see us now and what we can, what we calculate on is that in 2026 when we have obola up and running and when we have done the ramp up of the CTP line, we will have a net consumption of 2.2 terawatt hours and that we will cover with this project. And I mean, we will not be a net producer of electricity. We have a big potential net sale and we will of course capitalise on that one. But that means that we will sell projects. I mean, we will develop and sell projects. So again, three legs. One is to be 100% self-sufficient in green renewable energy. And that must be then related to what kind of projects and what kind of development we have in the industry. The second leg is to of course to develop the potential we have in different ways. We can develop new projects, but we also have a lot of projects suitable for repowering. And the third leg will be to continue to lease out land to other investors.

speaker
Linus Larsson
SEB

Great. That's perfectly clear. Then with regards to the Sunsval by refinery, I mean in this case as opposed to wind power, most of the time it's, if I understand you right, not limited by permits. Your permits are in place. So could you update us please on the decision making process and the timeline of that project?

speaker
Ulf Larsson
CEO and President

Of the refinery in Sunsval. I mean, again, I said that it is, we don't have a commercial technique yet in this area. We have done a lot of research. We have done feasibility studies. We have already got the permission, the environmental permission. We are building land, but we continue to validate the technique. And as it is just now, it is not possible to take a decision on the refinery in Östrand. We believe, I believe it will come sooner or later. It will come and it will be based on solid biomass. But so far it's too early.

speaker
Linus Larsson
SEB

Great. Thanks a

speaker
Call Moderator
Q&A Facilitator

lot. We will take our next question from Christian Koffer from Handelsbanken. Your line is open. Please go ahead.

speaker
Christian Koffer
Handelsbanken

Right. Thanks for that operator. Just two quick follow up on my side. Firstly, on the refinery in Gothenburg, just out of interest, what will be the key customers for that? Or call it the customer area perhaps for those products?

speaker
Andreas Evert
CFO

We will, in Gothenburg, we will produce both HVO and jet fuel. So, I mean, it will be a blend, the HVO will be a blend in normal diesel and the jet fuel will be used for air flights. So, it will be a mix. But most will be used for blending.

speaker
Christian Koffer
Handelsbanken

How do you see demand developing for the next number of years for those kind of products?

speaker
Andreas Evert
CFO

If we look long term, I think we'll be shorted especially of jet fuel. We see a shortage of demand. Next year we believe it will be a bit weaker demand driven by the new legislation in Sweden. But in 2025, the EU legislation will come into play and that will drive demand.

speaker
Christian Koffer
Handelsbanken

Right. Thanks. And then finally for me on Hasic, that you mentioned both Olif and you, Andreas mentioned that you have very low production costs. What kind of production costs are we talking about? Is it around 100 crowns per megabat hour?

speaker
Andreas Evert
CFO

Yeah, it's, I would say in 2026 level, it's slightly above that, but not far off, but it's very low.

speaker
Christian Koffer
Handelsbanken

Right. And then maybe also, so if you add the capital costs to the production costs, what kind of levelized costs per megabat hour are we talking about? We

speaker
Andreas Evert
CFO

think it will be a competitive levelized cost of energy we're talking about just above. Well, you can calculate that, but we've done the benchmark and we feel that it's quite competitive, so low range, end of the interval for wind power and of course, significantly lower than other types of electricity production like oil. Offshore wind. So we think it will be a healthy level.

speaker
Christian Koffer
Handelsbanken

Alright, thanks very much.

speaker
Call Moderator
Q&A Facilitator

We will take our next question from Cole Hatton from Jeffreys. Your line is up on, please go ahead.

speaker
Cole Hatton
Jeffreys

Morning, thanks for taking my question. I'd just like to follow up on the container board market. Firstly, if you see any potential impact from some of the capacity closures we've seen from the US players on the export markets at all. And then also staying on the container board markets, you've talked about kind of demand, sequential recovering of the lows and a lot of the industries under pressure, particularly the recycled container board producers taking a lot of commercial downtime. How do you think about potential for price increases on here? What scenario do we need to get the price higher? Would it be a case of energy costs and OCC elevated players taking downtime and if demand comes back, we potentially see pricing into the new year? If inventories are lower, just trying to think about what would be the upside case for pricing from here?

speaker
Ulf Larsson
CEO and President

If we first take the US, we see some additional volumes coming over to Europe just now, but it's not a big deal. They have been away for a number of quarters, but we see some volumes now in the southern part of Europe. So that was the first one. The other one, I mean, yes, I mean, if we see higher energy prices and higher OCC prices, that will definitely create the price increase in test liner and that will have a positive impact also on craft liner. We see, I mean, again, as I said, I mean, we see that the box consumption is now back on the trend line and we also see a slightly positive development, the positive trend and that will of course benefit the environment for pricing going forward. It's hard to say when it will come. I mean, we have a lot of insecurity in the world just now. Beside the Russian invasion of Ukraine, we have what's happening now in Middle East and in all areas. And I mean, it's impossible really to judge what will happen on the demand side for the moment being, I would say. But again, the stock level is on a normal to low level and that will be beneficial when the demand comes back.

speaker
Cole Hatton
Jeffreys

Well, then, you know, maybe following up on the Nordic pulpwood markets, I'm just trying to see how you think about the price dynamics playing out in pulpwood. If I mean, we're at lower demand at the moment and people are taking downtime, but pulpwood is still elevated. Yes, it's potentially coming off. It's the highs. But how do you see it playing out over the next two years? If we do get demand coming back, do we see a situation where the pulp and container board mills benefit from more wood chips coming from the saw mills and potentially lower total wood costs? Or will we be in a situation where, you know, if demand comes back, pulpwood potentially sees further support just considering the supply constraints?

speaker
Ulf Larsson
CEO and President

Yeah, I mean, it's again, it's a little bit hard to see if we look in to our region. I mean, we can clearly see that we all know that 10 million cubic meters is not coming any longer from Russia over to Finland. And that will put the pressure on the Finnish balance. One mill is announced to be closed soon enough, for example, and another one will be open in the northern part of Sweden. I think that will have an impact on the wood supply in the northern part of Sweden. They will buy maybe a million or two or whatever in Norrbotten, maybe also in Västerbotten to supply the Kemi mill. At the same time, we have heard announcements from Sveaskog, the state owned forest, that they will reduce the harvesting level for at least for a while. So I think it will be the tight balance for a while when it comes to woodrow materials. And I mean, again, we are in a good position here. We have 50% of what we need from our own forests, which is very favorable. And also we buy a lot of wood from small private forest owners in the region located close to our mills. And so that is also beneficial. And we also have an extra leg in the Baltics where we have our own forest and where we also can buy from private forest owners. So we are not really worried about this, but I believe that it will be a tight market also coming quarters.

speaker
Conference Call Host
Moderator

Thank

speaker
Call Moderator
Q&A Facilitator

you. We will take our next question from Alexandra Wilwell from Pareto. Your line is open. Please go ahead.

speaker
Alexandra Wilwell
Pareto

Hello. Thanks for taking my question. First, have you seen any mix changes when it comes to pulp sales in Q3 versus Q2? And do you expect mix changes

speaker
spk00

going

speaker
Alexandra Wilwell
Pareto

into Q4 with regards to customer segments? Of course,

speaker
Andreas Evert
CFO

now during a slower pulp market in general, we have more volumes to our non-core customers. So we have seen that's the normal cyclical pattern in terms of when it's high demand. Then we can focus on a tighter of our core customers in close regions and in a slower market. And then we have to go further away with our pulp in general.

speaker
Alexandra Wilwell
Pareto

Thanks. And also follow up a little bit on harvesting for your own forest. Do you have a number for an expectation regarding full year harvesting for this year and perhaps looking into next year, what you expect?

speaker
Andreas Evert
CFO

We're expecting somewhat below five million for the full year. And for next year, we will continue to ramp up. So then we will increase further next year.

speaker
Alexandra Wilwell
Pareto

OK, thank you.

speaker
Call Moderator
Q&A Facilitator

Once again, ladies and gentlemen, please press star one to ask for a question. We'll take our next question from Andrew Jones from UBS. Your line is open. Please go ahead.

speaker
Andrew Jones
UBS

Hi, Jen. Just a couple of questions. Just first, on the software market, you talked about with the capacity closures in Canada, that the market would be broadly balanced. Can you just quantify what we've seen come out to the actual software market? We've seen I saw some some impact on fluff and potentially some dissolving pulp. I wasn't aware that the impact would offset at one and a half million ton ramp up coming through from Canada. Can you just quantify some of the changes we've seen in capacity in the industry recently? And just on the container board business, just after the maintenance we've seen at Munchland, could you just give us an idea for how much you expect volumes to pick up in the fourth quarter? And any sort of best guesses for the one you just given the given the normalizing demand situation?

speaker
Ulf Larsson
CEO and President

Thank you. If we start with a softwood balance, I mean, first, it will not be a net contribution by one point five million ton in MBSK from Keme. I mean, some of it will be short fiber and they've also had a production since before. So the net contribution, I think, will be around 800000 tons or something like that. So Nila will reduce the supply by 370000 tons. And then we have seen lots of containments and also some closures in North America. So I think for MBSK, I think it will be more or less a balance situation. I haven't heard of any projects now that will increase capacity in MBSK. On the other side, on short fiber, there you will have a couple of projects on stream just now. UPM and some other projects. I mean, that will of course have some kind of impact on the balance. But in softwood, we foresee a rather balanced situation going forward. And I think maybe you should say something about Munchsund volumes.

speaker
Andreas Evert
CFO

We talked about if you took about total container volumes in Q4 compared to Q3, that would be slightly higher than Q3 driven by. We had a maintenance stop in Munchsund in this quarter, so it will be slightly up. And for Oberla, we expect our previous guidance will be around 500000 tons this year.

speaker
Andrew Jones
UBS

Okay, but as a number for Q4 in terms of thousands of tons per group, what's that imply?

speaker
Andreas Evert
CFO

We don't give any specific guidance on volumes, but it will be slightly up compared to this quarter due to we don't have any maintenance stop in container volume in Q4. And also the ramp up in Oberla. Okay, thank you.

speaker
Call Moderator
Q&A Facilitator

We have no further questions, and I would like to turn the call back over to speakers for additional or closing remarks.

speaker
Conference Call Host
Moderator

Thank you. And that concludes our presentation of the third quarter results. We'll come back on January 26th for the fourth quarter results. Thank you for listening in.

Disclaimer

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