Svenska Cellulosa Aktiebolaget SCA (publ) (SCAB) Earnings Call Transcript & Summary

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 Ewertz. Over to you, Ulf.

Thank you for that Anders, and also from my side a warm welcome to this presentation. When I summarize the second quarter, I can state that we, for the fifth quarter in a row reached an EBITDA margin of 50%. We have a continued strong cash flow in the company. And by that, we also financed all investments, not just our strategic investments, but also our current CapEx through our operating cash flow. Last quarter, I said that Obbola -- the big Obbola project was on budget and ahead of time. That goes also now for the big Pulp project, the CTMP expansion in Ortviken. That one is also on budget, but 1 quarter ahead of time. So we will start to ramp up this line in the fourth quarter. The new paper machine in Obbola is now running 24/7, and we have started to deliver paper to our customers, and 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 Obbola, 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 Pulp prices and kraftliner 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 a 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, we will start to invest our own money to wind power. And we also have a couple of ongoing projects within the field of liquid biofuels. So some KPIs. We did close to SEK 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 financed 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 increase in wood prices. especially when we compare the situation, we have just now with what we had 1 year ago, as you can see in the bottom left in the graph. We have also seen increase in prices sequentially. So when we compare Q3 with Q2 especially for pulpwood, we have had a price increase of SEK 50 per cubic meter in softwood and SEK 70 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 1 year ago, for softwood, we have gone from EUR 40 per tonne up to more like EUR 90 to EUR 100 per cubic meter in birds from EUR 50 up to EUR 125, and we will look into energy wood we have gone from EUR 25 to EUR 90 per cubic meter. Otherwise, sales was up due to higher prices and same thing with EBITDA. We had a positive revaluation effect of our biological assets, around SEK 70 million. And we have also this quarter, harvested around 90,000 cubic meter more in comparison with last year. And as said, I mean, 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 bills 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 hesitate for that, of course. On the other side, we have also during this period, now seen start to see curtailments and by that, also decreasing 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 SEK 600 to SEK 700 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 Pulp. And as mentioned already, the CTMP project at Ortviken is on budget and ahead of time. So we will start up -- we'll ramp up the new line during the fourth quarter, which is 1 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 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 EBIT impact of around SEK 25 million during the third quarter. If we start on the top left side, we can note that we had -- we reached record high prices in Pulp during the third quarter. So the official European fixed price was around USD 1,500 per tonne for deliveries in September. Prices has started to normalize a little bit. And we see that fixed prices for deliveries in October will stay at around USD 1,480 per tonne. When we look at the inventory level, we can see that for hardwood, it's more on a normal level, while it has increased a bit for softwood pulp. 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 SCA 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 containerboard, the Obbola, kraftliner machine is now up and running, and it is now producing sellable products. As already said, the first product has -- 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 containerboard, had a planned maintenance stop during the third quarter, and that was in Munksund and the negative EBIT impact of that was around SEK 60 million. Some words about the market in containerboard. And also here, we reached record high kraftliner prices in the third quarter. Prices decreased in October, November for unbleached kraft by EUR 30 per tonne, while on the other side, white top kraftliner remained on the same level. Why? Well, 1 reason is that the OCC price has collapsed. In June, we had a price of EUR 185 per ton for OCC, the price today is around EUR 75 per tonne, and we believe that we can come down another EUR 25 per tonne, so reaching EUR 45 to EUR 50 per tonne in OCC. The price difference between Kraftliner and testliner today is around EUR 120 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 kraftliner 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% of installed capacity of wind power on SCA 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 1 of the biggest producers in Europe. And last year, we also produced 1.4 terawatt hours of green electricity, which is around 1% of the total consumption in Sweden. So by that, I hand over to you, Andreas.

Thank you, Ulf, and welcome, everybody. I'll start off with the income statement for the third quarter, and net sales declined 1% to SEK 5 billion, where lower prices in wood was offset by higher prices in containerboard and pulp. EBITDA totaled SEK 2.5 billion corresponding to an EBITDA margin of around 50%. And this is, as Ulf mentioned, our fifth straight quarter with an EBITDA margin of around 15%. The EBIT margin was 42%, we had an effective tax rate of around 20%, bringing net profit for the period to just below SEK 1.7 billion or SEK 2.3 per share. On the next slide, we have the development by segment. And if we start with forest to the left, net sales were in line with the previous quarter at around SEK 1.6 billion where higher prices were offset by lower delivery volumes to our sawmill. EBITDA declined slightly to SEK 623 million, which was due to seasonally lower harvest from our own forest. In wood, we have had several strong quarters since the beginning of 2021. In Q3, prices declined 20%. As Ulf mentioned, bringing net sales to SEK 1.4 billion and EBITDA to SEK 382 million, corresponding to a margin of around 27%. In pulp, we have had steadily increasing prices throughout the year. And in Q3, we had record high prices. Sales totaled SEK 1.9 billion and EBITDA was unchanged at SEK 865 million, corresponding to a record high EBITDA margin of 46%. And we started the maintenance stop in the end of the quarter, which had a slight negative impact on volumes. In containerboard, the prices have increased since the end of Q4 2020. In Q3, volumes were negatively impacted by the maintenance stop in Munksund and the start-up of the new paper machine in Obbola. Net sales totaled SEK 1.7 billion, we had an EBITDA, EBITDA of SEK 733 million, corresponding to a margin of 43%. And as Ulf mentioned, the maintenance stop had a negative impact of 43%. On the next slide, we have the sales bridge between Q3 this year and Q3 last year. And we start to the left, prices increased 1% where higher prices in pulp and containerboard was offset by lower prices in wood. Volumes had a negative impact of 6%. Again, because of a weaker wood market and start-up of PM2 in Obbola. We had a positive impact from currency of 5% and a negative impact from exit publication paper of 1%. If we move on to the EBITDA bridge, again, starting to the left higher prices in pulp and containerboard was offset by lower prices in wood. Volumes had a negative impact of SEK 130 million, again because of lower volumes in wood and the start-up of PM2 in Obbola. High cost of wood raw material and chemicals had a negative impact of SEK 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 SEK 190 million and we had a negative impact from higher fuel costs and start-up costs at Ortviken we will now have the fully CTMP organization in place. In total, EBITDA declined 7% to just below SEK 2.5 billion. And again, an EBITDA margin of 50%. On the next slide, we have the EBITDA bridge for the first 9 months and price/mix had the biggest effect of SEK 2.5 billion. The prices increased in all areas. And 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. And in total, EBITDA increased 30% to SEK 8.2 billion, corresponding to a margin of almost 52%. We continue to have a strong cash flow almost SEK 1.9 billion in the quarter and SEK 5 billion for the first 9 months. And this means we are continuing to fund our strategic CapEx with operating cash flow. Looking at the balance sheet. The forest assets increased to SEK 90 billion. Working capital increased to SEK 3.5 billion, mainly due to higher prices, but was unchanged in terms of days. Capital employed increased to SEK 98 billion. Net debt stood at SEK 8.3 billion or 0.8x EBITDA. And this is a decrease of around SEK 1.3 billion compared to the previous quarter, but equity of SEK 89 billion and net debt to equity at 9%. And 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 9 months on each segment. And if we start with forest to the left on processed biofuels and wind power leases will from the beginning of next year, be reported in renewable energy and the pro forma effect of forest for the first 9 months was around SEK 65 million of which a majority came from the wind leases. In wood, pellets will be reported in renewable energy and the pro forma effect was SEK 75 million. And currently, we have high pellets prices. Pulp and containerboard sell tall oil to renewable energy for our fossil-based price. And then renewable energy is responsible to maximize the green premium. This had an effect of SEK 60 million in Pulp and SEK 45 million in containerboard. And in total, Renewable Energy had an EBITDA of around SEK 240 million pro forma for the first 9 months. And 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. Kraftliner already there. CTMP start up late this quarter, bolster sawmill a new grading mill, but also CT scanner, which is -- will be up and running in the fourth quarter. And then we had a bio-refinery that will be up and running at the end of next year. As I 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 in 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 asset base, not the 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.

[Operator Instructions] We'll now take our first question from Robin of Carnegie.

I think we'll 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 Obbola and Ortviken anything to keep in mind for the fourth quarter just for the very short term in terms of start-up impact on those projects?

I can just start with in Q4. Yes, that in Q3, the volumes will be similar to Q3 in terms of Obbola. In CTMP, we'll continue to have some ramp-up costs in line with Q3. And then for next year, Obbola volume like previously guided of around 500,000 tonnes.

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.

And then on the wind business and you're looking to allocate capital, what can you say about the pace of that? I mean, will we see CapEx already in 2023-2024. What's the pace of CapEx? And what are the returns. What's return on capital employed expected for that investment program, if we call it that?

We will develop our wind business in different ways. I mean, 1 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. So we -- 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.

And then on the announcement of the potential sawmill investment. I mean is there a sawmill reference here. I mean the Metsa Group is around the 50,000 tonne that mill that just started up. I mean it was initially supposed to cost SEK 2 billion. I think it was close to SEK 3 billion CapEx in the end. I mean is that the range -- the ballpark range of CapEx that we should be expecting here?

We have just taken the decision to run these feasibility studies. I mean, we will answer these questions in this feasibility study. But if you're 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're starting out the feasibility study.

Of course. And then just overall, on CapEx, what's your guidance for the full year 2022 and 2023?

Current CapEx will be a few hundred million more than last year, so about SEK 1.5 billion in current CapEx. And in strategic CapEx, it will depend, of course, on timing of some of our CapEx in Obbola and CTMP. But in the range of SEK 3.5 billion. And therefore, next year, I think we'll have about SEK 1 billion left of those ongoing strategic projects.

Okay. And then it will depend on potential further decisions.

But what is good is that we have -- I mean, we have now more or less financed all these big projects. So now we can -- we have an option. We can choose to invest more or we can just stop here if it's getting worse, so to say.

Just 2 quick follow-ups from my side. It's Christian Kopfer from Handelsbanken, by the way. Firstly, on biofuels, you mentioned 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, it 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 bio-jet, for example, when we look into the project that we are just on the planning phase, but in Östrand up to 80% can be bio-jet. 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. And from my perspective, I mean, long term, we definitely need nuclear power, and so I think that is a good decision to start up that progress. But on the other hand, in order to get enough of electricity supply short term, the only option is wind. So I think you need both wind and nuclear.

Right. I agree with that. So finally for me on so wood prices. 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 in?

Log prices? I mean at the bottom, when you reach breakeven, 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 curtailments and so on and still we have a decent margin. But the price development, now, I mean that will be -- it will be another substantial decrease in the fourth quarter, but it cannot really go further down without fastly decreasing prices for sawlogs. And I don't think that will happen so fast.

It's Johannes Grunselius, DNB. A couple of follow-ups for me. But on the expansions, kraftliner and 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?

I 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 Obbola 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 in this -- normally in this big expansion projects, you have a 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, yes, I don't know if we had said anything about the volume for next year.

No. But I mean just give some guidance, I mean we're currently producing 100,000 -- capacity 100,000 tonnes where we said maybe 150,000 to 200,000 tonnes in total next year.

A little bit depending on the market because, I mean, 1 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.

And I also have a question on your sawmill business and what you see in 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 curtailments for 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 no, just now, we have a rather similar situation all over globally, I would say. U.S., a little bit -- still a little bit stronger, but -- we have also seen a decrease in demand in U.S., Asia, rather slow. And again, you have -- 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% as on. And we see that kind of figures all over the world just now. So then we maybe open up the line.

Thank you. We will now take our first question from Robin of Carnegie.

So it's Robin Santavirta from Carnegie. Now first, just to check as with Andreas on the Obbola volumes. Did you say 500,000 tons expected next year and that would then be up, I guess, from something like 440,000 tonnes this year.

Yes.

What is the reason, I guess, you have a lot more capacity to produce up and essentially install 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?

Sort of 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 second half, next year. And after that, we can start to increase production. So we need more fiber.

So by that, we'll also see a higher production rate in the second half of next year than in the beginning of next year, which is -- might be important.

All right. All right, then. I understand. And I guess it's the fiber related to the RCP or OCC.

Yes, OCC, yes.

Yes, yes. Yes.

Good. Then in terms of the containerboard business, what are you seeing at the moment in Europe when it comes to the demand and customer inventory levels, and related to that, I can see the natural gas price in Europe, at least the financial instrument 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 sort of production in Europe increasing it? Or what are you seeing when it comes of the supply/demand?

I mean, of course, you will have an impact from the energy price when it comes to the production of testliner. And so the -- and by that, you will also see an impact on the kraftliner pricing related to the pricing of testliner. And as I said, I mean, the delta just now is EUR 120 per tonne, and that is on the narrow side, maybe the normal figure should be EUR 150 million or something like that. But the reason now for -- I mean, we are on record high prices for kraftliner, we have also record high profitability. We decreased prices for deliveries in October, November by EUR 30 per tonne for unbleached kraft. And the reason for that was, of course, that we -- the announced price increase in test liner didn't come through. And why not? Yes, because the OCC prices went down. And as I said, from EUR 185 per tonne in June down to EUR 75 per tonne 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 the -- what kind of production rate we will see in testliner. So it is some kind of combination here. And it's hard to predict as it is just now, it's okay market for us, and the demand is -- the stock of orders is on -- for SCA it's on a good level, I would say.

I understand. 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 outlook 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, I mean, we have seen that import prices has increased quite substantially since last year, but also since the last quarter and so on. So -- but I think we will remain more or less on the same level now for a couple of quarters.

Can I just check with you -- you call the price low by 25% Q-on-Q in sort of saw and timber and you're quite low cost. And when I do the numbers, and so I end up with quite low profitability for the Wood segment than 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 at the reduced production volumes.

That is how it works in the market economy. And 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 kind of uncertainty you have and due to -- I mean, related to the war and a lot of things. So -- but already now, I mean, as I said, I mean, 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 -- 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. So I mean that is normal.

Yes. But the economy is not going in a weather direction from Q1 nor the seasonality, but let's see where that will take you. Thank you very much for good answers.

We'll now move on to our next question from Martin of ABG.

Yes. Just to double check. So in Q4, are these 2 new projects on CTMP and Kraftliner having a negative ramp-up costs at first? Or is that not really the case? And it's rather a positive contribution?

In Q3, I'll start with Obbola, we had some impact on volume because when we switch from 1 machine to the other, I mean, you lose a couple of hours of production each time. So we were negatively impacted by the start-up and in Q4, we will have similar volumes to Q3 in terms of Obbola. In Ortviken, we had some start-up costs to CTMP, where we now have the full organization in place at our mills for training, et cetera, and doing all the preparations, and we will have that also in Q4. And then 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 sawmills with Holmen because I guess you're big enough both to do that kind of Holmen 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 have 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 materials. 75% of the cost for sawmill is related to sawlogs. 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.

[Operator Instructions] We'll now move on to our next question from Oskar of Danske Bank.

Yes. This is Oskar Lindstrom at Danske Bank. Three questions. The first 1 on the forest land values. I mean 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? So what's your feeling around forest land pricing, should I go on with the second question?

We can start with that one. I mean 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.

All right. And could you say something about sort of where demand is coming from? What type of assets are most attractive?

All type of assets, to be honest. I mean, we feel that there is a big interest -- still a big interest for forest land. And I mean we are -- we are doing a couple of transactions every month. And it is, let's say, rather stable on historically high level, I would say. So I mean, the interest is big for Forest land. It's a real asset. And we cannot really see any impact from increasing interest rates because that is -- some people think that will have an impact. We haven't seen it yet, at least.

And why do you think we don't see that?

Because I think it is an attractive asset. As I say, I mean, we see a number of people coming in here and all kind of -- all kind of investors coming into forest.

All right. So it's just a rather scarce asset, but...

Yes, we don't produce any new land. So that's maybe the reason.

Yes. A second question on capital allocation. I mean, you have a very strong balance sheet and 2 of your major CapEx projects are now -- have now ended. I mean do you see any attractive M&A 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 and other things you have in the pipeline?

I mean you don't know what kind of options that will appear during coming years. It is always good to have a strong balance sheet. But I mean, our main focus is still on -- we will continue to buy forest land. We long term, believe in forestland, so that we will do. And as you know, we have our ongoing program in the Baltics, and we have done -- so we have done 70% out of that. We will start to invest in renewable energy, as mentioned, but I mean acquisitions and things like that, I mean, that you don't know before you see what's going to happen. But we have no really big investments planned for the moment being. We are just now 100% focused on finalizing all big projects that we are running for the moment being.

My third and final question is on the bio-refinery project in Östrand, and what's the status of that one? I mean it's been in your pipeline for a long time and progressing a little bit, I guess. But what's the status and your thinking on that project?

I mean we took the decision just recently to invest EUR 50 million for building land. The environmental permission is in place. But again, we have said that commercially, we need to find the right technique in order to optimize these projects. I mean we are not in hurry. Just now we are running the bio-refinery project in Gothenburg, and that one will be up and running late next year. And we have a couple of different other projects. I mean, that one will come sooner or later, but we will not rush into it.

And do you foresee that being a joint venture or something that you pursue on your own?

I mean, already today, we have a joint venture together with SD-WAN, and they are also in this bio-refinery project in Östrand. So I mean, that we already know and that we have announced, but I mean, as we don't know what we will invest into, we cannot really decide whether it should be a joint venture or not. So I mean, we have to wait and see what kind of conditions we have when we are ready for a decision.

We'll move on to our next question from Andrew Jones of UBS.

A couple of questions for me. Firstly, just on the market for wood. I mean basically, your -- can you remind us what your split is between where you're selling a lot of this on log product. And in the relevant markets, what does that cost curve look like? I mean how -- what does the bottom end look like compared to the top end as steep as it and what sort of proportion of capacity have you seen idle relative to the fall in demand year-over-year? And what amount would you potentially see coming out in the coming months if properties is indeed full 25% as you're expecting in the fourth quarter? And I've a second question. So if you could answer the first one.

Yes. I think that was many questions. But I think the only answer we can have is, I mean, I did show you the slide that we're showing the production rate in Sweden and Finland. And as you saw in that slide, the production has started now to decrease in comparison with the average for the past 10 years, and that will continue. I mean we did some calculation here meaning that if we will reduce prices with another 25%, and 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, it depends, of course, on the pricing. And it is a combination between log cost and the price for solid wood products, 70 -- a little bit more than 70% of the cost in the sawmill is related to the low cost and you have very local conditions for that part. So it's impossible to say. But I mean we will see, I think we will see substantial curtailments taken now when the price is coming down, and we have started to see it already. And we are -- I mean, we can just see the announcements that you see -- official announcements, but we feel it in the market now that -- and by that, the balance will be better, of course.

Yes. And just a follow-up on the point that my colleague raised about the -- about the land transaction values. It looks like if you take your balance sheet value here, it's about SEK 120 per share. There's 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 it's on your balance sheet? I mean what is the market not understanding? Because it seems as though long-life, low-yielding assets that interest rates must have an effect on that? I mean what -- I mean, clearly, there is demand and transaction values are holding up. But what is keeping them up? And is it a potential for alternative land use, be it wind or something else? And -- if that's the case, could you quantify potentially what the uplift of the land value could be if it got permitted for wind or was for bull case versus this interest rate argument for people are drinking out of that?

Firstly, I mean, we see a lot of interest in Forest land. I mean a lot of investors think it's a good hedge towards inflation. And I mean we did a study, I think it's an only report. I mean if you look at forest assets from 1950s to today, they've averaged about 10% in yield, but you have to look at the price increase 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's -- many people find that attractive, and we see a lot of interest in forestland. And we're also done. I mean, there's 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 I mean if you converted some land and you just cited a wind farm on it. I mean in terms of the value per hectare, I mean, what's the sort of comparison? Or how much could that potentially rise if you were to release it for you. As a win side.

And it's a very high value, if you can get a permit to build a wind farm. Today, it takes 8 years to get a permit and 90% is no. So the wind projects have a very high value. And we see that also if you can sell a complete project, we have the permit, you get a lot of money for that. So 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. So 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.

We'll now move on to our last question from Cole Hathorn of Jefferies.

I just got 2. I'll take them 1 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 kind of structurally 10% less supply out of Russia into Europe regulations, I suppose, building with wood and replacing steel and cement being more favorable? How do you see that kind of balancing in the market going forward kind of longer term? And then I'll follow up with 1 on containerboard.

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, 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 -- as I see we are well positioned to some extent, to benefit from this volatility. So not only in for solid wood products, but also in other areas, on but long term, this will be a good business.

And then just following up on the containerboard market. I know you've given some commentary and some data on the inventory data for Kraftliner. 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 costs coming down in 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 kind of prices coming down a little bit with costs in testliner and impacting kraftliner into next year? Or should it just be more of a kind of a gradual impact through the first half?

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 testliner and kraftliner prices. Testliner prices are depending on the price for OCC, and I've 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 testliner and kraftliner is EUR 120 per tonne. And the reason for that is, of course, that we don't like to see any substitution from kraftliner down to testliner, 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 guess the development for gas and for also OCC prices better than you can.

I suppose maybe asked another way, well, 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 containerboard 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 profits would be -- the cash cost will be better. They will be in a better position as a testliner producer. I mean, just now, we have been in a very special place in Scandinavia with energy supply that we -- the structure we have in the energy supply here in this region. And that you can also see in the results that we have. And I mean sooner or later, prices will start to normalize. We saw some adoption maybe in the last month where the price for unbleached kraft went down EUR 30 per tonne. Now it's stable again in the market. It was unchanged for white top kraftliner. And so it's a -- 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.

[Operator Instructions] 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.