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

Good morning, and welcome to this presentation of SCA's third quarter results for 2024. With me here today, I have President and CEO, Ulf Larsson, and CFO, Andreas Ewertz, to go through the results and take your questions. Over to you, Ulf.

Thank you, Anders. And also from my side, good morning, and a warm welcome to the presentation of our results for the third quarter 2024. We can state that markets for all fiber-based products in all areas are stronger in Q3 '24 in comparison with the same quarter last year. We have had generally higher prices and stronger delivery volumes. In energy, we have seen a negative market development in Europe for liquid biofuels, also affecting tall oil prices when compared Q3 '24 with the same period last year. This is, of course, not the least due to reduced mandate for liquid biofuels in Sweden since 1st of January this year. Also this quarter, we note a high demand for wood raw materials and by that, continued increasing prices. We have, in addition, also increased volumes from our own forest, which in comparison with Q3 '23 has strengthened the result in business area Forest. Sales increased by 22% and EBITDA by 42%, Q3 versus the third quarter '23. Higher prices and increased volumes explain the improvement. So this slide will give you an overview of KPIs for the third quarter '24. As you can see, our EBITDA reached SEK 2 billion, which corresponds to an EBITDA margin of 38%. Our industrial return on capital employed came out at 12% for the third quarter, accounted for the last 12 months. The leverage is at 1.6, and net debt to equity was 11%. We have now finalized our big strategic investments in Obbola, Ortviken and Gothenburg. Just now they are under ramp-up, but coming years, they will contribute in a positive way. So I will now make some comments for each segment, starting with Forest. High harvesting levels from our own forest have contributed to a stable supply of wood raw materials to our industries during this period. We have seen a continuous long-term trend of increasing prices for both pulpwood and sawlogs as can be seen in the graph on the bottom left. When one compares Q3 '24 with Q3 '23, sales were up 12%. EBITDA was up 7%, and that is mainly due to higher prices and slightly higher harvesting levels in our own forest. Turning over to business area Wood. In general, we still have a continued slow underlying market for solid-wood products. Despite the generally low demand, we see some early signs of improvement in the repair and remodeling segment. Stock levels are at normal levels among producers and mainly on the low side, I would say, at customers. I estimated that price for solid-wood products in the third quarter would be close to unchanged, which also happened. Our deliveries last quarter were high due to intense sales activities and strong long-term relations with our customers. This consequently also gave a decreased stock level of some goods for SCA. The cost for sawlogs has increased from the second to the third quarter, and we expect them to continue to increase going into the fourth quarter. Sales were up 23% and EBITDA was up 79% in the third quarter '24 in comparison with the same period last year. The reasons behind these were mainly higher prices and higher volumes. The EBITDA margin consequently increased from 13% to 19%. Today's stock level of solid-wood products in Sweden and Finland is in relation to the average for the last 5 years described at top left on this slide. As mentioned earlier, we note that the inventory in general is on a normal level. As can be seen in the diagram to the bottom left, the Swedish and Finnish sawmills production has also been on normal levels accumulated so far 2024. In the diagram to the top right, we can see that prices increased during the first half year, but has the last quarter leveled out. Going into the fourth quarter, I estimate that prices will continue to be close to unchanged in local currencies, and that is due to balanced stock levels, and high and further increasing raw material costs. In the construction sector, we can conclude that the starts of new buildings continue to be low. Looking forward, we believe that consumption in the repair and remodeling sector will be early to respond in a positive way to lower interest rates. Over to Pulp. The ramp-up of our new CTMP mill is running according to plan. Production optimization continues. Our new CTMP products are well received in the market. Consequently, CTMP products represents an increasing share of our Pulp sales. As you might remember, we have had an unplanned production stop at Ostrand pulp mill in the second quarter due to a leakage in our recovery boiler. Total negative impact communicated was SEK 60 million in the second quarter and a similar amount in the third quarter. When we compare Q3 '24 with Q3 '23, sales were up 27%, and EBITDA was up more than 200% and that is mainly due to higher prices. The yearly maintenance stop at Ostrand had a negative impact of SEK 35 million in the third quarter, and we expect an additional negative impact of SEK 225 million in the fourth quarter. After a rather weak 2023, demand for Pulp improved in Europe and the U.S. during the first half of 2024. NBSK prices peaked in Europe in July at USD 1,620 per ton after increasing for 10 consecutive months. We then saw decreasing prices and weaker demand in August and September. In the U.S., NBSK prices have had a similar development as in Europe, but with a small delay. After a rather slow summer in China with weak demand and decreasing prices, we reached the bottom in the end of August. And now we approximately see 5% higher prices today and I would say an improving demand. Looking at CTMP, prices peaked in Europe during the third quarter, while being rather flat in Asia at a low level. In October, NBSK prices continued down in Europe to USD 1,540 per ton and USD 1,735 per ton in the U.S. while stabilizing in China at net price around USD 750 per ton. Prices now seem to increase further in China. But still, we have a delta in prices between Europe and China of approximately USD 190 to USD 100 per ton. Inventories of both softwood and hardwood pulp as well as the CTMP pulp are on a rather high level as you also can see in the diagram. Moving over to Containerboard. The ramp-up of the new kraftliner paper machine in Obbola is progressing. During the quarter, we have taken extra stops to adjust the machine line. We also continue to see high operational costs, which are absolutely expected in this phase of the ramp-up. As earlier communicated, we plan to reach full capacity in Obbola in 2026. Sales and EBITDA were up 15% and 26%, respectively, in Q3 in comparison with the same period last year. And we can note higher prices and volumes on the positive side, while higher raw material and other costs had a negative impact on this comparison. During the third quarter, we performed the planned maintenance stop in Munksund. The stop went well but had a planned negative impact on the result in Q3 of close to SEK 90 million. We see continuous growth in box demand in comparison to last year, and we are now almost back to historical growth trend levels. We also believe that decreasing interest rates and GDP growth should support the continued growth in box demand over time. On the other side, we also note a negative growth in the European manufacturing industry, which at the moment, drives the demand in a negative direction. Nevertheless, the European demand of kraftliner has improved in Q3 compared to the same period last year, and we expect full year demand growth for containerboard to stay positive. Supply and demand balance will be impacted negatively by additional supply coming on stream with the vast majority coming in testliner. European prices for brown kraftliner have increased in Q3 by EUR 40 per tonne and white kraftliner has increased by EUR 30 per tonne. Kraftliner inventories have been maintained on an average level in Q3 with a seasonal increase in August as well as stock buildup ahead of planned maintenance shuts during Q3 and Q4. The availability of OCC is well balanced. And consequently, we have seen OCC prices sliding sideways, and started also to decrease in the later part of Q3. So finally, Renewable Energy. In business area Renewable Energy, we have had a weaker quarter with lower market prices for tall oil and liquid biofuels in comparison with the same period last year. Bio premiums and prices have decreased to substantially lower levels compared to '23. The main reasons are lower blending mandates in Sweden and the increased imports from China, creating an imbalance in supply/demand in the renewable fuels market. Ramping up Gothenburg biorefinery, together with St1 in this market environment puts short-term pressure on the segment. We expect market volatility in renewable fuels to remain relatively high as Europe ramps up the blending mandates both in HVO and SAF. Long term, our outlook is positive. But in the short term, we expect continued low refining margins and bio premiums. Due to higher prices for solid biofuels, sales were up 6% in Q3 this year in comparison with the same period last year. The EBITDA level decreased by 36%, mainly due to lower market price for tall oil and bio premiums and liquid biofuels, and also due to higher raw material costs for solid biofuels. The market for solid biofuels remains stable. Higher volumes are expected in the coming quarter due to positive seasonal effect. SCA continues to grow in leasing out land for wind power and has reached 9.7 terawatt hours of wind power on SCA land and by the end of Q3, and that is equal to 20% of installed capacity of wind power in Sweden. And finally, I can mention also that the execution of the windmill, our windmill project, Fasikan, is progressing according to plan. So by that, I hand over to you, Andreas.

Thank you, Ulf, and good morning, everybody. I'll start with the income statement for the third quarter. Net sales increased 22% to SEK 5.2 billion, driven by higher prices and higher volumes. EBITDA increased 42% to SEK 2 billion, driven mainly by higher prices, which was partly offset by higher cost for wood raw materials. The EBITDA margin was 38%. EBIT increased to just below SEK 1.5 billion and financial items totaled minus SEK 131 million. With an effective tax rate around 20%, bringing net profit just below SEK 1.1 million or SEK 1.52 per share. On the next slide, we have the financial development by segment. I start with the Forest segment to the left. Net sales decreased to SEK 2.1 billion compared to the previous quarter due to lower deliveries to SCA's industries. EBITDA decreased to SEK 777 million due to seasonally lower harvest from SCA's own forest. Compared to last year, we have increased our harvesting of our own forest, which has helped to mitigate the impact of higher costs for wood raw materials. In wood, prices were marginally lower compared to previous quarter. Net sales totaled SEK 1.5 billion, were positively impacted by higher delivery volumes. EBITDA was in line with the previous quarter and amounted to SEK 288 million, corresponding to a margin of 19%. In Pulp, net sales decreased somewhat to SEK 2.1 billion due to lower delivery volumes, which were offset by higher prices. EBITDA increased to SEK 562 million, corresponding to a margin of 27%. At the end of the quarter, we started our planned maintenance stop, which had a negative impact of SEK 35 million, and expected to impact the fourth quarter with SEK 225 million. In Containerboard, kraftliner prices increased during the quarter. Net sales totaled SEK 1.6 billion and EBITDA increased to SEK 380 million, corresponding to a margin of 20%. In the quarter, with a planned maintenance stop in Munksund with a negative impact of SEK 87 million. Renewable Energy, the market for liquid biofuels and tall oil continue to be weak. EBITDA increased somewhat to SEK 99 million, corresponding to a margin of 23%, driven partly by lower ramp-up costs in the new biorefinery. On the next slide, we have the sales bridge for Q3 last year and Q3 this year. Prices increased 19%, with higher price in Pulp, Containerboard and Wood. Volume increased 4%, driven by the new paper machine in Obbola and higher volumes in Wood. And lastly, currency had a negative impact of 1%, bringing net sales to SEK 5.2 billion. Moving on to EBITDA bridge and starting to the left. Price mix had a positive impact of SEK 768 million and higher volumes had a positive impact of SEK 58 million. Higher costs for mainly wood raw materials had a negative impact of SEK 46 million, with a negative impact of energy of SEK 128 million and negative impact of currency of SEK 26 million. In total, EBITDA increased to SEK 2 billion, corresponding to a margin of 38%. Looking at the cash flow. We had an operating cash flow of SEK 708 million in the quarter and SEK 1.9 billion in the first 9 months. This means we're continuing to fund our strategic investments with operating cash flow. Looking at the balance sheet. The value of the forest assets totaled SEK 108 billion. Working capital increased to SEK 5.7 billion, driven by higher prices, higher volumes and higher cost for wood raw material. Capital employed increased to SEK [ 116 ] billion, and net debt stood at SEK 11.6 billion. And we're now almost finalized our large ongoing investment projects in Obbola, Ortviken, Bollsta and Gothenburg. Equity totaled SEK 105 billion and net debt to equity was 11%. Thank you. With that, I'll hand back to you, Ulf.

Yes. And I mean, just to summarize, as I said, we have had a strong quarter when we compare with the same period last year. We have in all areas for fiber-based products, increased prices, high delivery volumes. We benefit from a high degree of self-sufficiency when it comes to raw material supply and also by the fact that we also increase the harvesting level on our own forest. EBITDA, SEK 2 billion, a 38% EBITDA margin and generally a good quarter. So by that, Anders, I think that we can open up for questions.

[Operator Instructions] And our first question comes from Linus Larsson from SEB.

Maybe starting off with what your order books are looking like if you go through your various segments and what that is telling us about the market? And also in relation to that, how -- what is the limiting factor for you? Is that the order situation? Or is it rather internal limits like the recovery or the boiler leak that you had previously this year, and maybe other company-specific factors. So the order situation and also your own limitations, please?

I mean we can start with -- we don't give forecast, as you know. But I mean, if you go through the different segments. Starting with solid-wood products, we feel that the market is rather balanced. I mean, fundamentally, the underlying demand is not super good, but we believe that we will have a sideways movement in the fourth quarter. And as I said, I think that we will have unchanged prices also for the fourth quarter. The mix might change a little bit. Currency might change. But nevertheless, and then I believe that when we see interest rates coming down that we can have a pretty positive development in at least the second quarter next year when we're entering into the summer period. Pulp, it's obvious that we saw the peak in summer, USD 1,620 per ton. And then we have been forced to decrease prices a bit. On the other hand, we now see that the Chinese market has picked up a little bit, and again, the delta is between USD 900 per ton. And sooner or later, they have to meet. I don't think that the bottom will be on too low level actually. Containerboard, we have increased prices since April by EUR 140 per tonne. We have a reasonably stable market, maybe a little bit weaker now than we had in the summer. We saw that testliner prices came down by EUR 40 per tonne for deliveries in November, and I guess that is related to decreasing OCC prices. For Kraftliner, we have, as I said, continued high prices for raw materials, and we believe that the price level for raw materials might even increase also in the fourth quarter. So that will, of course, have some kind of impact also on the end market. Renewable energy, again, wind might be a better business in the fourth quarter due to higher electricity prices, we don't know. Liquid biofuels will be on the lower level still for a while due to mentioned reasons, while the market for solid biofuels is very good, really. I don't feel that we have -- when it comes to limitations, as you know, we have had some maintenance, planned maintenance stops, and we have some big ones also in the fourth quarter. So that is the more or less the limitation. Otherwise, we -- I mean we can deliver what we produce as it is just now. Something to add, Andreas?

No.

Maybe just a follow up on that, specifically on wood products, you had a very strong volume quarter up 14% year-on-year, the strongest shipments since 2022, it looks. Is that a level that you can maintain? Or how do you see that going forward?

I don't think we will maintain it in the fourth quarter. I mean, in the second, but mainly in the third quarter, we benefit from the -- I mean, the exposure that we have to the building materials markets. So I mean -- so that will, of course, be hard to replicate in the fourth quarter.

So we will have a seasonally lower...

Seasonally lower. Yes, exactly.

But volume-wise, you're saying that you could repeat that Q3 shipments number in the fourth quarter?

No, no, we will have a seasonally lower delivery volumes in Q4.

I mean, just now we're in the third quarter, but also in the second quarter, we had strong deliveries to the DIY market and that kind of customers, that will not be in the -- of course, not in the fourth and the first quarter.

Got it. That's clear. And then a quarter ago, you gave an indication on your perception of the transaction market when it comes to forest land. What's the update on that in regards to your book value and how forest land plots have traded in your relevant geographies year-to-date?

I mean we have had no new report since summer. And I mean, you had the figures from both Ludvig and from [ Sweeafam ]. We have no new statistics today as it is. And I think we have it in 2 months maybe, and we have to wait and see what's the development. On the other hand, we see that, I mean, interest rates, they are now coming down. We see that the price development for both sawlogs and pulp logs are continuing to increase. So in the long run, I guess, that will be some kind of indication of the value of forest lands.

Our next question comes from Robin Santavirta from Carnegie.

First of all, I had a question on the Containerboard segment. Looking at the performance, it's obviously decent or even good compared to some of your peers. But if we compare to historical levels, the production cost of volume-weighted production costs are quite significantly higher than a few years ago, and the volumes obviously have not increased in relation to the capacity increase. I know you say full capacity 2026, but the question I have is, what should we expect going into 2026 in terms of volume and in terms of production efficiency and cost per ton?

I can start with the cost and Ulf can follow up with the volume. But in terms of cost, I think the biggest increase has, of course, been wood raw material that has increased and also OCC. And in terms of ramp-up costs meaning in Q1 and Q2, we were at around SEK 65 million, SEK 70 million. I think I guided on in Q3, we were a bit lower at maybe SEK 45 million in ramp-up costs.

Yes. And I mean, again, it takes something to ramp up a big mill like Obbola and we are working on that, and we are happy with the progress. We don't give forecast for 2025. I mean, as we've said, the goal is to reach 725,000 tonne in 2027 and 2026. So I mean that is what we are working for just now. But it's easy to...

What kind of gains from the further the ramp-up comes to the closing date? Or is it we need to wait on the fully ramp up before we see the efficiency and scale gains from the new mill?

It's hard to say. But typically, if you look at [indiscernible], if you look at other big projects, I mean, it takes a couple of years before you can see the full effect. And I mean you have in one side, cost, you have -- I mean you have -- if you see problems in the production, you have to stop and you have to do it right, and you have to rebuild and so on. I mean that's absolutely enormous. So I think maybe the -- maybe we -- I don't know if we are too positive or if U.S. analysts are a little bit too positive when it comes to ramping up big mills, it takes lots of efforts.

I understand. Second question I have is related to the Wood segment, looking at the cost per tonne here, it's actually the opposite setup compared to Containerboard at almost the same levels as a few years ago. We know log prices have increased quite significantly in Sweden and also in your area. And now we have a cost per volume or per cube down 2 quarters sequentially. What is going on here on the cost line? Why are not costs increasing more than your report?

Yes. I think if you look at the Wood business, that is that the cost for pulpwood has increased more than sawlogs, and when you produce a solid-wood product, you get pulpwood as [ arrest ] products, which is ships, as we said, which we sell to our mills. So you've had higher ships -- price for ships and, also higher price for sawdust, which we make pellets of. And that has been able to offset the cost increase of the sawlog compared to last year.

And also, I think that we have had a positive improvement when it comes to yield -- so -- and that is also partly in -- for example, in Bollsta that is related to the CT scanner that we have there, which we have seen very positive results from that one. But yield in general, in all mills, I would say, have had a very positive development.

Good. And finally, do you dare to take a view on the kraftliner price. I guess, historically, testliner and kraftliner move in tandem, very correlated. Now the cost trends are quite opposite. Should we expect kraftliner prices to decline as well end of this year? Or is unchanged the best guess in your view?

As we speak, we are just now negotiating with our customers. So I don't think it's a good idea to have -- to give you a forecast on that front.

Our next question comes from Charlie Muir-Sands from BNP Paribas.

Just on the capital expenditure. This year so far, I think you spent about EUR 900 million on current CapEx, and only EUR 500 million on strategic CapEx, which seems quite way off your -- what you previously indicated it might be there full year spend, I think, unless I've got my records out of date. I just wondered if you could give us an update on where you think the full year CapEx will land and also any early thoughts you can share with us for next year?

Yes. So if we start with current CapEx. And firstly, we do a lot of the capital expenditure at Q4 when we have large maintenance stops. But our guidance, I think, for this year in current CapEx is maybe just below SEK 1.3 billion. But you have to remember that we sold Henvalen for SEK 200 million at the beginning of the year and we will have some spill off over to next year. So underlying, I would say, it's more like SEK 1.6 billion, but we expect somewhere below SEK 1.3 billion in current CapEx, and the strategic around SEK 1 billion for this year.

And next year?

Next year, it's hard to say, but if underlying is just about SEK 1.6 billion this year, but we'll have some spill-off over to next year so that's maybe roughly just above SEK 1.7 billion in current. And in strategic we have -- the biggest project we have is our windmill Fasikan, and that will have next year a payment around SEK 950 million to SEK 1 billion. And on top of that, we have some payments left in -- Obbola's reached certain milestones and any potential forest acquisitions in the Baltics.

Our next question comes from Patrick Mann from Bank of America.

I just wanted to ask just 1 question then from me. We've had a fairly significant build of working capital so far year-to-date. Should we expect that to unwind in the fourth quarter, perhaps with -- as the maintenance happens as well? Or how should we think about working capital for the full year?

For working capital, as I said, I think the main driver is that we have increasing prices for all our business areas, we're also ramping up volumes in our new investments. And on top of that, we have a higher wood cost, which drive the cost for both the inventory and the wood raw material. It depends on how prices will go, but assuming that prices stay fairly the same, I don't think -- we don't expect any release in working capital.

Okay. So nothing volume-driven.

We'll turn I'll move to our next question from Martin Melbye from ABG.

How large are these wood cost increases for you in the fourth quarter in your region? Because we've seen these announcements from Sodra price on sawlogs and one from pulpwood.

I mean we don't know in the market, price development in the fourth quarter. But we know that the industry will be hit by higher raw material costs due to the, let's say, internal price setting that we have. We try in -- all the time to find the market price for our industries to pay to the forest side. So I think by that, we know that at least the sawmills, they will see price increases for raw materials in the fourth quarter. And I guess, to some extent, also the pulp mills, pulp and paper. But in the market, we haven't really seen anything else now. And my view is a little bit that we feel that we have a small surplus of pulpwood in the market at least in the northern part of Sweden just now.

Yes. So we will see a larger increase on sawlogs compared to pulpwood in the fourth quarter.

And the 50 and 100 on pulpwood and sawlogs that Sodra announced, is that a good guide for you?

Sorry if it's a good.

Is that a good indication for you in the fourth quarter?

No, not really. I mean we have -- yes, by coincidence -- incidence, it can be. But I mean, we have no connection really with the market for sawlogs in Sodra's area and region, and what we have in the northern part of Sweden.

Yes, ours will be slightly lower than that, yes.

But no connection.

No, no connection.

Operationally, it's more coincidence.

Our next question comes from Lars Kjellberg from Stifel.

I have 2 questions. First on the leakage, during the stoppage now you're planning for Q4, should we assume that, that issue will be behind us? And then the bigger topic, I suppose you talked to increased harvesting levels that has supported your wood cost as a group and, of course, results in the Forest division. How sustainable are these sort of levels now running at? And is there risk that you need to reduce harvesting, and as a result, that could see higher wood costs in next year or in the near term?

If we start with Ostrand, I think, well, for now, that is over. We had a leakage in one of our [ economies ], and we -- I think we changed the other one a couple of years ago, and this one is more or less close to 20 years old. So -- and that will be repaired now. We also plan to replace it in next year or the year after. So -- but I think it's over for now, at least. When it comes to harvesting level in the forest, I mean, the clear goal for us is to never be forced to reduce the harvesting volume from our own forest. I mean, we, step by step, we'll be able to increase the harvesting level on our own forest because we take care of the forest in that way. And that is also a long-term plan for how to harvest the forest. I mean, step by step, we plan to increase the harvesting level on our own forest. As you know, we harvest less than 70% of the growth in our forest so that mean that we step by step, we'll be able to increase the harvesting level going forward.

So there's no particular spike in Q3, it's sort of within the norm?

But we have a seasonal variations. I mean, I guess Q3 is strong on our own forest and then other quarters, we might harvest more on private land as we buy a couple of million cubic meters from small private forest owners in the region.

So Q4 will have seasonally high harvest from our own forest. And last year, we were just below 5 million. And this year, we'll be slightly above 5 million, maybe 5.1 million. And then we have the long-term target to gradually increase to 5.3 million, 5.4 million.

And our next question comes from Johannes Grunselius from DNB Markets.

It's Johannes here. A question on the Wood Products division. I mean the margins are really impressive if you compare it to a lot of your peers in the industry. Is there any sort of impact here that the cost side in the wood products are a bit delayed, and that could kind of explain a bit of the high margins. And if you can also bit elaborate on the mix in terms of geographies, are there any like really strong spots in your business? And how you see that in the fourth quarter, if possible.

I mean, as Andreas said, I mean, we will see increase in raw material costs for the Wood division in the fourth quarter, and that is due to a lagging effect. I mean, as I said, we have an internal model for price setting and that means that they will pay a slightly higher price in the fourth quarter in comparison to the third quarter. Market-wise, I mean, we will have more or less the same price in the fourth quarter as we've had in the third quarter, I would say. And yes, that was the -- if we have special spots, yes, if we have, we wouldn't tell. So of course, we try to do our best. And I think also they do a good job. I mean we haven't done very much investments in our sawmill business for a number of years now. And I think this is the time when we harvest a lot from what we have done in the past. In addition, the new grading mill in Bollsta has started up very, very well. I mean we had the design capacity of 7,000 pieces per hour, and we are -- we exceed that by 10%, 15% as it is just now. So that has been a very positive start-up. But I think they are doing a good job, efficiency, productivity. I mean, the average size of our mills are between 400 and 500 -- 400,000, 500,000 cubic meters per year. So I mean, they have a good size, and they are doing a good job.

Okay. Got you. I have also another question and back to the previous question a bit on growth for your forest harvesting. If I look at 2025, if we do that, is it fair to assume a kind of a mid-single growth number on the forest outtake there? If you can comment on that?

No, we -- I mean, we -- as I said, we -- last year, we had just below 5 million. This year, we have slightly above around 5.1 million, and then we'll continue to increase somewhat next year. But then, I mean, we harvest from both our own forest and private individuals. And there, we are optimized to reduce the logistical cost so it's hard to say exactly what it's going to be, but we assume it's going to be slightly higher than this year.

And our next question comes from Cole Hathorn from Jefferies.

It's just a follow up earlier on the differential between kraftliner and testliner. You've got higher costs on the wood side for kraftliner, but how do you see the importers from the U.S. on their pricing dynamics because the dollar is stronger. So I would imagine that their margins are slightly lower with that stronger dollar. They would also be less willing to kind of concede on price. Anything that you're seeing from the U.S. exporters into Europe would be helpful. And then I was just hoping you could give what you're seeing potentially from your customers into the fourth quarter. Are you seeing any difference in order patterns for seasonal Christmas demand boost, et cetera? I know it's going to be more challenging for you considering you don't have a box network, but anything that you give there would be helpful.

If we start with the import, I would say that we see no big changes. You have a couple of hundred thousand tons of kraftliner coming over from U.S. to Europe and mainly down to South Europe and that has been rather stable. And I cannot really say that we see decreased or increased volumes. I think we have to count on more or less the same level. And the second question was maybe related to consumption. I mean we see -- as I said, I mean, we believe that 2024 will be a better year when it comes to consumption in comparison with 2023. We feel, of course, that we have had a little bit of a slower market for a while now, more related to the industry -- heavy industry, not the least in Germany and Central Europe, and that is also maybe what we can hear when we listen to reports from big car manufacturers and things like that. So -- but all in all, we think that 2024 will be a better year in comparison with 2023. Do you have any -- something to add, Andreas?

No.

And then maybe if I could follow up on the Wood Products segment. Are there any regions where demand has been a bit stronger or the repair remodel has been supportive or new construction starts have been better. I'm thinking maybe the U.K. was slightly better markets than the rest. And following up on that, is there any difference in profitability levels that the team is flagging between your asset base and maybe some of the Central Eastern European sawmills. You seem to be performing exceptionally well versus the rest of the market.

I mean -- what we can see now is that we have a better flow in China, for example. But from a very, very low level, we see a tougher market in Japan for a while. But from a higher price level. I would say for us, Scandinavia, is the most important region. And in Scandinavia, we have had a rather good balance, not only in Q3 but also in Q2. And one thing is also the fact that I think that production has been balanced. I mean when we see these increases in raw material costs, that will also have an impact on the production volume in the system here. So I feel that Scandinavia has been maybe the best market for us, at least for a while now.

We're now going to move to our next question from Gaurav Jain from Barclays.

Pallav Mittal on behalf of Gaurav Jain. Just one question. So the spread between hardwood and softwood pulp has clearly widened. Are you seeing incremental substitution to hardwood because of this dynamic?

I'm not sure if -- I heard that the spread between hardwood and softwood is widening.

Any substitution.

Yes. So are you seeing any substitution.

No. I think customers that try to substitute as much as they can always because hardwood is cheaper than softwood. But as it is just now, I think we have a limitation in supply of softwood. And you need long fiber pulp as don't know the [ armeerint ], due to the strength. You need strength in different products, and then you need a certain amount of softwood pulp. For example, in tissue, you need approximately 30% of softwood pulp. So -- but I think we have a limit -- I mean the outlook for long-term, outlook for softwood pulp is rather positive because I think the demand will be higher than possibilities to supply for different reasons. So when we look at the market a little bit more long term, we are very positive in softwood pulp. And also, you see some kind of consolidation in the hardwood pulp business. I mean, you have a number of really big producers now, and also they take curtailments. When they see that we have an unbalanced market, they take curtailments and so on. So I mean that will also help to stabilize the overall pulp market, I think.

And our next question comes from Oskar Lindstrom from Danske Bank.

A lot of good questions already. I have really just 2 questions. The first one is on pulp, a little bit following up on the previous one here. I mean with lower prices, high wood costs and even shortages in wood, we've seen production curtailments on the pulp side, primarily in Finland so far this year. Are you expecting any further production curtailments or perhaps more capacity closures either here in the Nordics or in Canada in the coming 6 months, say? That's my first question.

That's you first question. Well, that's hard for us to say. I mean it's always a question of what kind of cash -- I mean, first, access to raw materials, that is the most important thing. And the second thing is cash cost. And as you say, I mean, we have seen...

Canadian plant closed recently.

Exactly. And so I mean the balance -- but we have also seen additional capacity coming on stream here. But I think the balance is rather good, not the least going forward here. So maybe a little bit more unbalanced when it comes to CTMP, where we are present also today. Europe is still a good market for us, but Asia is very challenging. And then, of course, if we see that the marginal cost for raw materials and energy combined, if that give us an unprofitable business, then, of course, we will take curtailments. We will not lose money.

The second question is on the forest side. And we fairly recently had the Swedish Church come out with a new report on proposed forest management policy for their forest lands, which I presume they're likely to take on and at least, I presume also this might affect some others in sort of changing their forest management policy. And in general, it seems to be more restrictive, i.e., lower harvesting levels. What do you see about the sort of environment for managing forests. And we've seen you increase your harvesting levels, but much of the rest of Sweden seems to be going in the opposite direction. So if you could say something a little bit about sort of how that policy environment is developing for you?

I mean, for us, that's very clear. I mean we will continue to manage our forests in best way. And I think the best thing to do both for the business but also for the climate is to be very active. I mean if we can increase the growth, then of course, we will tie up carbon dioxide in the forest, but also we will replace fossil-based materials and fuels as a substitution effects. I mean that is 100% sure best for the climate and for the business. So that -- we will do that. Then I mean, other companies, they might have a different starting point for us. As I said, I mean, the total -- the gross growth in SCA is 10 million cubic meter per year. And I mean, we harvest some of it, we have some windfalls and other diseases, and we also do pre-commercial finish and things like that. But we don't harvest more than 70% of the potential. And I think that is a fantastic opportunity. That is our future cash flow of course. I don't like to comment, I mean, what's happening in the church. I wouldn't handle it that way. So that's my personal view. But I mean, we cannot really comment on what the church is doing here.

So you don't see sort of the policy environment. In general, I was referring -- I was only taking the church as an example, but you don't see the policy environment sort of restricting your harvesting growth plan in the coming years?

No, I mean if we like to have the green transition, the only thing we can do is to use the potential that we have in the forest in the best way. I mean that is maybe the most important thing in order to make this green transition happen. So that's my point, really.

We'll now move to our next question from James Perry from Citi.

I'd just like to ask about the forest markets in the Baltics. Obviously, we had the negative spot price data in Sweden, but are trends similar in the Baltics? And if so, would you see a lower price environment as attractive to accelerate your acquisitions there? Or are you more focused on acquiring in line with your downstream requirements and strategic locations?

Yes. To start with, yes, we also see a small, I would say, decrease when it comes to price for forest lands. So I think that is more or less the general trend. I think that has also followed interest rate development. And so that might change quite fast. Just now, we are a little bit more cautious when it comes to forest land acquisitions in the Baltics, and that is also why we are a little bit focusing on the balance sheet just now to consolidate. And I mean that is -- it's always a balance. I think we will have good options in the Baltics coming years now, and we will continue to buy forest land. But always, it's a question of timing, of course.

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

Just a quick one. So on Stora's recent announcement, they want to sell 12% of their forest. I mean, a couple of questions around that. One, you've always wanted to buy more forest. Is that a possibility that you'd consider? Two, in terms of pricing and how that market shapes up, you talked about corporate premiums in the past in your last CMD. I'm curious how you would think about the pricing of that package in the current market. And with the context of that, would you consider something similar if it's -- so I mean, clearly, what Stora's doing is trying to shine a bit of a light on forest value, but they don't feel like they get a fair valuation for it in the share price. Is that something that you might consider? And then I've got a couple of operational numbers questions, but I'll let you answer that.

Yes. I tried -- I start and I hope I answered the right questions, but are we interested in Stora's forest land. I mean, hypothetically, we could be interested in that one. But if so, we should have the opposite -- opportunity to control it. I mean we are not interested in buying land and to supply someone else with the wood from that land. But if we could buy a piece of land in Sweden, and we could use it for our own [ best ], then we would be interested, yes. The second thing was, was that about the price level and premiums. Let us wait and see. I think we don't know really. In this transaction, we don't know what land they will sell, in what area they are supposed to sell forest land. I think the only important thing to look at is you have different price levels, but if you are in the west, far away from the industry, if you have a slow growth area or if you are close to the industry and higher growth and so on. So I mean you have lots of factors that will have an impact on the final price when you do a transaction like that. But like-for-like, my view is still that it should be a premium on legal entities as you can -- you're much more flexible when it comes to the [Foreign Language]. And the third one was if we are considering selling forest land, and we are not, so that's no.

Okay. That's clear. And just on the operational stuff. I think I heard Andreas say that you were looking at 5.1 million cubes of harvesting in the Forest division this year. That would imply year-over-year a decline of like probably about 6% on the fourth quarter last year. Is that your expectation? Or could we exceed that a bit this year? And secondly, just on the Wood division. I don't know if you gave this at the start, I had some connection issues. But the timber pricing go -- somewhat pricing into the fourth quarter, are you expecting prices to decline seasonally?

If I'll start with the first one on the harvesting. As I said, last year, we had just below 5 million. This year, we expect about 5 million, and our best estimate is currently at around 5.1. And we looked at it more on a yearly basis because, as I said before, we harvest both from our forest and then from private individuals. And over a year, we tried to optimize that to reduce the logistical costs around 5.1, but it's hard to say the exact figure.

And then maybe the price for solid-wood products in Q4. And yes, I said that I believe that we have seen more or less unchanged prices from Q2 to Q3, and I believe that we will see more or less unchanged prices also between Q4 and Q3. Then you might see differences in -- I mean, where you deliver the volumes, so you can have some mix effect, you can have some currency effect, but the underlying price will be more or less flat from Q3 over to Q4.

And we have a follow-up question from Charlie Muir-Sands from BNP Paribas.

Just a technical question. On the other operations, the loss there of SEK 34 million in the quarter was unusually low, both year-on-year and certainly versus the most quarters in the last 3 years. I just wondered if there was anything particularly driving that, and whether we should consider a normalization going forward or whether that's the new run rate?

No, in Q3, we typically have lower costs because of the summer period. You also have effect between the quarters between profit in stock, so negative effect last quarter and a positive effect this quarter. But if you look at aggregate in the 3 quarters and take that divided by 3, then you'll get our running rate on others.

It appears there are currently no further questions at this time. With this, I'd like to hand the call back over to our speakers for closing remarks.

Andreas?

And that concludes our first quarter report presentation. And I wish you all welcome back in January for our fourth quarter report. Thank you.