Svenska Cellulosa Aktiebolaget SCA (publ) (OTCPK:SVCBF) Q3 2022 Earnings Conference Call October 28, 2022 4:00 AM ET
Company Participants
Anders Edholm – SVP, Communications
Ulf Larsson – President and CEO
Andreas Ewertz – CFO
Conference Call Participants
Linus Larsson – SEB
Christian Kopfer – Handelsbanken
Johannes Grunselius – DNB Markets
Robin Santavirta – Carnegie
Martin Melbye – ABG
Oskar Lindstrom – Danske Bank
Andrew Jones – UBS
Cole Hathorn – Jefferies
Anders Edholm
Good morning and welcome to this presentation of the Third Quarter SCA’s Results. With me here today, I have President and CEO, Ulf Larsson; and CFO, Andreas Ewertz.
Over to you, Ulf.
Ulf Larsson
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 for the fifth quarter in the row reached an EBITDA margin of 50%. We have a continued strong cash flow in the company, but we also finance all investments, not just our strategic investments, but also our current CapEx through our operating cash flow.
Last quarter I said that the Obbola — the big Obbola project was on budget and ahead of time. That goes also now for the big pulp project, CTMP expansion in Ortviken. That one is also on-budget, but one quarter ahead of time, so we will start to ramp up this line in the fourth quarter.
The new paper machine in Obbola is now running 24/7. 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’ve 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 lagging effect due to the fact that we are ahead of the 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, some with 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 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 to-date 20% of installed wind power capacity SCA land, but from now on, 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 SEK2.5 billion on EBITDA level, which gave us healthy EBITDA margin of 50%. The return on capital employed for our industrial operations calculated as the average for the last 12 months was 44%. And the leverage this quarter landed on 0.8 despite our large ongoing investment program, and as I said, we finance all our investment, not only these big strategic projects, but all our investments with our operating cash flow.
Then I will say some words about each segment starting with the forest and in forest we have seen increasing good prices, especially when we compare the situation we have just now with what we had one year ago as you can see in the bottom left in the graph.
We have also seen increasing prices sequentially. So, when we compare Q3 with Q2, especially for pulpwood, we have had a price increase of SEK50 per cubic meter in softwood and SEK70 per cubic meter in hardwoods.
We don’t import too much wood as we have a high degree of self-sufficiency in this area, but nevertheless, if we compare the price level today with what we had one year ago, for softwood we have gone from €40 per tonne up to more like €90 to €100 per cubic meter in birch from €50 up to €125. And we will look into energy wood, we have gone from €25 to €90 per cubic meter.
Otherwise, sales was up due to high prices and same thing with EBITDA. We had the positive revaluation effect of our biological assets around SEK70 million and we have also this quarter harvested around 90,000 cubic meters more in comparison with last year.
And 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, as 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 least the demand in DIY and 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 hesitated for that of course.
On the other side, we have also during this period now seen — start to see curtailments and by that also a decrease in production. The estimation from my side during second quarter was that we should see reduced prices by around 25% in the third quarter in comparison with the second quarter. That was for SCA more like 20% due to the fact that we agreed on prices in the second quarter, but deliveries came in the third quarter. So, some kind of lagging effect, but also positive currency effect.
My best guess for the fourth quarter now is that we will see another price decrease of 25%, which is equal to SEK600 to SEK700 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 and is on budget and ahead of time. So, we will start up — we ramp up the new line during the fourth quarter, which is one quarter ahead of time, very positive of course.
Sales was up as much as 25% during this quarter due to high 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 the planned maintenance stop at Östrand, which had the negative EBIT impact of around SEK25 million during the third quarter.
If you 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 fix [ph] price was around $1,500 per tonne. For deliveries in September, prices started to normalize a little bit and we see that fixed prices for deliveries in October will stay at around $1,480 per tonne.
When we look at the inventory level, we can see that for hardwood, it’s more on the normal level, while it has increased a bit for softwood 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 not producing sellable products. As already said the first products as the paper — first paper has already reached customers and we have produced 12 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 negative EBIT the impact of that was around SEK60 million.
Some words of other marketing containerboard and also here we reached record high kraftliner prices in the third quarter. Prices decreased in October-November for unbleached kraft by €30 per tonne, while on the other side, whitetop kraftliner remained on the same level. Why? Well one reason is that the OCC price has collapsed. In June, we had the price of €185 per tonne for OCC. The price today is around €75 per tonne and we believe that we can come down another €25 per tonne. So, reaching €45 to €50 per tonne in OCC.
The price difference between kraftliner and testliner today is around €120 per tonne, which is on the narrow side I would say. Demand not 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 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 one 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 in Sweden.
So by that, I hand over to you, Andreas.
Andreas Ewertz
Thank you, Ulf and welcome, everybody. I’m going to start off with the income statement for the third quarter and net sales declined 1% to SEK5 billion, where lower prices in wood was offset by higher prices in containerboard, and pulp.
EBITDA total SEK2.5 billion corresponding to an EBITDA margin around 50%. And this is as Ulf mentioned, our fifth straight quarter with an EBITDA down margin of around 50%. The EBIT margin was 42%, we had an effective tax rate of around 20%, bringing in net profit for the period just below SEK1.7 billion, or SEK2.3 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 SEK1.6 billion, where low — where higher prices were offset by lower delivery volumes to our sawmill.
EBITDA declined slightly to SEK623 million, which was due to seasonal lower harvest from our own forest. In wood, we’ve had several strong quarters since the beginning of 2021. In Q3, prices declined 20% as Ulf mentioned, bringing net sales to SEK1.4 billion and EBITDA to SEK382 million, corresponding to a margin of around 27%.
In pulp, we have had the steadily increasing price throughout the year, and in Q3, we had record high prices. Sales totaled SEK1.9 billion, and EBITDA was unchanged at SEK865 million, corresponding to our record high EBITDA margin of 46%. And we started maintenance stop in the end of the quarter, which has a slight negative impact on volumes.
In containerboard, the prices have increased since the end of Q4 2020. In the Q3, volumes were negatively impacted by the maintenance stop in Munksund and the startup of the new paper machine in Obbola.
Net sales totaled SEK1.7 billion. We had an EBITDA of SEK743 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 spread within Q3 this year and Q3 last year, and we started to the left, prices increase 1% or higher prices in pulp and containerboard was offset by lower prices in wood.
Volumes had the negative impact of 6%. Again, because of a weaker wood market and startup 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 the pulp and containerboard was offset by lower prices in wood volumes had a negative impact of SEK140 [ph] million again because of lower volumes in wood and the start off on pm two in Obbola. high cost of withdrawal material and chemicals had a negative impact of SEK186 million.
We had a positive impact in energy, show us our high self-sufficiency post our exit publication paper we had a positive impact on currency of SEK190 million and we had a negative impact from higher fuel costs and startup costs of Ortviken, we will now have CTMP organization in place. In total EBITDA declined 7% to just below SEK2.5 billion and again, EBITDA margin of 50%.
Or the next slide, we have the EBITDA bridge for the first nine months, and price/mix had the biggest effect of SEK2.5 billion, where prices increased in all areas. And this was only partly offset by lower volumes and higher wood costs. Again, energy had a positive impact from currency and the negative impact from higher distribution cost.
And the total EBITDA increased 30% to SEK8.2 billion, correspondingly a margin of almost 52%. We continue to have strong cash flow almost SEK1.9 billion in the quarter and 5 billion for the first nine months. And this means we’re continuing to fund our strategic CapEx with operating cash flow.
Looking at the balance sheet, the forest assets increased to SEK90 million. Working capital increased to SEK3.5 million, mainly due to higher prices, but it was unchanged in terms of days.
Capital employed increased SEK98 billion. Net that stood at SEK8.3 billion or 0.8 times EBITDA and this is a decrease of around SEK1.3 billion compared to the previous quarter, but equity of SEK89 billion and net to 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. And on this slide, you have the pro forma effects for the first nine months on each segment. And if we start with forest to the left, on process, biofuels, and wind power leases, well from the beginning of next year be reported in renewable energy.
And the pro forma effect of forest for the first nine months was around SEK65 million, of which the majority came from the wind leases. In wood, pellets will be reported in renewable energy and the pro forma effect was SEK75 million and currently, we have high pellets prices.
Pulp and containerboard to renewable energy for our fossil based price. And then renewable energy is responsible to maximize the green premium. This had the effect of SEK60 million in power, and SEK45 million in containerboard. And in total renewable energy, I had an EBITDA of around SEK240 million pro forma for the first nine months. And we’re going to come back with more financial details in conjunction with our Q4 report.
Thank you. And with that, I’ll hand back to you Ulf.
Ulf Larsson
Saw — 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 would start contribute from next year. Kraftliner already there. CTMP start up late this quarter.
Bollsta sawmill, a new grading mill, but also CT scanner, which is — will be up and running in the fourth quarter. And then we had to biorefinery that will be up and running at the end of next year.
As mentioned many times and as you 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 in not only Europe, but also in other areas. But due to the fact that we have our own logistical company, we have been in a good position here.
We are well-invested and structured asset base, not least since we left or the publication paper business. And with that we also have a very competitive because 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.
Question-and-Answer Session
Operator
Thank you very much, ladies and gentlemen. [Operator Instructions]
Thank you. We’ll now take our first question from Robin of Carnegie. Your line is open, please go ahead.
Ulf Larsson
I think we start in the room. Linus, please go ahead.
Linus Larsson
Thank you a couple of questions on your project pipeline. And just to start off with a very near-term with Obbola and Ortviken, any anything to keep in mind for the fourth quarter just for the very short-term in terms of startup impact on those projects?
Ulf Larsson
I can first start with — in Q4, volumes will be similar to Q3 in terms of Obbola. Incidentally, we will continue to have some ramp-up cost in line with Q3. And then for next year, Obbola previously guided of around 500,000 tonnes.
Linus Larsson
Great. Thanks.
Ulf Larsson
The limitation would 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.
Linus Larsson
Great. 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 that?
Ulf Larsson
We will develop our wind business in different ways. I mean, one option is to develop our own projects. And then we are dependent on environmental permissions and things like that. And we don’t know when they will come.
We have a couple of projects in 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 late this next year. But we will not guide for I think for how much and — because that is of course depending on what kind of needs we can do.
Linus Larsson
Sorry. You mean there will be investments already in 2023?
Ulf Larsson
Yes, I believe.
Linus Larsson
Either M&A or organically?
Ulf Larsson
Yeah.
Linus Larsson
Okay. Thanks. And then on the announcement of the potential sawmill investment, I mean, is the [Indiscernible] sawmill reference here? I mean, the group was around a 50,000 tonne. That mill that just started up, I mean, it was initially supposed to cost SEK2 billion, I think it was close to SEK3 billion CapEx in the end. I mean, is that the range — the ballpark range of CapEx that we should be expecting here?
Ulf Larsson
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 building up a new sawmill today, I think you have to look at that size and also buy that also that amount of money. But I mean, we don’t know yet. Yes. Now, we’re starting out the feasibility study.
Linus Larsson
Of course, and then just overall on CapEx, what’s your guidance for the full year 2022 and 2023?
Andreas Ewertz
In current CapEx would be a few SEK100 million more than last year, so about SEK1.5 billion in current CapEx and strategic CapEx, it will depend, of course, on timing of some of our CapEx in old CTMP, but in the range of SEK3 billion, SEK3.5 billion. And therefore, next year, I think we’ll have about SEK1 billion left on those ongoing strategic project.
Linus Larsson
Okay, and then it will depend on potential further decisions.
Andreas Ewertz
Yes.
Linus Larsson
Okay. great. Thank you very much.
Ulf Larsson
But what is good is that we have — I mean, we have now more or less financed all these big projects, and now we can — we have an option we can choose to invest more or we can stop here if it’s getting worse, so to say.
Christian Kopfer
Thanks. Good morning. Just two quick follow-ups from my side. It’s Christian Kopfer from Handelsbanken, by the way. Firstly, on biofuels, you mentioned, Ulf you look into a number of opportunities there. I just want to see how you view that market now with the new administration in place, seems like they are a little bit more skeptical to be to be frank, on biofuels. So, what’s your outlook? Has it been weakened a little bit perhaps.
Ulf Larsson
I mean, not really. If we look into the project that we’re running in Gothenburg, 40% will biojet, for example, when we look into the project that we are just on the planning phase, but in Östrand up till at present can be biojet. So, I think we have a global market. I mean, short-term, of course, you can have some kind of impact on Swedish prices, but globally, not really anything major.
We also often have requests is 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.
Christian Kopfer
Right, agree on that. So, finally for me on 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 on in the sawmill industry in Europe will be so bad? Or is it that you expect the demand to come back again?
Ulf Larsson
Lower prices. I mean, the bottom — when you reach breakeven, then it’s the bottom because then 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.
Christian Kopfer
Okay, fine. Thanks.
Johannes Grunselius
Morning. 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 the sort of incremental volumes the delta or any kind of earnings impact there please?
Ulf Larsson
We can start with the volume and as Andreas said that what we have communicated is that we will — today we will — I think the production in Obbola will be around 440,000 tonnes this year.
And that will increase up to around 500,000 tonne 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, yeah, I don’t know if we have said anything about volume for next year.
Andreas Ewertz
No, but I mean, just give some guidance, maybe we’re currently producing 100,000 — 100,000 tonnes, or maybe 150,000 to 200,000 tonnes total next year.
Ulf Larsson
Little bit, depending on the market, because I mean, one potential market will be Asia. And we still see an impact from lockdowns and things like that. So I mean, again, it is big uncertainty in the market in general, that will have an impact, of course.
Johannes Grunselius
And I also have a question on your sawmill business and what you see Q4 and beyond that. I mean, in this tough market, are you able to find sort of new markets that can replace the weak Do-It-Yourself market at home, so to speak, on offshore markets?
Ulf Larsson
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 take — being forced to take attainments 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, yes. Now, we ever under a similar situation all over globally, I would say U.S. lipids 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%, and so on. And we see that kind of figures all over the world just now.
Johannes Grunselius
Thank you.
Ulf Larsson
So, then we may be open up the line?
Operator
Thank you. We’ll now take our first question from Robin of Carnegie. Your line is open, please go ahead.
Robin Santavirta
Yes, thank you very much. So, it’s Robin Santavirta from Carnegie. Now, first just to check with Andreas on the Obbola volumes, did you say 500,000 tonnes expected next year? And that would then be up against from something like 400 to 4,000 tonnes this year?
Andreas Ewertz
Yes.
Robin Santavirta
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?
Andreas Ewertz
Full 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 — Q2 next year and after that we can start to increase production. So, we need more fiber.
Ulf Larsson
So by that you will also see a higher production rate in the second half of next year than in the beginning of next year, which is might be important?
Robin Santavirta
All right. All right. I understand and I guess it’s the fiber related to the RCP or OCC you–
Ulf Larsson
Yes.
Robin Santavirta
Yes, Yes. Good. Then in terms of the containerboard business, what are you seeing at the moment the Europe when it comes to the demand and customer inventory levels? And related to that I can see the natural gas pricing in Europe, at least the financial instrument the forward next day has come down to a very, very low level compared to historical average levels. Is that now impacted than the testliners of production in Europe increasing? What are you seeing when it comes to the supply/demand?
Ulf Larsson
I mean of course, you will have an impact from the energy price when it comes to the production or testliner. And so 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 €120 per tonne, and that is on the narrow side, maybe the normal figures should be €150 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 the prices for deliveries in October, November by €30 per tonne for unbleached kraft. And the reason for that was of course that we — the announced price increase in testliner didn’t come through and why not? Yes, because the OCC prices went down. And as I said, from €185 per tonne in June, down to €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. And 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.
Robin Santavirta
I understand. Thank you very much for the detail. And then the final question I have is related to fiber cost in Q4, and in the winters sort of compared to Q3. What is the outlook for you guys?
Ulf Larsson
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 the import prices increase 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.
Robin Santavirta
Thanks. Can I just check with you, you call the price lower by 25% Q-on-Q in saw and timber? And you’re quite low cost and when I do the numbers, I end up with quite low profitability for the woods segment then in Q4, we sort of on change cost Q-on-Q, surely that must push some of the higher cost producers enter negative numbers, is that how we should expect it? And then perhaps at the reduced production volumes?
Ulf Larsson
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 what kind of uncertainty you have and due to I mean — related to the war and a lot of things. So, — but we already know 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 the producers they have started to take curtailments and so on. I believe that during Christmas, many producers will take curtailments I think that we also will — we will not produce 100% during Christmas. We will talk with our employees and they will take out the couple of days and so on. I mean that is normal.
Robin Santavirta
Yes. But the economy is not going in a better direction come Q1, nor the seasonality. But let’s see where that will take you. Thank you very much for good answers.
Operator
Thank you. We’ll now move on to our next question from Martin of ABG. Your line is open, please go ahead.
Martin Melbye
Yes, just to double check, so in Q4, are these two 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?
Andreas Ewertz
In Q3, I start with Obbola, we had some impact on volume because when we switch from one machine to the other, I mean you lose a couple of hours of production each time. So, we were negatively impacted by the startup. And in Q4, similar volumes to Q3 in terms of Obbola.
In Ortviken, we had some startup costs to CTMP, but we now have a different 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 end of Q4, we’ll start up production of CTMP.
Martin Melbye
Okay. And the last question, could you explain why you do a JV on sawmill with [Indiscernible] because I guess you’re big enough both to do that kind of investment, is that to keep the wood price low in the area and not compete, or what’s the rationale?
Ulf Larsson
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 that same optimal capacity, then we can use the wood from our own forest. I mean, already today, we produce around 300,000 cubic meters per year in Holman, and that mill will be closed. So, I mean, we just transferred that volume into a new mill.
And by that, of course, we will reduce the investment cost. And if we don’t build up a new mill, then we will of course invest in the old one, but that will not be as efficient as we believe a new mill can be. But again, you need to get access to raw materials. 75% of the cost for a sawmill is related to sawlogs. But this investment will increase the value of SCA and this potential investment will increase the value of the forest for SCA, but also for Holman but also for all private forest owners in that region.
Martin Melbye
Thank you.
Operator
Thank you. [Operator Instructions]
We’ll now move on to our next question from Oskar of Danske Bank. Your line is open, please go ahead.
Oskar Lindstrom
Yes, good morning. This is Oskar Lindstrom at Danske Bank. Three questions. The first one on the forest land values. The Swedish forest land market has been very strong during the first half of the year. What are you seeing now in the second half of the year and looking into next year? So, what was your feeling around forest land pricing? And should I go on with the second question?
Ulf Larsson
We can start with that. 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.
Oskar Lindstrom
All right. And can you say something about sort of where demand is coming from? What type of assets are most attractive?
Ulf Larsson
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 — but we are, we are doing a couple of transactions every month and it is — let’s say rod is 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.
Oskar Lindstrom
And why do you think we don’t see that?
Ulf Larsson
Because I think it is an attractive asset as I say. I mean, we see a number of people coming in here and all kinds of investors coming into forest.
Oskar Lindstrom
All right. So, it’s just a rather scarce asset class?
Ulf Larsson
We don’t produce any new land. So, that’s maybe the reason.
Oskar Lindstrom
Yes. Second question on capital allocation. I mean you have a very strong balance sheet and two of your major CapEx projects are 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?
Ulf Larsson
I mean, you don’t know what kind of options that will appear in 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 forest land, so that we will do.
And as you know, we have our ongoing program in the Baltics and 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.
Oskar Lindstrom
Okay. My third and final question is on the biorefinery 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?
Ulf Larsson
I mean, we took the decision just recently to invest €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 biorefinery 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.
Oskar Lindstrom
And do you foresee that being a joint venture or something that you pursue on your own?
Ulf Larsson
I mean, already today, we have a joint venture together with St1, and they are also in this biorefinery 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 and see what kind of conditions we have when we are ready for decision.
Oskar Lindstrom
All right. Thank you.
Operator
Thank you. We’ll move on to our next question from Andrew Jones of UBS. Your line is open, please go ahead.
Andrew Jones
Hi gents. Couple of questions from me. Firstly, just on the market for board. I mean, basically your — can you remind us what your split between where you’re selling a lot of the sawlog 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? How steep is it? And what sort of proportion of capacity have you seen idled relative to the fall in demand year-over-year? And what amount would you potentially see coming out in the coming months if price is indeed fall 25% as you’re expecting in the fourth quarter? Other second question, so if you could answer first.
Ulf Larsson
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 not to decrease in comparison with 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 depends of course on the pricing and it is a combination between log cost and the price for solid wood product. 70% — a little bit more than 70% of the cost in a sawmill is related to the log cost and you have very local conditions for that part.
So, it’s impossible to say, but I mean we will see — I think we will see substantial curtailments take and now when the price is coming down, and we have started to see it already. And we are see — I mean we can see the announcements that you see official announcements. But we feel it in the market now that — by that the balance will be better, of course.
Andrew Jones
Yes. Just a follow-up on the points, that my colleague raised about the about the transaction values. And it looks like if you take your balance sheet value, it’s about SEK120 per share, there’s not much value in the rest of the business according to according to that figure.
I mean clearly the market is saying that the land is worth less than its put on your balance sheet. I mean, what is the market not understanding? Because it seems as though long life low-yielding assets that interest rates must have an effect on that.
I mean what — I mean, clearly, there is demand and transaction values holding up, but what is keeping them up? And is it potential for alternative land use, be it wind, or something else? And if that’s the case, could you quantify potentially what the rest of land value could be if it got permitted for wind? Or what’s possible case versus this interest rate argument for people breaking out about?
Andreas Ewertz
Firstly, I mean, we see a lot of interest in forest. I mean, a lot of investors think it’s a good hedge towards inflation. I mean we did a study; I think it’s an annual report. I mean, if you look at Forest assets from 1950s to today that averaged about 10% in yield, but you have to look at the price increase, you have to look at a cash flow, but also the net growth.
We only harvest around 60% of our net growth. So, we get more and more stunning volume each year. I think that many people find that attractive and we see a lot of interest in forest land. And we’re also done. I mean, there’s a fairly limited correlation between interest rates and the forest valley, if you look on the past 50, 60 years.
Andrew Jones
Okay. And for alternative values, I mean, if you — I mean, if you converted someone, then 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 potentially rise if you were to — for use as a wind site?
Andreas Ewertz
Very high value if you can get a permit to build a wind farm. Today, it may take eight 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, you definitely see increased value from wind power.
Andrew Jones
And you get to see the new government improving permitting materially?
Ulf Larsson
I think that we come in one way or another. So, I mean, that 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.
Andrew Jones
Okay. Thank you.
Operator
Thank you. We will now move on to our last question from Cole Hathorn of Jefferies. Your line is open, please go ahead.
Cole Hathorn
Good morning. Thanks for taking my questions. I just got two. I’ll take them one at a time. Firstly, on wood products, stepping away from the near-term, I’d just be interested in hearing your view on what happens if we have a longer term housing slump? And how does that play off versus 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 the market going forward kind of longer term? And then I’ll follow-up with one on containerboard. Thank you.
Ulf Larsson
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 positive business. It is volatile, which can be good and which can be bad, but I think we are — at SCA, we are well-positioned to some extent to benefit from this volatilities, not only solid wood products, but also in other areas, something. But long-term, this will be a good business.
Cole Hathorn
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 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 and testliner and an impacting kraftliner into next year? Or should it just be more of a kind of a gradual impact through the first half? Thank you.
Ulf Larsson
I mean, again, as I said for SCA, we have run a normal stock of orders. So, we are we are not stressed by any limitation in the 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 the combination and relation between testliner and kraftliner prices. Testliner prices are depending on the price for OCC and I 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 two 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 €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, let’s say, the difference on a decent level in order to avoid substitution. But maybe I cannot judge the development for guess and for OCC prices better than you can.
Cole Hathorn
I suppose maybe asked another way we’ll — do the 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 low.
Ulf Larsson
I mean, theoretically, yes, I mean, if you have a lower gas price and if you have a lower OCC price, then of course the profit will be — the cash cost will be better — they will be in a better position as a testliner producer.
I mean just now we have been in a very special place in Scandinavia with the energy supply that we — the structure we have in the energy supply here in this region. And that you can also see result that we have and I mean sooner or later prices will start to normalize.
We saw some adaption maybe in the last month where the price for unbleached kraft went down €30 per tonne, now it’s stable again in the market. It was unchanged for whitetop kraftliner. So, it’s out there. 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.
Cole Hathorn
Thank you.
Operator
Thank you. [Operator Instructions] Thank you.
Ulf Larsson
Anders?
Operator
I see there are no questions in queue. I will hand it back to you. Thank you very much.
Anders Edholm
Thank you, operator and thank you for participating. Welcome back when we present the fourth quarter results early next year. Thank you for watching.
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