Svenska Cellulosa Aktiebolaget SCA (publ) (SVCBF) Q3 2023 Earnings Call Transcript

Svenska Cellulosa Aktiebolaget SCA (publ) (OTCPK:SVCBF) Q3 2023 Earnings Conference Call October 27, 2023 4:00 AM ET

Company Participants

Ulf Larsson – President and Chief Executive Officer

Andreas Ewertz – Chief Financial Officer

Conference Call Participants

Charlie Muir-Sands – BNP Paribas

Johannes Grunselius – DNB Markets

Martin Melbye – ABG

Oskar Lindström – Danske Bank

Linus Larsson – SEB

Christian Kopfer – Handelsbanken

Cole Hathorn – Jefferies

Alexander Vilval – Pareto

Andrew Jones – UBS

Operator

Good morning and welcome to this presentation of SCA’s Interim Report Presentation for the Third Quarter of 2023. With me here today, I have CEO and President, Ulf Larsson; and CFO, Andreas Ewertz. Now over to you, Ulf.

Ulf Larsson

Thank you, Anders, and also from my side a good morning and welcome to the presentation of SCA’s result for the third quarter 2023. So when I summarize the quarter, I can state that we have delivered a stable result with a strong cash flow, not least driven by a profitable growth in renewable energy, a stable performance in forest, but also resilience against cost inflation. And that that is of course partly due to our high degree of self-sufficiency in our wood and energy supply, but also in logistics. We see a stabilizing demand in the market for our products. Prices for solid wood products decreased as expected during the third quarter, but will as an average remain on current level also in the fourth quarter. Containerboard prices have been flat since May this year, while prices for pulp have bottomed and started to increase also as expected.

EBITDA decreased in comparison with its third quarter last year, but reached SEK1.4 billion and by that a healthy EBITDA margin of 33%. So when I compare the third quarter this year with the third quarter last year, I can note that sales decreased by 14% and the EBITDA by 43% and that is mainly due to lower prices. On the positive side, we have seen a high result in forest, a high result in energy, and that is combined with higher delivery volumes due to commission strategic investments and also positive currency effect. Finally, I can remind you that we recently have announced an acquisition of a wind park, Fasikan, and the total cost is estimated to SEK1.7 billion and the yearly production will be around 0.33 TWh and the commissioning will be early 2026.

So turning over to some financial KPIs related to the third quarter. Our EBITDA decreased 17% in comparison with last quarter, but reached, as I said, SEK1.4 billion and that corresponds to 33% EBITDA margin. Our industrial return on capital employed came out on 12%, calculated as the average for the last 12 months. The leverage is at 1.4 and that is despite our almost finalized large ongoing investment projects in Obbola, Ortviken, Bollsta and also Gothenburg. And by that we also continue to finance all our investments, including strategic projects with our operating cash flow.

I will now make some comments for each segment and I like to start with forest. During the third quarter, we have had a stable supply of wood raw materials to our industries. In general, we can note the continued high demand for saw logs, while the demand for pulpwood has begun to weaken. As can be seen in the graph in the bottom left, prices for both pulpwood and saw logs have steadily increased during a long period. And we now feel that they even out on a historically high level in the Baltics. We also see that raw materials prices have started to decline. When we compare Q3 2023 with the same period last year, sales were up 17% and EBITDA was up 20% and that is mainly due to higher prices, but we also have a positive effect due to higher harvesting level in our own forest.

Turning over to business area Woods. In general, we have a continued slow underlying market for solid wood products. DIY activities had a seasonally positive effect on the demand in the second quarter, but have now come down as expected in the third quarter. New housing starts are in a decreasing trend with the U.S. as an exception. However, stock levels in the market are low, so demand in end-use market will create orders back to the saw mills. I estimate that the price should come down in the third quarter and reach the level we had in the first quarter. And that also happened and we have seen a 7% price decrease in the third quarter in comparison with the second quarter. I now feel that we have reached the bottom and expect unchanged prices in the fourth quarter. Sales and EBITDA were substantially down, Q3 2023 in comparison with Q3 2022 and that is due to price and cost of wood raw material.

Today’s stock level of solid wood products in Sweden and Finland is in relation to the average for the last five years described at the top left on this slide. We note that the inventory volumes are in the normal level. SCA has also maintained good deliveries during the third quarter and by that we have a balanced and also normal stock level. As can be seen in the diagram to the bottom left, the Swedish and Finnish sawmills production has been below normal level, approximately 5% less than last year, same period. Outside the Nordic countries, we have also seen continued production curtailments, mainly in Germany but also in Canada and we can expect further production curtailments during the coming quarter.

While looking at the diagram to the top right, we can note that the price peaked in the third quarter 2021 and that was on historically high level. Prices have come down substantially since then and at the same time the prices for sawlogs have increased with the major, of course, negative effect on profitability. So over to pulp. First, I am happy to say that our CTMP expansion continues according to plan regarding production ramp up and sales growth. Sales and EBITDA were down 14% and 80% respectively when comparing the third quarter this year with Q3 2022. We can note lower prices and higher wood raw material costs on the negative side while currency and also volume have had a positive impact in this comparison.

We did start up the planned maintenance stop at Östrand in the third quarter with a negative result impact of approximately SEK50 million in the third quarter. We have seen a quarter with increase in demand of pulp in China and prices have also been rising lately, especially in China. Profitability has improved for Chinese deliveries. The increase in demand and turnaround of prices is an effect of low inventories by customers and also limitations of capacity from high cost producers for deliveries to China. The market in Europe has also improved in September. Customers are asking for increased volumes. Therefore, SCA has also announced a new base price of US$1,200 per ton that is defective from October.

The global inventories are on a stable but somewhat high level. SCA inventories are on a medium to low level after the planned maintenance stop. And we are also expecting prices in the U.S. to start increasing as of November. The prices of CTMP have also increased with approximately US$75 per ton in Asia. The closure of the CTMP line at Östrand was accomplished early September as planned. And by that, all CTMP production has now been transferred to the new line at Ortviken. From competition, we note that Metsä’s new mill in Kemi has started up and Stora Enso’s mill and Sunila has been announced to be closed. We have also noted that substantial BSK pulp capacities have been closed in Canada. In total, we by that estimate that the market balance to be more or less unchanged.

Moving over to containerboard. The ramp up of the new kraftliner paper machine in Obbola is running according to plan. The new recovered fiber line, which is, as said before, a necessity to reach full capacity is also progressing according to plan. And the ramp up of this line has started successfully. And as earlier communicated, we expect to reach full capacity in Obbola by 2026. Sales was down quarter-on-quarter by 18% due to lower prices while EBITDA was down by 65% mainly due to lower prices and higher raw material costs. Box demand has been stable in Q3. European demand of kraftliner has also been stable in the third quarter this year, which indicates that pipeline effects have come to an end.

We believe now in the stronger demand of containerboard step by step. On the other hand, there is additional supply and test liner coming on stream in the next quarters, which will put maybe some extra pressure on the supply demand balance. Prices for brown kraftliner have been stable in the third quarter this year. Prices for Kraftliner White Top have also been stable in Q3. And we have now seen unchanged prices for both Brown and White Kraftliner from May until today. And probably we have also reached the bottom in this segment. Containerboard and especially kraftliner inventories have been very well balanced by reduction of supply. Despite significantly lower demand, inventories have been stable or slowly decreasing in the first two quarters of 2023. And the current stock level will support rather sharp volume and price recovery when the demand comes back.

Availability of OCC is still good because of historically high supply of corrugated boxes and lower current demand of testliner. Today’s PPI’s index price is around €75 per ton, which is €110 per ton lower than the peak in July, 2022. Since we see demand to be stable and strong in demand in the second half of the year, we can assume that OCC prices will start to increase again based on the limited supply at the end of the year.

Renewable energy. SCA continues to grow in wind power and has recently announced an acquisition of a wind project a 100 kilometers west from Sundsvall. The total investment cost is some SEK1.7 billion. All turbines will be located on SCA land and the production capacity will be a little bit over 0.3 terawatt hours per year. The commissioning will start early 2026. And I will come back and give you some more details in a short while here.

In business area renewable energy, we continue with another quarter strong profitable growth and higher prices in comparison with the same period last year. Due to increasing prices and high demand, the sales were up 27% and the EBITDA level by 89% when we compare with the same period last year.

The market for solid wood – solid biofuels is stable. Volumes are also expected to increase in the coming quarter due to seasonal effect. In wind power land lease agreements on SCA land reached 8.3 terawatt hours in Q3. And that is exactly in line with the communicated plan. We have seen lower energy prices in the northern part of Sweden during Q3, and that is due to warm weather, strong wind, and also strengthened hydrological balance.

Finally, the biorefinery in Gothenburg is on construction, and the first product to tank is planned during Q4 this year.

So by that, I hand over to you, Andreas.

Andreas Ewertz

Thank you, Ulf, and good morning, everybody. I’ll start off the income statement for the third quarter. Net sales declined, 14% to SEK4.3 billion driven by lower prices. EBITDA reached SEK1.4 billion despite the weak market driven by growth in renewable energy and higher results in our forest division. EBITDA margin was 33%.

Depreciation increased to SEK404 million due to activation of the new paper machine in Obbola and the new CTMP mill at Ortviken. The EBIT margin declined to 21% and financial items totaled minus SEK111 million. We had an effective tax rate of below 20%, bringing net profit to SEK663 million or SEK0.96 per share.

On the next slide, we had a financial development by segment and start with the Forest segment to the left. Net sales totaled SEK1.9 billion and EBITDA decreased to SEK724 million due to seasonally lower harvest from our own forest compared to the previous quarter.

In Wood, prices decreased in the third quarter compared to the second, due to the seasonally lower demand. Net sales decreased to SEK1.2 billion and EBITDA totaled SEK161 million corresponding to margin of 13%.

In Pulp, prices have bottom out after several quarters of declining prices and we announced a price increase in October. Net sales declined to SEK1.6 billion and EBITDA decreased to SEK173 million, corresponding to margin of 11%. Lower pulp prices, lower energy prices and ramp up volumes from CTMP, Ortviken had a negative impact on earnings. At the end of the quarter, we started planned maintenance stops at Östrand, which had a negative impact of SEK47 million.

In containerboard, kraftliner prices have been stable since May. In Q3 net sales totaled SEK1.4 billion and the EBITDA increased to SEK253 million corresponding to margin of 18%, and the planned maintenance stop in Munksund have negative impact of SEK68 million.

Renewable energy with another strong quarter with EBITDA around SEK155 million and the margin of 38%, despite the seasonal weaker quarter and lower electricity prices.

On the next slide, we have the sales bridge between Q3 last year and Q3 this year. Prices declined 30% with lower prices in wood, containerboard, and pulp. Volumes increased 9% driven by the new paper machine in Obbola and the new CTMP mill at Ortviken.

And lastly, currency had a positive impact of 7%, bringing net sales to SEK4.3 billion.

Moving on to EBITDA bridge and starting to the left, price mix had a negative impact of SEK1.6 billion and higher volumes had a positive impact of SEK152 million. Higher cost for mainly wood raw materials had a negative impact of SEK51 million, while energy had a positive impact of SEK36 million, which really shows a high self-sufficiency in both energy and wood raw material.

With a positive impact from currency and a positive impact from lower distribution costs in Q3 last year was also negatively impacted by transformational costs at Ortviken. In total, EBITDA decreased approximately SEK1.4 billion, corresponding to margin of 33%.

We continue to have a strong operating cash flow, SEK1.2 billion for the quarter and SEK3 billion for the first nine months. And this means that we’re continuing to fund our strategic investments with operating cash flow.

Looking at the balance sheet, the value of the forest assets increased to SEK99 billion. Working capital decreased to SEK3.6 billion driven by lower prices and maintenance stops in Q3. Total capital employed increased to SEK107 billion. Net debt was stable at around SEK10 billion corresponding to 1.4x EBITDA. And we have now almost finalized a large ongoing investment project in Obbola, Ortviken, Bollsta, and Gothenburg. Equity increased to SEK97 billion and net debt to equity was 10%.

Thank you. With that, I’ll hand back to you, Ulf.

Ulf Larsson

Thank you for that, Andreas. And with this slide, I would like to show you our project priorities for the moment being and the base is to maintain our superior asset quality. And by doing so, we can continuously improve productivity, cost efficiency in our operations. And by that, stay competitive over time. As already mentioned, we have several already decided and ongoing projects and we will stay 100% focused in delivering on these projects.

When we are now looking forward, we see good opportunities for further profitable growth. In Wood, we have announced a feasibility study together with Holmen to invest in Rundvik sawmill, which is located in Västerbotten. In Munksund, Norrbotten, we have started up pre-projects to evaluate the potential of a rebuild of Munksund sawmill, but also the Munksund containerboard mill respectively.

And in Wind, we see a good business opportunities. And here we will work with three different business models to create maximum value. The first leg will be to produce energy on our own, and the aspiration we have is to be a 100% self-sufficient in terms of green renewable electricity. With the newly announced acquisition of project Fasikan in Jämtland, we will reach approximately a 100% degree of self-sufficiency when that one is up and running in 2026.

The second leg will be project development. And here we talk about both greenfield and repowering projects and how we can decide whether to invest ourselves or self-developed and permitted projects.

The third leg finally will be to continue to lease out land areas well suited for wind power. And as mentioned before, we already have between eight to nine terawatt hours on SCA land, which is equal to 20% of installed capacity of onshore wind power in Sweden.

So and finally, some details about Fasikan, the project we have just acquired in Jämtland. The total investment cost will be SEK1.7 billion and has already said, with this investment, we’ve reached a 100% degree of self-sufficiency of green renewable energy by 2026. The production in this Wind Park will reach 0.33 terawatt hours per year, and all 15 turbines will be located on SCA land. Installed capacities 105 megawatt or seven megawatt per turbine.

The location here is very good with excellent wind conditions and the fact that we have permission for 240 meter steep pipe wheel together with 7 megawatt turbines result in a very low production cost. So to summarize, I mean, we believe that we have delivered another strong quarter, 33% profit margin in a rather challenging market situation.

So I think by that we open up for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] We will take our first question from Charlie Muir-Sands from BNP Paribas. Your line is open. Please go ahead.

Charlie Muir-Sands

Hi, good morning. Thank you for taking my questions. I think it’s just two topics. The first one on your wind park investment, the SEK1.7 billion, could you just tell us a little bit about the phasing of the of the CapEx spend there and moreover what we might expect in totality approximately for the CapEx next year? And on these kind of investments what kind of hurdle rates of return are you setting yourselves for those? And then secondly on the wood market quarter-on-quarter the cost of brown wood and pulp wood in Sweden has continued to rise. Are you seeing any signs that that might start to roll over as we’ve seen in neighboring Finland? And linked to that your wood products division actually the production cost per ton seemed to fall slightly despite this dynamic. I wondered if you could explain that. Thank you.

Andreas Ewertz

Yes I can start with the CapEx guidance. So current CapEx this year we expect somewhere between SEK1.5 billion to SEK1.6 billion for the full year in 2023 and for current CapEx for next year we expect also around just about SEK1.6 billion. In terms of a strategic CapEx next year, it depends on, I mean, what we do about the way with the ongoing project we expect around SEK1 billion. And then in terms of the allocation of the wind CapEx, we will have some CapEx at this year around SEK300 million, SEK400 million. We will have some during next year around SEK400 million and then the most part during 2025, but, of course, it can vary and go over the year.

And then in terms of hurdle rate for the wind power and what I can say is that this project has a very low OpEx. We expect margins of 70% to 80%. But I mean our aim here is to have a very low production cost and we will be 100% self-sufficient, as Ulf mentioned. So with high electricity prices then we’ll make more money in our energy division and with lower electricity prices we’ll make more money in our industrial operations. But we expect a margin of around 70% to 80% and then it depends on what electricity price you assume. And here you also have to remember that you currently have quite a good income from the origins of guarantees, which are now currently around EUR5 to EUR9 per megawatt hours. And then the last question maybe Ulf…

Ulf Larsson

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

Charlie Muir-Sands

Yes. And just the slight discrepancy in the fact that your production cost per ton in the wood product division is falling despite those high and sort of seemingly rising brown wood prices.

Andreas Ewertz

Yes, I can add to that. I mean, firstly, we have low electricity prices, which benefit – when we’re almost self-sufficient remember, but it benefits wood and containerboard, while low electricity prices gets worse on pulp and our energy divisions. So we have low electricity prices. We also have higher income from our byproducts and we also have during the quarter good – strong results from our foreign supply business.

Charlie Muir-Sands

Many thanks.

Operator

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

Johannes Grunselius

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

Andreas Ewertz

So in terms of Obbola what we’ve guided is that with the trend price it will give once fully ramped up around SEK900 million to SEK1 billion in EBITDA. And then we’ve guided also that this year we will have in Obbola around 500,000 tons of production and then in 2026 we will reach 725,000 tons and then the ramp up will be gradually. But the earnings will of course depend on price and we will not give any more guidance than that.

Johannes Grunselius

Okay.

Andreas Ewertz

And then in terms of…

Johannes Grunselius

But Andreas, if you would assume today’s prices, are we talking about clearly sort of earnings contribution from the new volumes? Or is it more sort of smaller extra profits? Or is it sort of meaningful in this environment?

Andreas Ewertz

No, we still have a healthy margin on containerboard business. We had an 18% EBITDA margin in containerboard in Q3. So, all extra volumes are still contributing.

Ulf Larsson

Gothenburg.

Andreas Ewertz

In the Gothenburg.

Johannes Grunselius

…Gothenburg.

Andreas Ewertz

Yes, so we are starting up that at the end of this quarter and we have previously guided on that when it’s fully ramped up. It will contribute with around SEK200 million in terms of EBITDA but, of course, it depends on prices. Now prices have gone down a bit for the buyer refining margin, but over time I would say around SEK200 million was fully ramped up.

Johannes Grunselius

Okay.

Ulf Larsson

And also I like just to add to these new projects. I mean you will have some extra costs during the ramp up period.

Andreas Ewertz

Yes.

Ulf Larsson

I mean they are all now running according to plan, but still of course you add some extra costs when you ramp up.

Johannes Grunselius

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

Ulf Larsson

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

Johannes Grunselius

Okay.

Ulf Larsson

And we believe also that prices will follow in U.S. in November.

Johannes Grunselius

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

Ulf Larsson

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

Johannes Grunselius

Okay. Thank you very much for your answers.

Operator

We will take our next question from Martin Melbye from ABG. Your line is open. Please go ahead.

Martin Melbye

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

Andreas Ewertz

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

Martin Melbye

Thank you. And the same on the renewable energy segment, we have very little historical information. Is there seasonality pickup or flattish for Q4?

Andreas Ewertz

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

Martin Melbye

Thank you.

Operator

We will take our next question from Oskar Lindström from Danske Bank. Your line is open. Please go ahead.

Oskar Lindström

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

Ulf Larsson

Yes, that’s your first question. And I think we have to keep in mind that we are favored by the currency just now. So, I mean, what we see now is really high level when it comes to raw material costs and we have also seen now, that’s the reason why I think that we have really reached the bottom in both solid wood products, pulp and containerboard, because we have seen now lots of containments in all areas and by that we have also kept the balance. But I mean we are favored now by the currency, that is one thing, but also of course we have done – for SCA we have done a lot of investments and we haven’t seen the full effect from these investments yet, but the status in our mills and sites are very good, of course.

Oskar Lindström

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

Ulf Larsson

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

Oskar Lindström

Thank you. And just my final question, you mentioned the Munksund investment and I remember the sawmill investment in Munksund, but I think you also mentioned a containerboard mill investment or rebuild project, which I can’t right now, I mean, recollect what that is. Is that something new or…

Ulf Larsson

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

Oskar Lindström

Would that be a major project if it is decided to go ahead with it on the size of what you did in Obbola, for example?

Ulf Larsson

No, I mean, it’s a – in comparison with Obbola that is a minor project.

Oskar Lindström

Wonderful, thank you.

Ulf Larsson

Thank you.

Operator

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

Linus Larsson

Thank you very much and good morning to all and to Ulf and Andreas as well. Another question on renewable energy and maybe an update on your wind strategy. You have mentioned previously the figure more than 3 terawatt hours in 10 years’ time. And with reference to Slide 22 which is a very good one by the way. I’m a bit curious to hear your current thinking around electricity, self-sufficiency which is what you seem to highlight on this slide vis-a-vis becoming net seller of electricity. And I do appreciate that. You will evaluate project by project, but just your general thinking around potential becoming a net seller of wind power?

Ulf Larsson

Yes. And we will not be a net seller of electricity. I mean, when I said 3 terawatt hours that was in the light of a potential biorefinery in Östrand, because then we need around 3 terawatt hours of renewable green energy. What we see as now and what we can – what we calculate on is that in 2026 when we have Obbola up and running, and when we have done the ramp up of the CTMP line, we will have a net consumption 2.2 terawatt hours, and that we will cover with this project.

And I mean, we will not be a net producer of electricity. We have a big potential in SCA land. We will of course capitalize on that one. But that means that we will sell projects. I mean, we will develop and sell projects. So again, three legs. One is to be a 100% self-sufficient in green renewable energy, and that must be done related to what kind of projects and what kind of development we have in the industry. The second leg is to of course to develop the potential we have in different ways we can develop new projects, but we also have a lot of projects for suitable for repowering. And the third leg will be to continue to lease outland to other investors.

Linus Larsson

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

Ulf Larsson

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

Linus Larsson

Great. Thanks a lot.

Operator

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

Christian Kopfer

Right. Thanks a lot operator. Just two quick follow-up from my side. Firstly, on the biorefinery in Gothenburg, just out of interest, and what would be the key customer for that or call it key customer area perhaps for that – for those products?

Ulf Larsson

Yes. We will go from where we will produce Gothenburg HVO and jet fuel. So I mean, it’ll be a blend. The HVO will be as blend in normal diesel and the jet fuel will be used for air flights. So it will be a mix, but most will be used for blending.

Christian Kopfer

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

Ulf Larsson

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

Christian Kopfer

Right. Thanks. And then finally for me on Fasikan that you mentioned both Ulf and Andreas has mentioned that you have very low production costs. What kind of production costs are we talking about? Is it around 100 tons per megawatt hour?

Ulf Larsson

Yes. It’s – I would say in 2026 level, it’s slightly above that, but not far off, but it’s very low.

Christian Kopfer

Right. And then maybe also on the – so if you add the capital cost to the production cost, what kind of levelized cost per megawatt hour we are talking about?

Ulf Larsson

We think it would be a competitive levelized cost of energy we’re talking about just above. Well, you can calculate that part. We’ve done the benchmark and we feel that it’s quite competitive and low range and of the interval for wind power and of course significant lower than other types of electricity production like offshore wind. So we think it’ll be a healthy level.

Christian Kopfer

All right. All right. Thank you very much.

Operator

We will take our next question from Cole Hathorn from Jefferies. Your line is open. Please go ahead.

Cole Hathorn

Good morning. Thanks for taking my question. I’d just like to follow up on the containerboard markets. Firstly, if you see any potential impact from some of the capacity closures we’ve seen from the U.S. players on the export markets at all. And then also staying on the containerboard markets, you’ve talked about kind of demand sequentially recovering off the lows and a lot of the industries under pressure, particularly the recycled containerboard producers taking a lot of commercial downtime. How do you think about potential for pulp price increases on here? What scenario do we need to get the price higher? Would it be a case of energy costs and OCC elevated players taking downtime. And if demand comes back, we potentially see pricing into the New Year if inventories are lower? Just trying to think about what would be the upside case for pricing from here?

Ulf Larsson

If we first take U.S., I mean we see some additional volumes coming over to Europe just now, but it’s not a big – it’s not a big deal. I mean, they have been away for a number of quarters, but I mean, we see some volumes now in the southern part of Europe. So that was the first one. The other one, I mean, yes, I mean if we see higher energy prices and higher OCC prices, that will definitely create the price increase in testliner and that will have a positive impact also on kraftliner.

We see, I mean, again, as I said, I mean, we see that the box consumption is now back on the trend line and we also see a slightly positive development, the positive trend. And that will of course benefit the environment for pricing going forward. It’s hard to say when it will come. I mean, we have a lot of unsecurity in the world just now beside the Russian innovation of Ukraine. We have what’s happening now in Middle East and in all areas. And I mean, so I mean, it’s impossible really to judge what will happen on the demand side for the moment being, I would say. But again, the stock level is on a normal to low level and that will be beneficial when the demand comes back.

Cole Hathorn

And then, maybe following up on the Nordic pulpwood markets. I’m just trying to see how, how you think about the price dynamics playing out in pulpwood if I mean, we’re at lower demand at the moment and people are taking downtime. But pulpwood still elevated, yes, it’s potentially coming off, it’s their highs, but how do you see it playing out over the next two years? If we do get demand comes – coming back, do we see a situation where the pulp and containerboard mills benefit from more wood chips coming from the sawmills and potentially lower total wood costs or will we be in a situation where if demand comes back, pulpwood potentially seize further support just considering the supply constraints?

Ulf Larsson

Yes. I mean it’s – again, it’s a little bit hard to see if we look into our region. I mean, we can clearly see that we all know that 10 million cubic meters is not coming any longer from Russia or to Finland. And that will put the pressure on the Finnish balance. One mill is announced to be closed Sunila, for example, and another one will be open in the northern part of Sweden. I think that will have an impact on the wood supply in the northern part of Sweden. They will buy maybe 1 million or 2 million whatever in Norrbotten, maybe also in Västerbotten to supply the Kemi mill. At the same time, we have heard announcements from Sveaskog, the state-owned forest that they will reduce the harvesting level for at least for a while.

So I think it’ll be a tight balance for a while when it comes to wood raw materials and I mean, again, we are in a good position here. We have 50% of what we need from our own forests, which is very favorable. And also we buy a lot of wood from small private forest owns in the region located close to our mills. And so that is also beneficial. And we also have an extra leg in the Baltics where we have our own forest and where we also can buy from private forest owners. So we are not really worried about this, but I believe that it’ll be a tight market also coming quarters.

Operator

Thank you. We will take our next question from Alexander Vilval from Pareto. Your line is open. Please go ahead.

Alexander Vilval

Hello. Thanks for taking my question. First, I’d like to ask you, have you seen any mix changes when it comes to pulp sales in Q3 versus Q2? And do you expecting mix changes going into Q4 with regards to customer segments?

Ulf Larsson

Yes, right. That of course now during a slower ballpark in general. I mean, we have more volumes to our non-core customer. So we’ve seen and that’s the normal cyclical pattern in terms of when it’s high demand. I mean, then we can focus on our high degree of our core customers in close regions and then a slower market, and then we have to go further away with our pulp in general.

Alexander Vilval

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

Ulf Larsson

We’re expecting somewhat below 5 million for the full year and for next year. We’ll continue to ramp up, so then we will increase further next year.

Alexander Vilval

Okay. Thank you.

Operator

[Operator Instructions] We’ll take our next question from Andrew Jones from UBS. Your line is open. Please go ahead.

Andrew Jones

Hi, gents. Just a couple of questions. Just firstly on softwood market. You talked about with the capacity closures in Canada that the market would be broadly balanced. Can you just quantify what we’ve seen come out to the actual softwood market? We’ve seen – I saw some impact on slough and potentially some dissolving pulp. But I wasn’t aware that the impact would offset that 1.5 million ton ramp ups coming through from Kemi, Can you just quantify some of the changes we’ve seen in capacity in the industry recently? And just on the containerboard business just after the maintenance we’ve seen at Munksund, could you just give us an idea for how much you expect volumes to pick up in the fourth quarter? And any sort of best guesses for the ones you just given the normalizing demand situation you’re saying? Thank you.

Ulf Larsson

If we start with a softwood balance, I mean, first it’ll not be a net contribution by 1.5 million ton in NBSK from Kemi. I mean, some of it will be short fiber and they have also had a production since before. So the net contribution I think will be around 800,000 tons or something like that. Sunila will reduce the supply by 370,000 tons. And then we have seen lots of containments and also some closures in North America. So I think for NBSK, I think it will be more or less a balanced situation. And I haven’t heard of any projects now that will increase capacity in NBSK.

On the other side, on short fiber, they will, I mean, you have a couple of projects on stream just now [indiscernible] and some other projects, I mean that will of course have some kind of impact on the balance. But in softwood, we foresee a rather balanced situation going forward. And I think maybe you should say something about Munksund volumes.

Andreas Ewertz

Yes. We’re talking about – if you talking about total containable volumes in Q4 compared to Q3, there would be slightly higher than Q3 driven by, we had a maintenance stop in Munksund in this quarter. So it’ll be slightly up and for Obbola we expect our previous guidance will be around 500,000 tons this year.

Andrew Jones

Okay. As a number for the fourth quarter in terms of thousands of tons for the group? What’s that? What’s that imply?

Andreas Ewertz

We don’t give any specific guidance on volumes, but it’ll be slightly up compared to this quarter due to we don’t have any maintenance stop in containerboard in Q4.

Ulf Larsson

And also to ramp up in Obbola of course…

Andreas Ewertz

Yes.

Andrew Jones

Okay. Thank you.

Operator

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

Ulf Larsson

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