Q1 2022 Mercer International Inc Earnings Call

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Ladies and gentlemen, good East conference is scheduled to begin shortly please continue to standby. Thank you for your patience.

[music].

Good morning, and welcome to Mercer International's fourth quarter 2021 earnings conference call.

On the call today is David Kendall, President and Chief Executive Officer of Mercer International and David Yu, Our senior Vice.

President of Finance, Chief Financial Officer, and Secretary I will now hand, the call over to David Ure.

Good morning, everyone I'd like to remind you that in this mornings conference call. We will make forward looking statements and according to the Safe Harbor provisions of the private Securities Litigation Reform Act of 1095, I'd like to call your attention to the risks related to these statements which are more fully described in our press release.

And in the Companys filings with the Securities and Exchange Commission.

This quarter, we achieved record revenues and near record EBITDA due to strong sales volumes and robust pricing for all of our products similar to Q4, we did not have any major maintenance in Q1 and our results also benefited from having the Rosenthal turbine running for most of the quarter.

Overall, our mills ran well this quarter, although our peace River mill lost some production due to limitations of rail service to certain regions to.

To mitigate this issue we've had to use extra trucking, which has the effect of increasing our freight and warehousing costs as expected. We also experienced higher costs for several of our major inputs, including wood energy and chemicals.

Our near record EBITDA in the first quarter was almost $155 million compared to EBITDA of about $165 million in Q4 last year as a reminder, and to put our Q1 result into perspective, our record Q4, EBITA result benefited from the recognition.

Asian of almost $32 million of business interruption insurance proceeds related to the peace River mill recovery boiler repair.

Our pulp segment contributed quarterly EBITDA of roughly $114 million and our wood products segment contributed near record quarterly EBITDA of $44 million.

You can find additional segment disclosures in our Form 10-Q , which can be found on our website and that of the FCC.

On average softwood and hardwood pulp prices in Q1 were higher than Q4, and all of our major markets. The most significant increases were in China, where the Q1 average <unk> net price was $899 per tonne up $176 from Q4 <unk>.

European list prices averaged <unk> hundred $30 per ton in the current quarter compared to $302 per ton in Q4.

<unk> remains at a considerable premium to hardwood with the average Q4 net eucalyptus hardwood price in China at $668 per tonne up $106 from Q4.

In total average pulp sales realization movements positively impacted EBITDA by almost $17 million compared to the prior quarter.

Despite the railway restrictions pulp demand was solid in the quarter, which led to higher sales volumes compared to the previous quarter and much lower finished goods inventories. Our Q1 sales totaled 555000 tonnes, which was up about 39000 tonnes from Q4.

We have no planned major maintenance downtime in either Q1 or Q4, but as I mentioned, our peace River mill reduced production by about 35000 tonnes due to continued limitations on the CN rail system.

In Q2, we are planning for 39 days or about 51000 tons of major maintenance downtime at our pulp mills.

Our lumber realizations remained strong but mixed this quarter compared to Q4 in the U S. We experienced significant price increases the random lengths benchmark for western SPF, two and better averaged $274 per thousand board feet in Q1, which was up 563.

Dollars from last quarter.

Our average European sales realizations were down approximately $90 per thousand board feet compared to Q4.

Since the end of the quarter U S pricing has come off noticeably in the benchmark lumber price in the U S is currently about $1040 per thousand board feet.

Our wood products segment continues to perform well, we sold about 110 million board feet of lumber in the quarter, which was up slightly compared to our Q4 sales volumes.

Our electricity sales reflect our strong generation and elevated prices in Europe , where prices in the range of $200 per megawatt hour or twice those of a year ago.

Exports to the grid totaled about 219 gigawatt hours in the quarter, which was up relative to Q4 due to the return of our Rosenthal turbine to service after being down for all of Q4.

We reported net income of $88 $9 million in the quarter or $1 35 per basic share compared to net income of $74 5 million or $1 13 per basic share in Q4.

Cash generated in the quarter totaled approximately $65 million compared to cash generated of about $7 million in Q4 our.

Our cash generation in Q1 was the result of strong EBITDA being partially reduced by working capital movements, primarily in the form of higher accounts receivable balances a consequence of some improvements in logistics channels, which began to open up late in the quarter.

We invested roughly $33 million of capital in our mills this quarter.

We are on target to invest about $175 million to $200 million in our operations. This year, David will provide an update on our Capex program in a moment.

At the end of the quarter, our strong liquidity position totaled about $692 million comprised of $411 million of cash and $281 million of Undrawn revolvers.

Our liquidity position will support our planned working capital movements, along with our ambitious 2022 high return capital spending program.

And as you've noted from our press release, our board has approved a quarterly dividend of $7.05 per share for shareholders of record on June 29, 2000 to 2022 for which payment will be made on July seven 2022.

That ends my overview of the financial results and I'll now turn the call over to David.

Thanks, Dave.

Our solid Q1 operating results were essentially an extension of our Q4 results. Our mills ran well and we have benefited from particularly strong market conditions for pulp lumber and Green energy.

Although we experienced considerable cost inflation pressures, particularly in natural gas and shipping.

The diversity of our products, our locations and end markets along with solid cost control measures allowed us to take full advantage of the strong pricing conditions for our products.

Our mill strong production this quarter combined with overall steady demand for our products were key factors in our Q1 results.

Global pulp supply demand fundamentals remain tight through Q1 and as a result relative to Q4 average pulp prices were up in all markets with the largest increase coming in China.

Chinese demand continues to be negatively impacted by pandemic conditions.

In other markets demand has been steady and logistics bottlenecks in certain regions have created extremely tight conditions and.

In addition supply reductions due to the Finnish pulp and paper industry strike recently announced reductions in MBS a capacity along with the commencement of the traditional major maintenance season continue to support price increases that have continued into Q2.

European hardwood pulp supply will also be negatively affected by the sanctions related reductions in supply of Russian birchwood.

We believe that pulp consumers have low inventory levels, forcing some producers to use additional NBS scan their furnish or slow their machines.

Lumber markets also remained strong in the quarter U S lumbar pricing approach to near record levels of 2021 before or weakening again late in Q1, and while average lumber pricing in Europe , we can modestly during the quarter both markets remain at historically high levels.

The mid term backdrop for U S lumber pricing conditions remains positive with relatively low housing inventory strong housing expectations supported by recent statistics and constructive home homeowner demographics at.

At the same time, the current market volatility as a result of a number of factors, including rising borrowing cost construction being constrained by in flexible supply chains labor and home construction supply shortages and inconsistent lumber supply from Canada.

Looking ahead positive homebuilder sentiment remains despite the expectation that market mortgage rates will rise further in 2022.

Which is consistent with our view that despite these short term factors. We will continue to see strong lumber demand based on expected steady U S home construction.

European lumber prices, which often lag those of the U S moderated in Q1, but with the expected strength of the U S market, we believe pricing conditions remain favorable.

We will continue to optimize our mix of lumber products and customers in.

In Q1 dollars, 42% of our lumber sales volumes were in the U S market with the majority of the remainder of our sales in the European and Japanese markets.

Although we feel our logistics strategy has put us at a competitive advantage to many of our competitors. We experienced some freight cost increases in Q1. This was primarily the result of increased use of trucking along with higher warehousing costs in North America caused by pandemic and extreme weather related shipping delays, which continue to negatively impact the availability of railcar.

Cars, particularly on the CN network.

While we expect this condition or a situation to ease over time, the lack of railcar availability will likely persist in the near term as a really works through its shipping backlogs.

Our turbine generator at Rosenthal was put back into service in mid January and our Q1 results reflect having this asset back online.

The current these current conditions highlights the benefits associated with our modern assets.

Fossil fuels are relatively small source of energy for us primarily use an airline films as part of our chemical recovery process.

While we have been impacted by higher prices for natural gas our ability to sell electricity at market prices, which have increased significantly access a powerful hedged against rising gas prices.

Our wood products segment segment achieved another solid production results producing almost 116 million board feet of lumber in Q1 up 5 million board feet compared to Q4, we're also making great progress on our value add strategy employing modern transverse grading trimming and sorting equipment.

In Germany, we continue to see strong demand for both pulpwood and saw logs demand for pulp logs is being driven by pellet producers as high European energy prices are creating more demand for wood based heating solutions, which is creating upward pricing pressure.

While saw log demand and supply appear to be in balance we are expecting modest upward pricing pressure for both pulpwood and saw logs in Q2.

In Western Canada, as expected increased harvesting activity and fewer COVID-19 restrictions helped ease pricing pressure and we expect only modest upward pricing pressure in Q2.

As Steve noted we're off to a good start on our 2022, Capex program, which could approach $200 million the.

Or any of that being on high return projects that will drive new product development, ESG advances productivity improvements and input cost reductions.

We expect our two new wood rooms at silver in Peace River to be completed in the second half and we will be making additional investments in our German wood procurement infrastructure that will add to our competitive advantage.

We have one more sort of to add at our <unk> mill to maximize the benefits of our new planer by allowing for even greater great differentiation.

And while most of the spend all 740 pulp expansion project is complete and running as expected. We will complete the final final element so modest modifications to the pulp machine wrapping line in 2022.

Now in keeping with our carbon reduction strategy, we are developing a lignin development center as we expect to commence construction of a lignin extraction pilot plant, a leading edge technology and team that will allow us to look at commercialization and derivatives of lignin.

And of course, we remain committed to our approach to solid wood products expansion. We are developing an investment strategy for our mass timber plant in Spokane, They will expand that mills product mix and profitability.

While the full ramp up of the plant will continue for several more quarters, we are progressing well with our long length finger joint material and we have delivered our first <unk> project.

On the human resource side, we've been very actively building out our business development engineering and design teams to take advantage of the continued growth in the mass timber space.

As we think about climate change and the rapid shift occurring regarding carbon products like lignin mass timber green energy extractive lumber and pulp.

All products that will play increasingly important roles in displacing <unk> plastics and carbon intensive products products like concrete and steel for construction plastic packaging fossil fuel generated electricity and synthetic fragrances and flavors even.

Even synthetic textiles, excuse me all products that are releasing carbon or indianapolis or oceans, where our food chain.

Fundamental to our strategy is to operate modern facilities and encourage innovation.

As you may have seen from our recent press release, our carbon reduction initiatives were recently validated by the science based target initiative, the leading evaluate or a sustainability performance. We're.

We're looking forward to the pending release of our 2021 sustainability report, which will be published soon.

Our 2020 to annual maintenance schedule will be significantly less intensive in 2021 due to the peace River recovery boiler rebuild being behind us we.

We did not have any planned maintenance downtime in Q1, the timing of our scheduled downtime for the remainder of the year is as follows.

In Q2, Stendal will take a three day many shut silver will have its regular 15 day shut peace River will have a 15 day shut in caribou has a six day maintenance shut.

In Q3 Rosenthal has its regular 14 day shut plan and in Q4 Stendal has a 14 day maintenance shut scheduled in total we are planning for about 67 days of major maintenance in 2022.

And now before I turn the call over for questions I'd like to take a quick moment on a personal note as many of you know I am retiring effective may 1st as Mercury CEO and President IMAX.

I am excited about this next chapter in my life and I'm looking forward to spending more time with my family.

I leave Mercer with a very strong management team and my successor, Juan Carlos window is a proven leader in our space.

I believe the company is well positioned for future growth I'll be watching its progress closely albeit from a distance I would like to thank our board management team and all of the Mercer employees for the support and dedication.

Thanks for listening be safe and now I'll turn the call back to the operator for questions.

As a reminder to ask a question. Please press star one on your telephone keypad and so we got a question. Please press <unk>.

Again to ask a question please press star one.

Andrew a question please press the pound key.

Our first question comes from the line of <unk> from TD Securities.

First question comes from the line of Samir Patel from CIBC capital markets.

Good morning, and David first of all congratulations on your retirement.

Yeah.

David I wanted to ask about.

Lumber prices in Europe .

So I'm, hoping you could comment on how they've evolved since the conflict in Ukraine began and what level of pricing improvement you might be expecting in coming months as pricing terms are reset.

Yeah, a hard one to hard one to call just at the moment I don't think there's been anything really dramatic yet as a result of.

Of the conflict.

In my.

Think maybe history ignoring the conflict Committee I mean history has shown us that the European market tends to follow the U S market.

Both up and down, but maybe with less volatility.

That's b.

What we've been seeing in the recent past.

There will be a shortage of lumber.

Certain types of products in certain sectors.

But with our main customers in Europe .

I think we're seeing direct direct impact just yet.

Okay, Great and David I know Mercer has been pushing the reopening of the rail line near Rosenthal and and free So that was I think it was cut off almost 70 years ago.

So what type of cost savings could that represent if you are able to to get that right.

Established.

Well that's all.

That's another question I don't have a specific number for your heavier I mean I think it.

We're already in.

Low cost freight environment, but this whole this will be primarily a carbon saving and site cost reduction being able to go on rail as opposed to by truck.

Okay, great. Thanks, Thanks, David that's a it's all I had I'll turn it over.

Thanks Amir.

Next question comes from go ahead Andrew.

Great.

Your line is now open.

Thanks, Good morning.

David I guess your Monday morning, it can be a bit different than Monday morning, as in the past but.

Maybe just on the on the business positioning that you are leaving and you think about the <unk> business and just a broader positioning within it.

Decarbonization theme.

As you get greater built in scoring towards lead status.

Focused on the carbon cycle in mass timber how do you think about Mercer is positioning with the <unk> business and just sort of more broadly.

How big it could become.

For Merck itself and then how big do you think the market opportunity is just sort of overall.

Yeah.

Well.

I'll start by saying I'm really excited for Mercer with mass timber that plant in Spokane is a very large plant it has.

It's really well invested it's got more than $150 million worth of brand new equipment in it.

All kinds of grading and sorting and planning capacity similar to what we're familiar with.

It was designed to be just a <unk> production facility initially and and we're going to change that we're going to be making glu Lam.

And other engineered wood products there because we've got the we got the whole machine around.

The requirements to make additional engineered wood products. So C. L. T will continue to be a significant component of that but we'll we'll be producing.

What we call catalog products of engineered wood that will keep the plant busy.

Profitable.

We'll be using the C L P to upside the margin as and when.

Projects come in we're building the team out now we've been very successful and we're very very pleased with both our marketing project.

Fusion or engineering.

Service.

<unk> that have joined two are joining mercer.

We're going to have have some high return capital, we're going to spend on the facility over the coming couple of years, but I think it's going to be just a steady ramp up and improvement in profitability.

I believe it'll be very noticeable.

Within a couple of years.

That will be a significant platform for us and with the team that we're building we will we intend to continue to grow it.

Opportunistically.

That's helpful. And then I guess philosophically do you do you see that <unk> businesses, having maybe a lower volatility than we see on pulp markets and then you've got a higher baseline study.

Not a predictable cash flows or more predictable cash flows over a period of time that draw higher multiples.

Yes.

I don't know, but the volatility piece I mean, it's going to be a bit like the lumber business.

Like the plant will be busy making catalog.

Engineered wood products and it will be making big C. L. P panels either catalog panels.

Or custom designed panels, all depending on where the margins are but the but the vision. We have for it is by having this whole range of products like like a good example, as long lake timber to buy for US today is an engineered wood product.

Have railcars of lumber coming into the plant. They go through sorting and planning they get finger jointed and we're selling on average 28 foot long length finger joined as a product going out in railcars and.

And we will have a whole like a number of other products like that including glue them beams.

Beams of various sizes and dimensions that that builders by.

Off the shelf if you like like it's a it'll become like a like a like a high value added lumber product. So it'll follow the market.

It will be it'll it'll it'll track the inputs like those lumber costs go up and down.

Value or cost of engineered wood products will go up and down with it.

But.

<unk> will be a really big player in the space.

And so we will.

We'll have that competitive advantage.

Throughout the cycle.

Very helpful and if I may just one final one.

Given what's happened in Europe with power prices in Germany in particular and your exposure. There do you do you think about.

Engaging in a longer term contract or a contract too.

Lock in cash flows.

Well the.

We do have our tariff still on stendal, the green tariff we call it the EG, but we can flip off that when the market prices are higher and so so that the EEG tariff is our floor.

And when spot prices are higher we we take advantage of that.

We're not intending to lock in.

Any kind of forwards on that at this point in time.

Worlds.

Too unclear to us but.

But we believe that.

Having the very modern and expansive generating capacity that we have means that we don't buy power ever other than in startup.

And.

And we enjoy.

Very high electricity prices when when the conditions are as they are now.

Okay. Thank you very much and enjoy your weekend.

Thank you.

Next question comes from the line of Andrew Shapiro from Lawndale Capital management.

Your line is high.

Yeah.

Alright, thank you.

Just a few questions on the Rosenthal turbine business interruption insurance claim, which there wasn't enough visibility on from the last call.

To provide a range of the claim size at this time yet.

No Andrew.

I think I can we've filed with the insurance company I think we did that in early April .

And we haven't heard back.

We don't know what their position is going to be so.

It would be premature of me to give guidance on that.

Okay.

Including even a range.

Yeah Yeah.

And.

The 35 tons of pulp logistically delayed from Canada to Asia in the fourth quarter that went out the door in Q1.

Can you approximate the.

Amount of revenue shift.

The first quarter of 'twenty two that we benefited from this.

Yeah, no it doesn't really work that way, but what Dave was saying is that during the first quarter.

We needed to slow the peace River mill down because we didn't have enough.

Freight equipment enough equipment to move the pulp to customers. So that would add about 35000 tons that we left on the table.

Okay.

And.

Lastly.

Sure.

With the transition.

Occurring I wanted to say first off it's been a real pleasure working with you and engaging with you for.

Well over a decade I think.

That we did from when you were CFO at all.

And going to Miss you.

Some point green get the opportunity to meet oil and Carlos.

Do you or David knew what the present plans for virtual or in person on the other activities are going to be in the coming months and win.

The kind of the rollout will be with the new CEO .

Well, there's a we've got a pretty extensive transition plan for Juan Carlos obviously.

Getting around and meeting all of the employees and touring the mills and getting up to speed I'm supporting them along with the other senior members of our team in the transition.

Dave's got a continuing investor relations activities.

And to the extent that Juan Carlos can participate is really yet to be seen.

Too early for the two of us to commit him.

You'll be getting up to speed very quickly I'm sure.

Okay, well very good and I hope, we can stay in touch during your retirement going to Miss you.

Great. Thanks, Andrew Youtube.

Next question comes from the line of Ben Carlini, a private investor.

Good morning, David.

Good morning standards.

Yeah.

I got three questions. One is you talked about downtime at the mills.

It's less than last year substantially less than last year.

You didn't give me the two numbers this year expecting downtime did I hear 67 days.

Right.

And last year it was over 100.

David just flipping.

We had the recovery boiler built in there which was obviously extensive.

But remember things got a little cloudy sand because we did get the business interruption insurance for the downtime on the recovery boiler rebuild.

I am aware of that.

I think the point for listeners as its a lighter maintenance here this year than last okay.

Second question is.

Yes.

CLC hiring ramp up that's been going on now for.

Four or five months, how much how much money did you spend in the first quarter.

Impacted.

EBITDA.

Yes.

Could you just talk about your first delivery just took place but I assume that was in April so whether it is what were your costs at that point in the first quarter, yeah, well actually I think it would be fair to say, we more or less broke even in the quarter.

And what we've been doing is we've been the first is the first step of the wrap up is to get the the long length finger jointing going.

So buying buying boxcars of lumber number twos and number threes and producing the engineered product, which is on average a 28 foot long length.

Joining products and.

And so we more or less been covering our cost of doing that.

The C L T.

<unk> was.

A small one.

On its own and I'm not going to disclose the margin from that.

But but again, what's really exciting is as we as we can.

Make further investments in the facility and as we like we'll build up build up our C. L. T volumes, but we're also going to build up our capacity to do glue them and that will result in the plant being.

When we finish the plant will always be busy regardless of how much <unk> business. We have and then as we bid on those jobs will bid on higher margin jobs in and produce catalog components the whole industry is evolving.

Along the lines of that.

Imagine modular housing modular buildings, where the floor plates are there like it did like an item in a catalog cycle.

Two by four for platelets, whatever the dimension is and as builders get more comfortable with those kind of products. Then we will we'll just be producing them putting them in inventory selling them as the orders come in.

Yes, it's really exciting.

The CAGR is in this industry in North America look like Theyre going to be north of 25% for the next five or more years on demand.

Right.

And the third question is what was the currency impact on your income statement and your balance sheet in the quarter.

Well it was it was positive we haven't we haven't disclosed it spend but I can tell you in general we are sensitivity to foreign exchange rates for every penny change for any penny increase in the value of the Canadian dollar.

<unk>.

Against these against the Canadian dollar its about $7 million a year.

And against the Euro it's about $5 million a year.

Okay.

Okay, and just a last comment David again.

Thank you for your efforts over the years I think his leadership.

While it's.

It's been incredibly effective and the company is.

It's been very well so thank you.

Yeah. Thank you Sven.

Again as a reminder to ask a question. Please press star one on your telephone keypad, Andrew a question. Please press <unk>.

Next question comes from the line of Paul Quinn from RBC capital markets.

Your line is now high this is high.

Hi, This is Matthew Kelly on for Paul Quinn.

Thanks for taking my questions.

First I was wonder if you could share your thoughts on the sustainability of pulp pricing here.

Pricing move higher it sounds are you expecting continued upward pricing pressure based at.

At least partially on low inventories.

What sort of things might potentially bring balance back to the markets and to what extent might we be seeing some of that already with the return of some European supply and reduced demand from China.

Yeah.

Well, there's quite a few quite a few drivers in the market. It's a I.

So a lot of different things going on one is <unk>.

Obviously demand in China is particularly weak right now.

All the pandemic lockdowns and so on.

But it's also difficult for Chinese paper companies to get pulp because the parts are just so congested.

So there they are having a difficult time as I mentioned.

Those customers that use.

Hardwood are.

Having difficulty getting hardwood product, particularly the birch hardwood.

The.

European market is supported.

Paper markets are supported by the inability of Chinese paper companies to export to Europe . So theres very little import competition. So things are particularly strong in Europe .

And then there's a whole bunch of takeaways on falters.

<unk>.

Mills around the world that are going to struggle with with access to chemicals access to human resources to conduct maintenance.

Access to parts critical spares and things like that that we always took for granted just in time deliveries. So all of a sudden may not may not show up.

And then there is some of the old timers are really starting to show their age and we've seen a few mills shift from bleach to unbleached as a result of that so.

A lot of different things going on.

Right.

Personally I'm quite bullish about the future I think the.

Theres still quite a bit of old capacity running I think fiber scarcity is really.

We're going to see that big time with climate change.

All growth deferrals in British Columbia.

Fires throughout the boreal.

And Russia and other places.

The war on the war in Ukraine is the big takeaway for fiber in certain regions. So.

And hopefully this pandemic problem in China will end in <unk>.

Consumption demand and consumption of paper products will start to grow again, and things will unwind and get back to normal so.

I don't know if that helps but.

Those are all the big factors, Oh, I guess, one more one more thing we're always conscious of is the recycled fiber basket continues to diminish in quality and quantity.

Less and less of the end use products for long fiber are recyclable things like toilet paper tissue papers and all those sorts of things.

Don't end up in the recycle basket.

More hardwood in other recycled furnishes it continue to diminish in quality overtime. So so.

So I think Virgin displacing recycle will become a strategy for many paper makers going forward in the future.

For paper products as well as for packaging.

So like he bumpy for a bit but a lot of different things going on but generally generally.

For the next quarter I feel pretty good about it and for the long term I certainly feel great about it.

Great. Thanks, that's really helpful.

And then maybe just can you talk a bit about Canadian fiber costs. It sounds like you've seen.

Growing demand, there and expecting fiber costs to increase again in the second quarter.

Could you elaborate just a bit on the dynamics, you're seeing there what kind of progression, we should expect quarter over quarter.

Well for us I think it'll be modest and.

Theirs.

For our cell Gar mill, there is theres lots of fiber around us.

Ah roundwood.

Fiber costs are a little higher than residual.

Cost and.

And that's what the investment the wood room is all about going to make a significant step change in our own processing costs, both transportation and.

And processing better yields and so on.

Other parts of Canada, I think are going to struggle a bit more of a like I know, there's pockets, where where fiber is very scarce in.

And there's much more competition and that will drive higher prices.

So.

It really depends on where you are in Canada and on how much inflation youre going to see on fiber.

For us it's going to be modest.

Very much like what we've got going on right now in the first quarter.

Great. Thanks, very much that's all from me I'll turn it back.

Next question comes from the line of Catharine <unk> from TD Securities.

Hi, Good morning, everyone is cassa filling in for Shaun.

Just going back to the chemical shortages. So we are hearing from suppliers declaring force majeure.

There's a certain shortages can you give some context, where mercer expedition.

Are you able to secure supply and what potential magnitude of cost inflationary or are you looking at for this cost bucket.

Yeah, well chlorate.

It's been a challenge and I think it will continue to be for the next three weeks to a month probably.

Our feeling at this stages, we don't we don't see we don't believe we're going to run out.

We've got line of sight on enough deliveries that are that will be okay.

There is there is obviously cost pressures on all chemical supplies.

But again, our energy as a great hedge against all of those.

And.

Yeah. So.

Fingers crossed.

We're going to be good we think we are.

But I know others are others are struggling as.

As well and we will see you will see some pulp downtime as a result I'm sure.

In certain.

Certain parts of the globe.

Did you see any limits on.

And a lot of chemicals are produced in Western Europe , and I don't know if some of those volumes that were previously shipped to Russia are now staying domestically. If you see any benefits from that tier domestic production base or not might not much.

I can't comment on that I don't know.

Okay fair enough yet.

Yet to be seen.

And just turning to freeze al.

Just wondering if you could provide context, where that facility is running now I think about a year ago, you had guided to freeze that running at about a 500 to 559 parts at pace over the subsequent six to nine months and I think we're still a bit short of that so how do you see those volumes evolving in that facility in the near term or mid term over the next year.

Yeah Yeah.

Yes.

I think on two shifts that's a 550 million board foot mill.

We've been doing quite a bit of construction at it.

We slowed down a little bit to do some work on the log log starting line.

Yeah.

Just.

We've kept the mill running through all of these different phases of construction.

So what youre seeing.

Anything below $5 50 is really in my mind is just a result of some of these.

Logistics issues.

What's cool about that mill is if if we ran three shifts that would be up over 700 million board feet.

The challenge with three shifts as labor finding all the right people and training them and ensuring that they are there.

Able to work at the capacity that we need them to this as a very modern facility.

Very advanced technologies and.

We're working on a third shift developing people, but its going to take a little while I don't even want to hazard to say, how many quarters. It will take but but there is there's a couple of hundred million board feet of further capacity in that facility constrained only by labor.

Got it thanks for that.

Good luck in retirement.

Thank you. Thank you.

We have no further questions at this time please continue.

Well, if there's no further questions I just want to thank everybody for attending the call and it's been my great pleasure to be Mercer as president and CEO and <unk>.

And.

Very proud of this management team.

The company is in good hands and Juan Carlos Bueno comes to us with many many years of experience in our space and I'm sure it's going to be a really nice next chapter of growth for <unk>.

For all of US so thanks for listening and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Thank you.

Yes.

[music].

Uh huh.

Okay.

[music].