Q3 2025 Mercer International Inc Earnings Call
Speaker #2: Good morning and welcome to Mercer International . S Third Quarter 2020 Earnings Conference Call . On this call , today is Juan Carlos Bueno Mercer's president and chief executive officer .
Speaker #2: And Richard Short Mercer's chief financial officer and secretary . I will now hand the call over to Richard .
Speaker #3: Thanks , Michel . Good morning everyone . Thanks for joining us today . I will begin by touching on the financial and operating highlights of the third quarter .
Speaker #3: Before turning the call to Juan Carlos to provide further color into the markets , our operations and our strategic initiatives . Also , for those of you that have joined today's call by telephone , there is presentation material that we have attached to the investor section of our website .
Speaker #3: But before turning to our results, I would like to remind you that we will be making forward-looking statements in this morning's conference call.
Speaker #3: According to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, 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 company’s filings with the Securities and Exchange Commission.
Speaker #3: This quarter , our EBITDA was -$28 million , including a $20 million non-cash inventory impairment , a decrease from negative EBITDA of $21 million in the second quarter .
Speaker #3: One of the key drivers of our results was negative pressure on pulp pricing and demand from global economic and trade uncertainty . We had lower sales realizations for both softwood and hardwood pulp , which negatively impacted EBITDA by roughly $15 million and was also a key factor behind our non-cash inventory impairment charge in the third quarter .
Speaker #3: Our pulp segment had negative quarterly EBITDA of $13 million , while the solid wood segment had negative EBITDA of $9 million . Additional segment disclosures are available in our form 10-q , which can be found on our website and that of the SEC .
Speaker #3: Third quarter average published prices for MSC and pulp decreased across all our markets compared to the second quarter . This decrease was due to weakened demand caused by a sustained , uncertain global economic and trade environment .
Speaker #3: The price decline in China was further impacted by an oversupplied paper market , and the increase in integrated pulp production . MSC pulp prices faced additional pressure from the increased substitution of softwood with lower cost hardwood in the third quarter , the MSC net price in China was $690 per ton , a decrease of $44 from the second quarter .
Speaker #3: The European MSC list price averaged $1,497 per ton, a decrease of $56 from the prior quarter, while the North American MSC list price decreased $120 in the second quarter.
Speaker #3: Averaging $1,700 per ton . The market price gap between MSC and MHK and China was about $190 per ton this quarter , a slight decrease from the roughly $200 in the second quarter .
Speaker #3: In China , the third quarter average MHK net price was $503 per ton , down $30 compared to the second quarter . And the North American third quarter .
Speaker #3: Price was $1,203 , down $107 per ton . As mentioned previously , the third quarter included a $20 million non-cash inventory impairment , primarily driven by lower pulp prices .
Speaker #3: Of this amount , approximately $15 million was attributed to hardwood inventories and the remainder was primarily against softwood inventories . Pulp sales volumes in the third quarter increased by 26,000 tons to 453,000 tons .
Speaker #3: Pulp production in the third quarter was of 459,000 tons , was flat compared to the second quarter . We had 20 days of planned maintenance downtime in the third quarter , compared to 23 days in the second quarter .
Speaker #3: In the fourth quarter of 2025, we had 18 days of planned maintenance downtime at our mill. For our solid wood segment, lumber pricing in the third quarter was relatively stable compared to the second quarter.
Speaker #3: In both the US and European markets . As reduced supply offset relatively weak demand . The random links US benchmark price for Western SPF number two , and better averaged $477 per thousand board feet in the third quarter , a modest increase from $472 per thousand board feet in the second quarter .
Speaker #3: Today, the benchmark price for Western SPF Number 2 Embedder is around $460 per thousand board feet, a modest increase from the beginning of 2025.
Speaker #3: In the third quarter , lumber production decreased by about 4% to 150 million board feet from the second quarter due to planned maintenance .
Speaker #3: At our Frizell Mill, lumber sales volumes also decreased to 110 million board feet, down about 9% from the second quarter, reflecting the lower production and timing of sales.
Speaker #3: Electricity sales for the quarter totaled 204 gigawatt hours , a 6% decrease from the second quarter due to planned turbine maintenance at the Rosenthal and Salgar Mills .
Speaker #3: Third quarter pricing increased to about $106 per megawatt hour , up from $90 in the second quarter , driven by higher spot prices in both Canada and Germany .
Speaker #3: Fiber costs for both our pulp and solid wood segments were flat in the third quarter compared to the second quarter . Overall , fiber costs remained high in Germany , with strong sawlog demand and constrained supply , while in Canada , demand was stable .
Speaker #3: Our mass timber operations within the solid wood segment had stable revenues . In the third quarter compared to the second quarter , as the elevated interest rates in the US continued to impact project timelines and overall market momentum .
Speaker #3: However , despite the headwinds , our mass timber business has developed a healthy order book as we continue to see growing interest in mass timber and expected improved , and we expect improved results in 2026 , we continue to make progress on our one goal 100 program .
Speaker #3: As a reminder , this initiative focuses on cost reduction and operational efficiencies , with a target to improve our profitability by $100 million by the end of 2026 .
Speaker #3: Using 2024 as a baseline . We currently expect to realize approximately $30 million in cost savings and reliability improvements by the end of 2025 , Juan Carlos will provide more details on our progress on this initiative .
Speaker #3: We reported a consolidated net loss of $81 million for the third quarter , or $1.21 per share , compared to a net loss of $86 million , or $1.29 per share , in the second quarter .
Speaker #3: In the third quarter , we consumed about $48 million of cash , compared to $35 million in the second quarter . This increase was primarily driven by lower EBITDA .
Speaker #3: In the third quarter, we invested a total of $30 million in capital across our facilities. These investments were primarily for maintenance but also included upgrades to the log yards at Fresno and Torgau.
Speaker #3: The upgrades are expected to enhance efficiency efficiencies , positioning us favorably for improvements in the solid wood market . At the end of the third quarter , our strong liquidity position totaled $376 million , comprised of about $98 million of cash and $278 million of undrawn revolvers .
Speaker #3: That ends my overview of the financial results . I'll now turn the call over to Juan Carlos . Thanks , Rich .
Speaker #4: This quarter is operating . Results were disappointing , mainly due to trade uncertainty , which created significant industry headwinds such as China increasing its paper exports to Europe , thus negatively impacting European paper producers economic uncertainty created by tariffs and trade disputes is negatively impacting demand for both paper and lumber .
Speaker #4: Another factor this quarter was the $200 price gap between hardwood and softwood pulp , which incentivizes certain customers to use more hardwood in their furnace .
Speaker #4: In spite of these factors , demand for softwood pulp has been steady but weak hardwood pricing is holding softwood prices down despite strong overall softwood fundamentals .
Speaker #4: In addition , the ongoing trade disputes are putting downward pressure on the US dollar , which negatively affects our operating results . This US dollar weakness increased our operating costs by almost $11 million compared to Q2 .
Speaker #4: While these uncontrollable factors create significant macroeconomic headwinds for our business , we continue to focus on the things we can control . In this sense , we have made good progress on our mill reliability and our cost control initiatives are gaining traction as a reminder , in the second quarter , we launched a company wide program aimed at identifying $100 million in cost savings and profitability improvement opportunities by the end of 2026 , when compared with 2024 .
Speaker #4: We have named this program one goal 100 . Currently , we expect to achieve $30 million of cost and reliability related savings by the end of 2025 .
Speaker #4: This initiative also includes targeting working capital reductions of $20 million , as well as $20 million in CapEx reductions relative to our previous 2025 guidance , as significant , part of the one Goal 100 program relates to reliability improvements that , combined with additional cost savings expected to be realized next year , gives us high confidence that we will reach our 100 million target by the end of 2026 .
Speaker #4: In parallel , our working capital and CapEx reduction plans are tracking as planned . The trade war has created an unprecedented level of uncertainty in the markets in general .
Speaker #4: However , we are beginning to have clarity on the direct impacts of tariffs on our business . During the quarter , the US Department of Commerce concluded their section 232 review on lumber .
Speaker #4: European lumber is now subject to a 10% tariff , as is Canadian Lumber . The 10% incremental tariff on Canadian lumber brings the total duty and tariff impact to about 50% , on average , for Canadian lumber .
Speaker #4: As a result , we have already seen Canadian lumber curtailment announcements , and we expect more to come . This will create a reduced supply of residual chips for pulp mills and will inevitably create pressure on fiber costs .
Speaker #4: We feel , however , that our Celgard mill is well positioned given its ability to access the US fiber market and our ability to harvest and process whole logs .
Speaker #4: Nonetheless , we expect to see some cost inflation . On the other hand , our peace River Mills hardwood supply will not be impacted today , our pulp shipments to the US from Canada are not impacted by tariffs as pulp is .
Speaker #4: Kuzma compliant . As mentioned , our main import from the US into Canada is wood chips . For our Celgard pulp mill , which today amounts to about 45% of the fiber consumption of the mill .
Speaker #4: We have the ability to grow this percentage slightly going forward if required . Most importantly , there are no counter-tariffs applied to this fiber .
Speaker #4: Our EBITDA of -$28 million reflects 20 days of planned downtime , maintenance downtime , including 16 days at our Rosenthal Mill and lower pulp prices in all markets .
Speaker #4: Overall , pulp markets weakened significantly in the third quarter . Seasonality driven weak paper demand , combined with low fiber costs in China contributed to this weakening .
Speaker #4: We believe these market dynamics have also encouraged opportunistic pulp substitution in some paper grades as paper producers are running their machines more slowly , giving the overcapacity .
Speaker #4: In addition , we believe pulp stalking by paper producers is putting additional pressure on pulp prices . At present , we believe paper producers , pulp inventories are low , supported by the availability of prompt delivery pulp .
Speaker #4: Looking ahead, we expect to see some modest price improvements late in Q4 and into Q1 of 2026, as the impact of the announced European curtailments affects Chinese bought stock.
Speaker #2: Please stand by . We are experiencing a technical difficulty . Please stand by . Pardon me . This is your host . Please stand by .
Speaker #2: Your conference will resume momentarily . Thank you for your patience . Your conference will resume momentarily . Richard , I see that you have rejoined .
Speaker #2: Are you able to hear me , sir ?
Speaker #3: Yes , yes .
Speaker #2: Okay , sir . You may proceed .
Speaker #4: Thank you , thank you . Michelle . Apologies for the disconnect . We don't know exactly what happened , so I'll repeat the last statement .
Speaker #4: Looking ahead , we expect to expect to see . We expect to see some modest MSC price improvements late in Q4 and into Q1 of 2026 .
Speaker #4: As the impact of the announced European MSC curtailments affects Chinese port stocks, and the impact of the listing of low-quality Russian pulp from the Shanghai Futures Exchange is realized.
Speaker #4: Despite the recent announcement of trade deals , the Global trade landscape continues to be unclear . We expect this trade uncertainty will persist , at least through the near term , likely keeping commodity prices subdued .
Speaker #4: However , we remain optimistic that once trade clarity returns , markets will begin to normalize . In total , our pop production was flat at almost 460,000 tonnes compared to Q2 .
Speaker #4: As part of our objective to keep all of our pulp mills running reliably , we plan major maintenance shutdowns at all mills throughout the year .
Speaker #4: Our Q4 shut schedule has Stendal down for 18 days , or about 36,000 tons . Our lumber production was down slightly relative to Q2 by about 4% due to maintenance that was scheduled at our sawmill .
Speaker #4: Overall , we are pleased with our lumber production , and even though the ramp up of our mill incremental lumber capacity has been slower than anticipated , we do expect to realize the increased annual capacity rate of about 100,000m³ of dimensional lumber , or roughly 65 million board feet , by the end of the year .
Speaker #4: Pulp fiber costs were essentially flat relative to Q2 . In Germany , reduced demand for pulp logs pushed fiber prices down modestly , while in Canada costs were up slightly due to increased logistics costs .
Speaker #4: However , on the saw log side , we do supply due to limited harvesting push our fiber costs up as expected compared to Q2 .
Speaker #4: Looking ahead to Q4, we expect fiber costs to increase for both our pulp and sawmill businesses. Our pulp business will be impacted by reduced sawmill residual availability, and our German pulp mills will also face increased seasonal competition for wood chips from biofuel producers.
Speaker #4: While our German sawmilling business adapts to the impact of reduced harvesting levels in Germany , we expect harvesting levels to improve as the lumber market improves , while in Canada lower fiber availability will keep prices under pressure on fiber unless the demand side of the equation changes .
Speaker #4: The business environment for solid wood segment was consistent with Q2 . Our solid wood segment continues to be held back by a weak European economy , and the impact of high interest rates on the construction industry and high mortgage rates .
Speaker #4: Despite some modest price improvements on certain grades in the US , lumber market , this segment is also facing the impact of higher wood costs in the short term .
Speaker #4: As a result, our solid wood segment posted a negative EBITDA of $9 million in Q3, with essentially flat lumber pricing and sustained weak demand for pallets.
Speaker #4: Given the many economic forces affecting us construction activity , US lumber pricing could be volatile in the short term . Currently , weak housing construction due to high mortgage rates is a headwind , but the implementation of significantly higher anti-dumping and countervailing duties is expected to push lumber prices up as the resulting production capacity reductions begin to materialize .
Speaker #4: However , the market has been slow to react due to large volumes of lumber being shipped prior to the implementation of the higher duties and tariffs .
Speaker #4: In contrast , we expect modest upward pricing pressure in the European market , primarily due to increasing sawlog prices . However , any meaningful long term improvement in either the European or US markets remain dependent on improved economic conditions and lower interest rates .
Speaker #4: The cost competitive configuration we have in freestyle gives us the flexibility to maintain a strong presence in Europe and the US , while also serving the quality sensitive Japanese market .
Speaker #4: In Q3, 44% of our lumber volume was sold in the U.S. As we continue to optimize our mix for products and target markets to current conditions.
Speaker #4: Looking forward , we believe the US lumber market will be driven by favorable homeowner demographics . Additionally , factors that we believe will improve lumber market dynamics include potential Canadian sawmill curtailments in the aftermath of higher softwood lumber duties and relatively low housing stock combined .
Speaker #4: We expect these factors will put sustained , positive pressure on the supply demand balance of this business in the short to mid-term , European shipping pallet markets remained weak , with pricing staying generally flat due to the overhang of the European economy , particularly in Germany .
Speaker #4: However , once the economy begins to recover , we expect pallet prices to recover towards more historical levels , allowing for gout to deliver significant shareholder value .
Speaker #4: We're optimistic we will see that recovery start in 2026 . As a reminder , a $1 per pallet increase , or roughly 10% , will put our pallet business into a clear , positive cash flow position .
Speaker #4: Heating pellets prices were flat relative to Q2 . We expect demand at prices to be slightly higher in Q4 due to higher seasonal demand and supply concerns .
Speaker #4: As a result of higher German fiber costs . With regards to our mass timber business , we continue to see a steady volume of incoming project inquiries in the last two quarters .
Speaker #4: The potential sales volumes of these inquiries have been about $400 million and equate to well over 100 projects per quarter . And as a result , our order book continues to grow .
Speaker #4: The projects you were bidding on and winning today are meant to be constructed about nine months from now . Or well into 2026 .
Speaker #4: We expect revenue will start picking up momentum now to the point that we're planning on ramping up one of our facilities to two shifts in the early part of 2026 .
Speaker #4: Today , our mass timber backlog of projects sits at about $80 million . We remain confident that the environmental , economic speed of construction and aesthetic benefits of mass timber will allow this building product to grow in popularity at a pace similar to what happened in Europe .
Speaker #4: We're also seeing increasing interest for data center construction applications in an effort to reduce the carbon footprint of these facilities . This is exciting for us because we're well positioned to capture this growth due to the location of our industry leading North American capacity and our technical capabilities .
Speaker #4: As a result , we are highly confident in this business being a growth engine for Mercer . We have roughly 30% of North American cross-laminated timber production capacity , a broad range of product offerings , including design assist and installation services , and a large geographic footprint with manufacturing sites in the northwest , as well as the southeast , giving us competitive access to the entire North American market .
Speaker #4: In light of the ongoing economic uncertainties , our planned CapEx spend is about $100 million in 2025 . This capital budget is heavily weighted to maintenance , environmental and safety projects .
Speaker #4: That includes both lumber expansion project and Celgard recently completed wooden project . While we're still early in our planning , we expect 2026 CapEx to be meaningfully lower than our 2025 spend as we prioritize our liquidity through this trough , we're in the process of conducting a phase two engineering review for a potential carbon capture project at our peace River mill .
Speaker #4: This project is a few years away from potential completion , but we're excited about the prospective economic benefits . Such a venture could bring to this mill .
Speaker #4: We remain committed to our 2030 carbon reduction targets and believe our products form part of the climate change solution . We also believe that products like mass , timber , green energy , lumber , pulp and lignin will play important roles in displacing carbon intensive products .
Speaker #4: Products like concrete and steel for construction , or plastic for packaging . In addition , the potential demand for sustainable fossil fuels substitutes is significant and has the potential to be transformative to the wood products industry .
Speaker #4: As a result , we remain bullish on the long term value of our products and what they can bring to society and our stakeholders .
Speaker #4: Overall , our Q3 operating results were disappointing , driven by a number of industry headwinds . These headwinds are expected to persist in the fourth quarter and as a result , we're taking further actions as liquidity remains our top priority .
Speaker #4: While we have made good progress on advancing our one go 100 program and remain committed to rebalancing our portfolio of assets , we're also implementing decisive measures to support our liquidity position .
Speaker #4: These steps include further cost reductions , capital expenditure reductions , and other working capital measures that combined will improve our balance sheet . Above all , we're committed to putting financial management finally , the headwinds facing our industry have proven to be both longer and more severe than many anticipated global trade tensions haven't helped in this regard .
Speaker #4: However , our experienced management team has navigated through previous commodity downturns , and we have strong assets in our portfolio that will allow us to weather the storm .
Speaker #4: I am also encouraged by the fact that today's Weeke commodity cycle is validating our long term strategic plan , which revolves around transforming our pulp mills into biorefineries with additional revenue streams that can not only help balance our product mix , but grant us further resilience during the pulp down cycles .
Speaker #4: As such, we have made very good progress on this transformation with our lignin pilot plant in Rosenthal, the carbon capture pilot plant in Peace River, and the work that we're doing in Stendal on sustainable aviation fuel. We will navigate through these turbulent times and implement our strategic plan by transforming our pulp mills into biorefineries.
Speaker #4: Thanks again for listening, and I will now turn the call back to the operator for questions. Thank you.
Speaker #2: Thank you to ask a question , please press star one on your telephone and wait for your name to be announced and to withdraw your question , please press star one one again .
Speaker #2: The first question comes from Sean Stewart with TD Cohen . Your line is now open .
Speaker #5: Thank you . Good morning , Juan Carlos . Appreciate all the the points on cost savings initiatives , working cap reductions and lower CapEx .
Speaker #5: Wondering if you can give some perspective on thinking around potential asset sales to expedite deleveraging and the balance sheet . Anything under consideration ?
Speaker #5: And can you give us a sense of the scale?
Speaker #4: Absolutely . Sean . Yeah , we've been looking at this in detail for the last few months . At this point , we're not at liberty to disclose anything .
Speaker #4: We do recognize , however , that the current market environment is not ideal for us . Divestitures .
Speaker #5: Okay . And on the broader softwood market , this is an extended trough mill inventory still look really high . We're closer to the bottom than the peak , but can you give perspective on how much capacity you think needs to be taken out permanently to rightsize the industry , to what demand will normalize to over the next few years ?
Speaker #4: Yeah , Sean , it's a very good question . Not not easy to answer with a with a precise number . We do see we have seen along the year several mills curtailing and curtailing for extended period of times .
Speaker #4: We know about a few in in Finland specifically that were down for probably more than six months of the year . And while those are are important steps , they do not end up making the the impact or having the impact as an announcement of a full closure will have as they are obviously temporary situations .
Speaker #4: We do think that given how long this trough has been and even though we we do believe that we're , as you said , in the bottom of the price curve .
Speaker #4: There should be closures of of pulp mills . We wouldn't be surprised if either some of the finished mills or the Canadian mills that have bigger situations or bigger problems to deal with .
Speaker #4: Access to fiber would would be going belly up . The situation in Canada is , is obviously very complicated . And in the back of the additional tariffs we've seen , the announcements of several closures of sawmills , which as as we already know and have said , that puts pressure on fiber on a market that is already tight on fiber , particularly in BC .
Speaker #4: I think that gains a significant improvement , a very strong significance . So we see those conditions in BC , at least deteriorating significantly with the introduction of these tariffs and additional countervailing duties , as we said in the case of Celgard , because of our location and because of our strategy , the fact that we're less dependent on that BC fiber gives us that edge .
Speaker #4: But obviously that's not the case for many others in the interior of the province . So , yeah , again , in Germany we have the advantage of having the forest around us .
Speaker #4: And even though the costs are going up , it's still fiber that we can access . And have assets that are very competitive and they can still make money in these conditions different from the Finnish mills or the Swedish mills that are facing a very , very high would cost in their in their normal traditional fiber baskets .
Speaker #5: That's useful detail . That's all I have for now . Thanks very much .
Speaker #4: Thank you Sean .
Speaker #2: And the next question will come from Sandy Burns with seafood . Your line is open .
Speaker #6: Hi . Good morning . I'm hoping you could talk a little bit more about the substitution issues that you mentioned this quarter . I mean , certainly been an ongoing issue for the industry .
Speaker #6: Would you say the increase is it more region specific or end user specific ? And and maybe tied into that also at what differential do you think that substitution then may abate ?
Speaker #4: Yes . Sandy . Very good question . As you well said , substitution has been going on for several years now . This is not a new concept .
Speaker #4: This is not something that that we have not seen before . That's part of the growth that we all see in hardwood is on the back of substitution .
Speaker #4: And yeah , that's a reality and has been with us for several years . The what is probably different this time around is that over the past few years , I think everybody has or paper producers of all kinds have taken their furnace to what they believe would be their limits on taking advantage of those price differentials between the two fibers .
Speaker #4: Now , as as that differential has grown significantly and well above what we've seen in previous years , then that kind of puts us to another level and another test of , okay , we thought we've done everything .
Speaker #4: Can we do anything more ? And I think that's what we've seen happening , not only in Europe , we've seen that happening in China as well , where that price differential of $200 per ton would allow them to would allow some of the producers to say , okay , well , now we're going to use less softwood and and add more chemicals or now that again , there's a lot of capacity out there with machines running slowly , then that gives them the opportunity also to reduce the amount of softwood naturally .
Speaker #4: So those additional measures of adding chemicals or doing or taking things beyond the limits is what we see with this $200 price . Now , it does have an impact .
Speaker #4: And we've discussed this with certain customers . It does have an impact on the end quality of the product . So so there's limits to that .
Speaker #4: If you think about a paper towel that you buy traditionally , if they were to just reduce even further , their soft wood , then the absorbency of the paper towel would not be the same .
Speaker #4: The properties would not be the same , and the customers would would understand that , that the product has changed and the quality has deteriorated .
Speaker #4: So there is a limit to it . What we've seen in terms of substitution recently with this $200 gap is about 2% . That's how we've measured it .
Speaker #4: When we look at our European customers and how much has has gone as as we talked to them about how much they have changed .
Speaker #4: That's the dimension of it . 2% . Given this $200 . But again , as you said at the beginning , this is on top of the substitution that has already been taking place for several years , which is , I think , on percentage , is much bigger than that .
Speaker #4: So do we see that maintaining ? Well , we already are starting to see the gap closing a little bit . Hardwood is getting gaining some traction .
Speaker #4: There's some order around how hardwood producers are being able to push prices up. Still very little — $20 here and there — but it's a trend that is obviously encouraging.
Speaker #4: If we close that gap to the one 70s , 150 , then that the use of chemicals and the use of these things , these extreme measures , we don't see them continuing .
Speaker #4: And there could be a more of a going back to where we were before the $200 gap .
Speaker #6: And I guess related to that , have whether the , you know , Mercer or other NBS producers , like just further discount NBS to close the gap and then at least get the volume .
Speaker #6: Although , you know much lower margins .
Speaker #4: Not obviously , when when hardwood prices are that low , it puts a cap on on softwood . When you think about a year ago , what everybody was talking about was that the softwood market was very tight and that there was no reason for softwood prices to deteriorate because it was just very , very tight .
Speaker #4: Then we got into a situation where hardwood continued to drop , continued to drop , and and it pulls softwood down naturally . So I think that's a big element of the whole equation .
Speaker #4: It doesn't pull it completely down . And that's why the gap increases so much because there's there's some resilience in pulp . Otherwise it would fall just as hard .
Speaker #4: Wood falls . Excuse me . It maintains certain value in it . And that's why that gap increases to 200 . Precisely because there's an inherent value in the softwood fiber .
Speaker #4: So we do feel that obviously it's independent decisions on on producers , whether they want to sacrifice price for volume . We have our own policy on it , and we know that we can sell everything that we produce .
Speaker #4: We have very good relationship with customers for many , many years . That gives us that confidence and doesn't put us in a situation where we're forced to do things that we shouldn't be doing from a price perspective .
Speaker #4: So, yeah, that's about that.
Speaker #6: Okay . And maybe a last one for me , shifting gears on the liquidity front , you know , you mentioned asset sales .
Speaker #6: Any other liquidity enhancing actions . You could be considering . And I know on the last call , you know , in terms of minimum liquidity , you felt there was a long way from being uncomfortable .
Speaker #6: How are you feeling about it now ? Have you maybe had to start discussions with banks about about , you know , maintaining liquidity during this , this rough period for the company and industry ?
Speaker #4: Yeah , we've started some of those discussions . We started about discussions . For example , we have revolving facilities that are doing 27 that need to be renewed .
Speaker #4: We've started those conversations and those are going very well . There's no reason to believe that we won't be able to to renew those if we if we decide to go for that .
Speaker #4: We're also looking at to the senior notes coming in 28 and 29 . There's still runway for them , but we're not necessarily waiting for all that runway to to expire .
Speaker #4: We're acting upon those things . So yes , we're looking at at all the things that we have to do preemptively so that we don't let time go by and take us by surprise .
Speaker #4: We know that it's a complicated market that we're dealing with . We know that asset divestitures is part of the of the of the options that are out there .
Speaker #4: As I mentioned before, anybody would say today that probably the conditions are not the best for you to go out and try to sell something.
Speaker #4: Nonetheless , obviously we look at options and are actively working on things , looking at what can be done on that end . But in the meantime , it's all about reducing the other things that we can reduce that are significant .
Speaker #4: Focusing on on working capital . And there's good progress that we've made . Same thing on CapEx . There's still room for us to reduce CapEx and focus basically on maintenance and leave some of those growth projects for for later .
Speaker #4: So yes , there's there's things that we can do other than the usual cost reductions that are obviously in full motion already since since the second quarter .
Speaker #6: Okay . Great . Thank you and good luck with everything .
Speaker #4: Thank you .
Speaker #2: And the next question will come from Hammer Patel with CIBC Capital Markets. Your line is open.
Speaker #7: Hi . Good morning . You indicated , you know , looking at reducing CapEx . What do you you know , for 2026 .
Speaker #7: What sort of range of CapEx outcomes that you could see .
Speaker #3: We're sort of starting around 75 million , but we're looking to see if we can reduce that as well . So that's probably the ballpark we're going to play in for next year .
Speaker #7: Okay . Great . Thanks , Rich . And then I guess related to that , how should we think about the planned shuts for 2026 .
Speaker #7: And you know , is there any sort of maybe room to stretch some of those out ?
Speaker #4: Yeah . In fact , for example , in 2026 we won't have a shut in Stendal . Stendal is under an 18 month cycle , an 18 month cycle that we're actually reviewing whether it could be a two year cycle .
Speaker #4: We were actually thinking about that for this particular year , but we decided to to keep the 18 months . Otherwise we wouldn't be having a shutdown right now .
Speaker #4: So so that that is good news for 2026 . No shutdown in in Stendal . On the other mills , Celgard is on an 18 month shutdown and peace River , we're looking to also moving a little bit beyond the traditional 12 months that we have for that mill .
Speaker #4: So so yeah , we're stretching things on shutdowns for next year .
Speaker #7: Great. Thanks. That's all I had. I'll turn it over.
Speaker #2: And the next question will come from Matthew McKellar with RBC Capital Markets . Your line is open .
Speaker #8: Good morning . Thanks for all the detail so far . Just one from me . How would you describe the . Industry supply demand balance in North American mass timber right now ?
Speaker #8: And with recent changes in capacity and the demand inflection , we're seeing , what are your expectations for how that trends into 2026 ?
Speaker #8: Thanks very much .
Speaker #4: Thank you . Matthew . As I was mentioning , or we were mentioning before , we're pretty excited about how we see mass timber developing .
Speaker #4: The amount of project inquiries , the amount of buildings that we're participating that I already talked about is very encouraging . Probably the biggest element there .
Speaker #4: And I think it's of incredible significance is the AI data centers and all this transformative AI investments that are coming through to give you some order of magnitude .
Speaker #4: When you think about the hyperscalers , I'm talking about the Googles , the Amazons , the Meta's , the those companies , the Amazons , there plan for the next four years includes a $2.6 trillion investment in construction of data centers .
Speaker #4: So this is a massive amount of business that is going to come into North America. I don’t think that right now there is capacity installed.
Speaker #4: That would be able to not even get close to serving the demand . That will be coming when we see the actions from other competitors .
Speaker #4: We see already addition of some capacity coming next year , which will be very well absorbed with the market growing . If you think for a minute our own results , we were going to be moving from 50 , let's say let's call it $60 million this year to $130 million next year .
Speaker #4: Sales . And we're going to be doing second shift now in one of our mills . And probably in one of our the other assets as well .
Speaker #4: During the course of the year , it just proves that there is an incredible demand that we will need to serve . And and we all would need to shape up and do our best .
Speaker #4: Keep in mind , and this is important , over the last couple of years , as Europe has been more mature and those mills in Europe are running or have been running at full capacity for for now , several years , they've seen opportunities to direct some of the of their volumes to North America , even though they're shipping across the Atlantic at very high costs .
Speaker #4: It has been good business for them. It keeps them running at full speed rather than slowing down. Well, now what they are seeing is that they have to pay a 15% tariff and their currency is 15% more expensive.
Speaker #4: Now . So . So that puts them at a lower competitiveness versus where they were just a year ago . That is significant because that means there's going to be less product coming from Europe , more pressure on North American producers to cope with that demand .
Speaker #4: That is that will continue to grow at a very good pace . Again , the way these we have obviously very good connections with some of these hyperscalers , we're active with some of the projects that they're bringing to the market .
Speaker #4: We have gained some of those projects already . We have secured some of those projects . Those are part of our of our backlog and part of our of our order book .
Speaker #4: So , so yeah , it's it's very encouraging . That's all I can say for , for that . And again a-I being a very , very significant driver for this .
Speaker #8: Very helpful . Thanks very much . I'll turn it back .
Speaker #2: As a reminder to ask a question , please press star one one on your telephone . The next question comes from Cole Hathorn with Jefferies .
Speaker #2: Your line is open .
Speaker #9: Good morning . Thanks for taking my question . I got three my side . I'll take them one by one . The first on any items that you're expecting into the fourth quarter around kind of energy rebates and things like that from from the German government for kind of energy consuming industries .
Speaker #9: I'm just wondering if there's anything that we should be thinking about for your business for the fourth quarter , which might be positive .
Speaker #2: Please stand by . We are experiencing a technical difficulty . Please stand by . Pardon me . This is your host . Please stand by your conference will resume momentarily .
Speaker #2: Richard, I see that you have rejoined. Are you able to hear me?
Speaker #10: Yep . Sorry , folks .
Speaker #2: You may proceed .
Speaker #4: Apologies , Cole . I , I don't know what's going on today , but anyway .
Speaker #9: No problem . Let me start again .
Speaker #4: Reflection of the market , Richard .
Speaker #9: Maybe you could help with one on any rebates or items that we should think about on the energy side , in your German business , is there anything like that we should expect in the fourth quarter ?
Speaker #3: No , no rebates .
Speaker #9: Then following on in Germany on the lower well , elevated would cost . You're referring to kind of the saw log prices . Could you give a little bit of color on what you're seeing on on the woodchips , on , on that side ?
Speaker #4: Absolutely . Cole . On the woodchips , the situation is right now , the pellets or the biofuels are being sold at pretty good price levels .
Speaker #4: They're they're above €300 per tonne . That means that the pellet producers are able to buy wood at much higher prices than what we are able to buy , and therefore they're taking obviously , a significant piece of the equation .
Speaker #4: And putting a lot of pressure on us when we go to those same sawmills and ask for our chips . So that is basically what's creating that increased volatility in prices for , for wood chips , for pulp specifically , it's the impact of wood pellets that's we'll have to wait and see how the winter plays out .
Speaker #4: If those conditions will persist or if it's a milder winter . Those conditions will will reverse quickly . We've seen these fluctuations before .
Speaker #4: We don't see them as structural changes . It's one business taking advantage of a very particular situation .
Speaker #9: And then , you know , we've seen West Fraser timber . Unfortunately , closing a sawmill in British Columbia . And will announcing it yesterday .
Speaker #9: I'm just wondering , you know , how many do you need to see close before you kind of have that tipping point where you know too many wood chips are removed from the British Columbia market , and we see a pulp mill really under pressure .
Speaker #4: I think the that situation is already there , to be honest with you . I , I sometimes am astonished by the fact that we haven't heard of any pulp closure because the situation in in chip access is incredibly tight .
Speaker #4: You remember that two years ago we divested caribou . We had 50% on caribou together with West Fraser and and the reason for divestiture from that business was precisely because we didn't see a future there in terms of of fiber supply .
Speaker #4: As I said earlier in the call , it's completely different for Celgard because we have the US as as a very significant source that we can that we can play at even higher levels than what we're doing already .
Speaker #4: So so we're very limited to the dependence on , on , on British Columbia itself . But but that's we're probably one of maybe two , sawmill , two pulp mills that have that luxury .
Speaker #4: The rest are stuck with BC chips . And yeah , there's incredible amount of pressure on them .
Speaker #11: Already .
Speaker #9: And then I've got a more challenging question , but I've been asked to ask it around . Potential financing and government support from Canada .
Speaker #9: I mean , considering tariffs and you know , industries like the paper and packaging industry and British Columbia , that's under pressure , you know , have you investigated any opportunities to to access much lower cost financing from either the regional or kind of federal governments there ?
Speaker #9: Thank you .
Speaker #4: We do a lot of lobbying as part of our of our industry associations . We are very , very active . Through the associations as well as through direct contacts .
Speaker #4: We have with , for example , Minister Parmar or even Premier Eby . So so we do have interactions that where we bring to the table some of the issues that that obviously are important for us .
Speaker #4: However , be reminded that since we most of the efforts that the BC government have put out are in favor of the lumber industry , because obviously with all the tariff situation that is the core of the focus beyond steel , beyond auto , beyond those things that we know are heavy in the conversations .
Speaker #4: Lumber is is the element . And then that goes into sawmills , of which we have none . So we don't have access to particular credit lines or something that are more geared towards the lumber business .
Speaker #4: The sawmills that are in in very difficult situation now with a counter-tariffs adding up with countervailing duties , adding up , and now additional tariffs , all these measures that the government has have made public , they will benefit hopefully some of those sawmill companies .
Speaker #4: But again , we're not privy to those as our business is not through so many .
Speaker #9: Very clear . Thank you .
Speaker #2: I show no further questions in the queue at this time . I would now like to turn the call back to Juan Carlos for closing remarks .
Speaker #4: Okay . Thank you Michelle , and thanks to all of you for joining our call . Rich and I are available obviously to talk more at any time , so don't hesitate to call one of us .
Speaker #4: Otherwise, we look forward to speaking to you again at our next earnings call in February. Bye for now.