Good day, ladies and gentlemen, welcome to Sappi Limited's first quarter of 2021 results conference call. All participants will be listen-only mode. There will be an opportunity to ask questions when prompted. For the benefit of the participants who have joined via the HD web phone, please ensure that you're giving your microphone permission to make yourself audible before accessing the question queue. If you should need assistance during the call, please signal an operator by pressing star and then zero. Please note that this conference is being recorded. I'd now like to hand the conference over to Mr. Steve Binnie. Please go ahead, sir. Thank you, operator, and thanks, everyone, for joining us today. I'll go through the investor presentation. As always, I'll call out page numbers as I move through the deck. Starting on slide three, the highlights for the quarter. Well, first and foremost, it's important to point out that COVID still continues to have an impact on our business, and we have comprehensive action plans in place. We have seen significant absenteeism. We've been able to keep operations going and manage our way through the crisis. The profitability in all segments exceeded our expectations from the last quarter. I'm pleased to say that. We did say in our previous outlook statement that earnings would be slightly below the prior quarter of 82. They came in much better. We did see progressive improvement as we moved through the months of the quarter. We experienced encouraging growth in packaging and specialities relative to last year, in particular in the North American region. As you know, a couple of years back, we converted the Somerset PM1 machine and that's been very successful for us, and we continue to grow in that area. Dissolving pulp markets improved considerably. I'll talk a little bit more about that later. Market prices in that three-month period were up $106 a ton. Obviously subsequent to that have improved further. Today's pricing, as we said in our announcement, is $895. A substantial improvement, over $250 in the last four months or so. Graphic paper did have a gradual recovery. For the quarter, 19% down on the prior year. As you know, at its worst, it was about 50%. We've gradually been improving month on month. I'm pleased to say that. However, there are still areas where we have challenges. In particular, in Europe, our coated mechanical business, which is the one that's most exposed to digital products, under significant pressure. We saw a slower recovery in some of our export markets. Also, during the quarter, we issued the five-year convertible bonds, and that significantly improved our liquidity situation. We're pleased that we've got that behind us. The numbers themselves, as I say, EBITDA of $98 million, well up on the prior quarter. I should point out, and you'll see it from a few slides later, we did have a movement of the Ngodwana mill shut, which is a big mill, and that did impact profitability in the quarter, and then specifically in the packaging space. Overall, we were pleased with the outcome and certainly better than we had expected. Moving to slide four, the earnings bridge from last year to this year, Q1. As you would expect, sales volumes down, mainly obviously in the graphics area. I talked about that already, and we will go into more detail. Pricing was similarly under pressure. Obviously, initially dissolving pulp, but as things started to improve towards the end of the quarter, we obviously got improvement. In the quarter as a whole, compared to the prior year, it was lower. Graphics and packaging, the paper businesses, were down on a year ago, and that's as a consequence of lower historical pulp prices. We know that's turned now, and as we announced in the results announcement, we have been announcing selling price increases, so we hope to reverse that trend. It did have a negative impact during the quarter. Some great work done on the costs and savings across all the regions. You can see the benefits flowing through from that, giving us the EBITDA for the quarter of $98, which, whilst it was better than we expected, we recognize that it is still down on a year ago when it was pre-COVID. Clearly that shortfall relates to principally the recovery of the graphics, which is still short of prior year volumes, and dissolving pulp prices were still low. We would expect that to grow as we go forward. Slide five has the product contribution split. This is an LTM basis. It really just emphasizes, over the course of the last 12 months through COVID, how well our packaging business has done. It has been resilient and it justifies the investments that we have made in that area. Graphics, obviously less, but as the volumes continue to pick up and in time we realize the selling price increases, the profitability of the contribution will increase. Similarly, dissolving pulp with the substantially higher selling prices, we would expect that contribution to grow as we go forward. Slide six has the volumes and EBITDA margins by segment. Firstly, Graphics, and as you would expect, substantial decline in our Q3 and a gradual recovery thereafter. Obviously plateauing a little bit in the first quarter, and that's mainly in Europe and as a result of the renewed lockdowns associated with COVID and its impact on demand for graphic paper. The Packaging and Specialities, you can see it's held up very well through the last year. Margin's good. The reason the margin is down on the prior quarter is purely linked to the Ngodwana shut. Obviously, in the prior year, that was in a different quarter. The dissolving pulp, once again, Q3 was the worst of 2020. As demand and as pricing starts to pick up, we've seen an improvement, and we would continue to expect that to be the case. The Q1 volumes are lower than Q4 of last year, principally because of shipping challenges. Many of you will know about the global challenges and vessels, and being able to book space on vessels, delays in shipping because of the rebound, and containers and ships in the wrong locations. That's had a knock-on effect on many businesses, including ourselves. We see that as a timing thing, and it will continue to affect us in the second quarter, but ultimately, we are confident that we'll sell all the tons. Slide seven has the evolution of our net debt to EBITDA and the leverage ratio. Obviously, as the quarters linked to COVID get included in the calculation, our leverage ratio will go up. I do believe that as we go forward and the EBITDA continues to improve and we drop those weaker quarters, if you look in the top right-hand box, you can see that we're carrying some significantly weaker quarters, Q3 2020 at $26 million and Q4, $82 million. Once those profits normalize, which we would expect to do as we progress, the leverage ratio will come down quite significantly. Slide eight has our maturity profile and I think I'm pleased with how this has unfolded. Obviously, we've issued the convertible bonds, and that's reflected in the 2026 number, the $123 that you see there. The other change from last time is in the 2024 period. You see a $267 that relates to our securitization. Very pleased to say that we've renegotiated that and extended it out to 2024. A lot of great work being done in this area and our profile continues to improve. The next material maturity is our 2023 bonds. That's the $499 that you see reflected there, or is included in that number. Obviously, as we get closer to maturity, we will monitor that and make a decision on what we will do next. Slide nine has our CapEx. The current year's CapEx is now estimated at $400. It's not a change from the prior quarter. We did talk about $370, I think, in the last quarter. The only reason it's gone up is exchange rates, because some of our CapEx is denominated in euros and rands in South Africa. When you convert that back to dollars, it affects the numbers. It's no change in the underlying currencies. The big discretionary item in the CapEx number, as I've talked about previously, is the Saiccor dissolving pulp expansion. That, whilst it has been impacted by COVID, and as you would expect, there's been absenteeism and lockdowns, the project is on track, and we are confident that it can commence production in the fourth quarter. Turning to the regions, firstly on Europe on slide 11. Overall, graphic paper markets were challenging. I've talked about this already. Obviously, Europe was particularly hard hit by the so-called second wave of COVID and fairly harsh lockdowns in a number of key countries for us are Germany, France and so on, and that has had an impact on demand. We were seeing continual improvement when we got to December, and as we move into the new quarter, it is having a negative impact. As has been proven previously, as those lockdowns start to be eased, we are confident in recovery. At the same time, obviously, the global shipping constraints did have an impact here as well. We were forced to take 125,000 tons of commercial downtime. Packaging and Specialities volumes increased quarter-on-quarter, and that business has been resilient. I've mentioned already that paper selling prices were under pressure due to historically low pulp prices. As pulp prices have turned, you will have seen that we have announced selling price increases, and this will start to take effect as we go forward. They're not immediate. They do take some time to implement. We will start to close that gap. I've touched on this. Specifically, coated woodfree did reasonably well in the European market itself. However, export markets were slower to recover, and coated mechanical markets were particularly weak. Just to remind you all that our coated mechanical volumes now in Europe are ring-fenced in one mill, our Kirkniemi mill. One of the things that did impact year-on-year comparisons, though, is that the Lanaken conversion that we did, moving away from coated mechanical, we lost a few tons, obviously, from that that we weren't able to carousel to Kirkniemi. Pleased to say that we did achieve cost savings across all major categories. North America has had, and I'm on slide 12, a better recovery than we had expected, and the business is improving. Graphic paper, firstly, the sales are now 83% of prior year. That's a number that I had talked about on prior calls, that we want to get it back into the mid-80s, because we feel that if the market can get to those levels, then it's back in balance because of the capacity that's come out, and also because we have redirected capacity at Somerset towards packaging and specialties. We're very pleased with the progress, and it's beating our expectations. The packaging conversion at Somerset has been extremely successful for us. We've continued to ramp up on that machine. Pleased to say, this is the first time in probably a couple of years, that the release paper business has seen a nice turnaround, and a lot of that's linked once again to the recovery in the Chinese economy and the bounce back for demand for clothing and textiles. That's pleasing progress. Dissolving pulp, the region obviously benefited from the improvements there. We will see, at the same time, further cost savings. In South Africa, on slide 13, began to see benefits in terms of higher US dollar pulp prices, sorry, dissolving pulp prices. Bear in mind that the rand did strengthen significantly over the quarter, it did negate some of that. The DP sales volumes were down specifically 23% year-on-year, it relates to those logistical challenges that I referred to. We are confident that in time, that we will get that inventory out, and we will benefit from it later in the year. The packaging volumes were impacted by the Ngodwana shut, but overall resilient demand for containerboard, driven by strong fruit exports out of South Africa. The other categories, the smaller categories in South Africa, which are more exposed to the domestic economy, our uncoated, the newsprint, and tissue, and obviously exposed to COVID as well, those have struggled along with the weakness in the South African economy. The cash fixed costs were up on a year ago comparative quarter, but that is because of the costs related to the Ngodwana shut, and we did have an annual wage increase. However, we also saved variable costs here as well in South Africa. Moving to slide 14 and cash management. Firstly, on the financing, as you know, we negotiated an extension of the covenant suspension period until September. The first measurement will be due in December 2021, and I've already talked about the fact that our leverage will improve significantly. Nevertheless, we are looking to revise our covenant package well ahead of this maturity date, and we'll give updates in future quarters. Some great work done on working capital. Traditionally, this has been a quarter where we had an increase in working capital, and we were able to get some savings there. The Saiccor project due to start up in Q4, as I mentioned, and further great work done on procurement. We're looking at about $69 million savings in the current year. Turning to each of the segmental markets, and firstly, graphics. As I've said already, volumes down 19% on a year ago. The North American recovery has been in line with our expectations, as you saw earlier, we're above the 80% levels, we do believe that that market is moving back into balance. Coated woodfree in Europe itself, also a reasonable recovery, slowed somewhat by the COVID implications. Obviously, challenges in the smaller paper categories in South Africa. Perhaps the biggest short-term challenge, along with the COVID, obviously, is the rising paper pulp costs, they've increased significantly over the last couple of months. We have announced a series of selling price increases across a number of our product categories. I do point out to you that it does take time to implement, there is a little bit of a lag impact there. Packaging and specialties are generally very good. The categories held up pretty well through the COVID, particularly those ones related to food and hygiene products. Some non-essentials negatively impacted. The conversions have worked for us and we continue to ramp up. Once again, there was lower selling prices. We have announced selling price increases in this segment as well. As I said, demand remains resilient. Moving to slide 16, dissolving pulp. This has really been quite a remarkable turnaround. I've talked about the fact that prices are up over $250 over the last four or five months. Really a number of factors have contributed to this improvement. Firstly, we did see significant temporary curtailment, ourselves included, down at Saiccor. That took a lot of production out of the marketplace. More importantly, we saw resurgent demand for textiles and VSF specifically. Obviously, dissolving pulp makes that. As economies opened up and the demand for clothing picked up, there was a significant rebound, and the supply chains, the inventory levels across the supply chains, needed to be restocked, and that helped support demand. Having said that, inventory levels, I should point out, are still at relatively low levels, and that's even in spite of the recovery that we've seen. At the same time, we've seen higher paper pulp prices, so that reduced the need for any swing producers to move across, and those continue to rise, and the expectations are that they will rise further. Exchange rates helped us. The weaker dollar and stronger renminbi obviously helped. Another big factor has been the restriction on the import of Chinese cotton into the U.S., which has caused retailers and producers to look for either alternative sources of cotton or alternative fiber. All in all, a number of factors contributing, and we continue to be bullish in the short term about the prospects. In this segment as well, we do have 53,000 tons of BCTMP external sales, and I should also point out to you that those prices are also now rising as well and making a significant recovery. Some of the short-term challenges, obviously, the global shipping that we've referred to and finding containers. We also have the challenge of a shortage of oxygen in South Africa, and it's caused us to stop production on the Ngodwana line over the last three or four weeks. We're hopeful that the situation is improving. We've all seen that the number of cases in South Africa is coming down and the number of hospital admissions. Hopefully, in the very near future, we will have access to that oxygen once again. It's difficult to pinpoint its exact impact, but we estimate about 25,000 tons. Slide 17 just highlights the recovery in terms of our downstream market in clothing. One thing I should point out, the graphs, there's a decimal error there. On the left-hand side, you can see the declines, 100, 200. It's actually 10%, 20%, and so forth. Decline was sharp at the beginning of the COVID crisis, and then a sharp recovery, and then thereafter, a more slower recovery. If we were to show you a graph in Europe, it would be not dissimilar to this. At the moment, retail sales are currently about 10%-15% down and obviously, supporting the recovery that we referred to earlier. I get optimistic because you still have substantial lockdowns. Although there has been a big recovery and it's obviously helped drive up dissolving pulp prices ultimately, the volumes of clothing demand are still well below what they were pre-COVID. In time, we think there will be a full recovery, and that will help us further as we go forward. The graph on the right just shows you the rise in VSF pricing and, similarly, dissolving pulp. You can see it's followed it up. If we had a graph for cotton and polyester, you'll have seen they've made also quite significant recoveries. Slide 18 has the recoveries in graphic paper, both in Europe and the U.S. You can see that gradual improvement each month. The European one, what we have seen in December and into January is actually a decline, a slight decline from that. That's why we've been cautious about the prospects for our European profitability in Q2. Turning to slide 19, and it's our strategy slides. These are not new to you. They are familiar, but we feel it's important to reemphasize. Obviously, our strategy is focused on us being a diversified global wood fiber group. We will continue to look for opportunities to redirect capacity away from graphics into our packaging and other growing grades. At the same time, benefit from a strong sustainability and innovation focus. Slide 21 has our four pillars of our strategy, and I do have a slide a bit later just talking about some of the initiatives in each of those areas. Slide 22 just emphasizes where our focus is. For the next couple of years, we are focused on the balance sheet, reducing our debt and maximizing cash generation. We've obviously got to complete the Saiccor project. At the same time, obviously, focus on costs, efficiencies, product mix, and improve profitability. At the same time, we're not going to stop work on future opportunities, but we're not going to commit to any large-scale projects at this point in time until we're confident that our balance sheet is back to where it needs to be. Obviously beyond 2023, if the balance sheet is stronger, continue to look for opportunities on sustainability where we can benefit, strengthening our packaging business, and ultimately reducing our exposure in graphics. Slide 24 is the four pillars that I referred to earlier and just running through a few of the key points. The growth of our business is going to come through from the further growth in the packaging, the dissolving pulp, and bio-related products. We've got a strong focus on product mix and improving our margins. The financial health has improved considerably. We will look at those covenants well ahead of the end of the year. The bond that we issued gives us the headroom and the comfort that we need to take the business forward. A strong focus on operational excellence. The Saiccor expansion that I referred to earlier will help improve efficiency and will lower costs at the mill as well. On the trust side, you've seen us make strong commitments to Science Based Targets. We are following the TCFD recommendations on climate-related disclosure. That's something that we're investigating at the moment. We continue to work with our suppliers to ensure that we have a visibility on our raw materials. In slide 25, just our outlook statement. Broadly speaking, it is positive. The dissolving pulp prices will benefit us significantly. There is a bit of a lag impact because we do have contractual pricing, and it takes a little bit of time to realize. As we get to the second half of the year, you'll start to see significant benefits coming through from that. The packaging remains resilient. Graphics, obviously, we've got some short-term challenges in Europe that I referred to. Ultimately, we are confident that once the lockdowns are eased, volume demand will increase. We've got to offset the impact of rising paper pulp costs. As I said already, we've announced a series of price increases in the different regions. The supply and demand dynamics, particularly in North America, but in Europe, have improved significantly with all the capacity that's come out, and that is helping us. In summary, and the other factor we have to talk about is that oxygen issue that I referred to and the logistical challenges. I see the logistical one as a timing difference. Ultimately, we will sell those tons. Overall, taking all of that into account, we expect second quarter EBITDA to improve relative to the first quarter. Operator, that's me finished the presentation, so I'm going to hand it back to you now for questions. Thank you very much, sir. Ladies and gentlemen, at this time, if you'd like to ask a question, you're welcome to press star and then one on your touchtone phone or the keypad on your screen, at which time you'll hear a confirmation tone. Following this process will place you in the question queue. Once again, for the benefit of the participants who have joined via the HD web phone, please ensure that you've given your microphone permission to make yourself audible before accessing the question queue. If you decide a question has been addressed and you wish to withdraw your question, you're welcome to press star then two on your touchtone phone to remove yourself from the question queue. Just a reminder, if you'd like to ask a question, you're welcome to press star and then one. The first question comes from Alexander Berland of Bank of America. Thank you very much. Hope you're all doing well. Three quick questions, I hope, from my side. First of all, on DWP and thinking about the sustainability of the high prices or the sharp increase in prices we have seen. Yet specifically there, if we should expect any kind of swing capacity moving back into DWP, because it seems like the spread has become quite elevated now. The second question is just if you can remind us of your current short position in paper pulp. Then, my third and final question is if you can give a bit more color on the dynamics for the graphic paper price hike. If this is more a function of a tighter market given capacity closures, or is it more just a kind of cost push effort given the increase in paper pulp? Thank you. Thanks, Alexander. On the DP pricing and the sustainability thereof, clearly, prices have run hard and, consistent with what we've told you in the past, I don't think those prices will be there in the long term. I do think there is a short to medium-term opportunity because of all the positive factors. I think the further recovery and the demand for clothing and related textiles will further support the prices. Also, we've obviously got the lag impact on our contractual business. I do think for the next few quarters, we are going to get benefited from that. I don't think any of us have ever said that we believe that prices will stay at $895 on a longer-term basis. I would expect them to come back down into the low $800s in time. At the moment, we obviously maximize the opportunity that's there for us. The paper pulp, your second question on paper pulp. Oh, sorry, you had a second part to your first question on swing capacity. I think what's going to help us is that paper pulp prices are now running hard as well. You're right that at the moment, pricing is starting to favor dissolving pulp, but paper pulp prices are running really hard, and you will have seen those numbers. That will help underpin current pricing levels. On an annual basis, we approximately buy about 1.1 million tons in Europe and about 200,000 tons in the U.S. of paper pulp from external sources. On graphic paper? Well, that's across graphic paper and the packaging segment. That's in total. No, sorry. My third question on the graphic paper- Oh, yes. price increases. I was coming to that, yes. Yeah, look, primarily it's driven obviously by higher costs. We do expect those paper pulp prices to rise, and we feel we need to pass those on in the form of higher selling prices for our paper. The market balance has improved, particularly in North America, but primarily driven by higher costs. Okay. If I can just follow up on the last one there. How much of the graphic paper markets you operate in are integrated into paper pulp? Approximately how much of capacity have their own pulp supply? Because I guess that could also impact kind of the shape of the cost curve given these increased pulp prices now. I don't have that number with me now, Alexander. Mike, if you're on the line, I don't know if you have a feel of the exact numbers in the North American market, what's integrated and what's not. Yeah, I'm sorry, Steve, I do not have that information. It would be a guess on my part. Yeah, Alexander, we can take that offline and we can give you the specific number. Okay. Thank you very much. Appreciate it. The next question comes from Brian Morgan of RMB Morgan Stanley. Hi, guys. Thanks very much. Can we chat a little bit more about DWP, specifically, where do you think value chain inventories are at producer level, at customer level, at end customer level? What do you think that picture looks like? Is there a lot more restocking that needs to happen? Is it going to take another three months? Is it going to take another six months? What's your feel for that? I'll let Mohamed elaborate, but at the moment, VSF, despite everything that's happened and the recovery that you've seen, VSF inventories are still at historical lows. I think the last number I saw was eight days, and traditionally it's been significantly higher. Mohamed, do you want to comment on further downstream inventory levels? Yeah. Steve, just on the VSF inventory, you're quite right in that it is now at historically low levels at around eight days of supply. This is in China, this is the part of the business where there is a lot of visibility in terms of inventory. What we have also seen is that the long-term trend for VSF industry, just to put that eight days in perspective, is about 17 days, and if you go back a few months, it was as high as 44, 45 days. It's come down significantly. The good thing about what has happened over the last couple of months is that although the inventory has come down very significantly, operating rates have also managed to stay high at about 82%-84%. That's largely because VSF, I think, did get a big kick in terms of additional demand coming from the ban effectively on imported cotton being exported into the U.S., which is now barred. In terms of further downstream, what we have seen, if you go beyond the VSF producer to the yarn producer, inventory levels have started to increase, but it has come off a relatively low base. A big part of what we're seeing now is seasonally a normal behavior. We're going into Chinese New Year. People do buy higher levels of stock so that they can operate through the Chinese New Year. Inventory levels, they are high, but the one step beyond that, which is the fabric producer, their inventory levels have now come down. Again, it's more anecdotal, so there's no real absolute data. That part of the chain has also seen a drop in inventory. I think coming out of Chinese New Year, we should see a fairly stable view in terms of viscose pricing and demand for DP. Can we go further up the value chain back to DP? What sense do you get from your customers in terms of their stocking levels? Are they running short? Or they got just about enough? Well, let me answer the question this way. Right now, I think in China, a big part of what's holding back the operating rates, even though the operating rates are very high, is the fact that there's not enough dissolving pulp. As you may recall, because of the challenges from COVID, a lot of capacity was taken out. A lot of it was temporarily taken out. As a result, many of those supplies basically reduced their inventory, sold out of inventory. Now as the prices are picking up, some of the mills have started, not all. In China, it's only one mill that has restarted producing dissolving pulp. The pipeline on the dissolving pulp side, I would say, is also very, very low. Okay, cool. Thank you very much. Thank you. The next question comes from Lars Kjellberg of Credit Suisse. Thank you. I just want to stay with dissolving wood pulp a bit and maybe if you can talk a bit about the shipping challenges. I understand, of course, there is a physical shortage of containers itself. What are you seeing in costs and how much do you believe, generally speaking, the commodity prices, specifically then paper pulps and potentially dissolving pulp price increases are really driven by sort of essentially shipping shortages and inability to get the product to where the demand is? If you have any thoughts about that would be interesting. Yeah. Obviously, firstly, the shipping challenges are representing a significant challenge. Because of the higher pricing, there are ships that are sailing empty and moving to different locations. It does make it challenging for us, particularly down here in South Africa, to get space on those ships. They are representing very significant challenges. It's not unique to South Africa. As you know, it's across the globe. Sure. In U.S., Europe, all over the place. In terms of the cost, they have risen dramatically, and I'm sure you've seen the rise in prices. In terms of its contribution to the total cost, it's still relatively low. The selling price increases that you've seen have been less linked specifically to the increased freight costs, but I do believe that the challenges in moving the product has contributed to the shortfall that you have seen in pulp at some of the viscose producers. When you're talking about paper pulp, of course, as you mentioned, you are a material buyer, so 1.3 million tons, which makes you one of the bigger buyers out there. How do you view the current super strong rally, in the light of your end products? They're not in great demand, right? So it's a bit of a tough thing to digest, I suppose. What is your sense? Is this fundamentally driven, or is it something else that is driving prices higher? In your discussions with your suppliers, are they serious about this, or do they have a view like yourself on dissolving wood pulp and say, "Listen, there's a bit of a pop here now, and then things will calm down again." How do you argue when you're looking at your own pulp cost and of course, how you go back to your customers with your pulp-based discussion for price increases? How should we think about this? Yeah. Look, Lars, you've been in this industry a long time. You know when these pulp prices run, they run hard. They get legs and they have momentum. At the moment, the momentum is with pulp producers. In terms of our paper business, we can try to negotiate the pricing, but the momentum is out there. I do think that the shipping challenges that we referred to earlier is contributing to that. The demand for pulp in China is huge. That economy is obviously, despite all the challenges of COVID, has rebounded nicely. The momentum is there, and whilst we'll do our best, and with the volumes we buy, the momentum is there. We have announced those selling price increases, and we're serious about them. We do want to implement them. We do know that because of COVID and the kind of shortfall in demand, it does make it more challenging. We do believe that the demand for graphic paper will recover as lockdowns are eased further. From experience, I point you back two or three years when pulp prices ran hard, that we were able to execute on a series of selling price increases at that time. In fact, was actually the time when our European business made the maximum profits, its highest profits. We've done it before and we're serious about implementing it again. Barry, I don't know, anything you want to add. Because it obviously mainly affects our European business. Yes, I think that there is a drive from two sides. The cost drive is very high. It's also true that the wood-free assets are pretty well-filled. The order intake is very strong as well. It's stronger than the invoicing. There is some momentum now, getting into the moves for price rise. We noticed that customers are taking it very seriously. We're pretty optimistic it's going to work. Right. Final question from me. The oxygen deficit that you talk about in Ngodwana, did I get this right that you're talking about a production loss of around 25,000 tons? Yes. What you had in your- That's correct. prepared remarks. Yeah. We've been out for, Alex, about four weeks now. You want to chat it? Yeah. Yeah. Yes, it's more of a transport, oxygen transport capacity issue. As Steve says, we've been out for about four weeks, it's gonna be around about 20,000, 25,000 tons. We're optimistic that we'll be restarting within a week or so. We actually are securing oxygen volumes, we obviously have to restock levels before we can start. This relates to what product again? Was that specifically packaging? It's dissolving pulp. Dissolving wood pulp. Okay. Yeah. Got it. All right. Thank you. The next question comes from Wade Napier of Avior Capital Markets. Hi, guys. Thanks for the call. Couple questions from my side. During the pandemic, we obviously had some viscose producers taking downtime. Do you have a sense of how much downtime was taken and how much of those producers who took downtime are now coming back online to capitalize on higher viscose prices? A second question from me is regarding how you sort of acknowledge that DWP prices may revert back to low $800s and how you want to sort of capitalize on the current pop in prices. How do you go about that? Because, I mean, your DWP operating rates are fairly low. I mean, you're sort of running on an annualized rates of like 1 million tons to 1.2 million tons off of a nameplate capacity of closer to 1.5 million tons. Do you have a path to sort of really capitalize on these current high prices, or will that just push the whole market out of balance? Maybe a final question on the graphic paper side. I mean, I see the sort of demand recovery has been quite encouraging in Europe. Have you sort of fully benefited from the capacity closures, from the likes of Stora Enso or do you think that there's still a little bit of those volumes to come through in the next quarter or so? Those are my questions. Yeah. Okay. On the first one, and I'll let Mohamed expand a little bit further, but obviously we look at the operating rates and specifically in China, and you heard earlier, Mohamed referred to viscose operating rates of about 80%, 82%. I think, Mohamed, at its lowest, it was down at 50%, 60%, wasn't it? That is correct, Steve. Yes. Closer to 60%. Yeah. You can see that gives an indication of how much capacity did come out temporarily. You see the recovery happening there. Specifically on dissolving pulp, when you refer to the capacities, first and foremost, let's say, take South Africa. We're fully sold out, and we can't make enough tons. There is no problem with selling those volumes, and obviously, we were temporarily impacted because we shut the calcium line at Saiccor, and obviously that was all linked to COVID. As we look forward, we are confident to sell all those tons. In North America, which is the biggest part of your shortfall in the numbers that you shared with us, it's to do with the swing capacity at Cloquet. When dissolving pulp prices were as low as they were, it made more sense for us to make paper pulp. Obviously, the situation is improving, but we have certain commitments. The benefit we have from a swing mill is that we can move between the two grades. Pricing at the moment is starting to favor dissolving pulp much more, but you can't just move in and out because you have certain commitments to buy pulp and sell volumes and so on. That's the main reason for the shortfall. To your question, you say, how can we capitalize on dissolving pulp pricing? Obviously, we're producing full out. We'll complete the Saiccor expansion, and that will give us extra tons as well. Then, if we see opportunities at Cloquet to make more tons, we will do that as well. We are fully sold out in South Africa. In terms of the graphic paper demand, Barry, and you talked about capacity coming out. We are benefiting, and the market is more in balance. Barry talked about the fact that coated woodfree within Europe itself is actually improving and continues to be improved. Barry, you maybe want to talk specifically about those opportunities that's been created. Yeah, Steve. In terms of the capacity going out of the business, then in the coated woodfree side, it has gone out now, the capacity that was announced. We would say that the effects, the sort of after effects of stock sales are probably almost done. We think that's kind of more or less finished. What we see is an increase in the operating rate of the industry, our own with it. From that perspective, operating rates of coated woodfree are in the area of sort of 90%. This is really quite encouraging and gives momentum into a price rise. For mechanical coating, there is still some capacity to come out. The SCA plant is still running. We don't know when exactly that's coming out. That will also have some impact on the capacity utilization, though we believe the capacity utilization there is somewhat lower. Great. Thanks a lot, guys. Thank you. The next question comes from Ross Cocher of JPMorgan. Hi. Ross speaking. Just one follow-up on that last question. Firstly, in the European coated woodfree market, or sorry, just to clarify, you're saying that operating rates are now in the 90s. If we see further sequential demand recovery, you actually expect the operating rates to shift kind of towards the mid-90s. Is that correct? Maybe linked to that, it sounds like you guys are extremely confident of the European price hikes going through. Is this, as far as you're concerned, a done deal, or is there still some risk if the demand decline that you saw in January sequentially gets worse? I'll maybe pause there first and then ask my second after that. Okay. Barry, I'll let you talk about the price hikes and the confidence. It's a process that we're going through. Operating rates, and once again, I'll allow Barry to elaborate further, but they're not in the 90% yet, but what Barry referred to is that they are improving. You saw coated woodfree in the quarter down about 20%, and January's been a little bit weaker than that. That has impacted on operating rates. Barry, in terms of potential improvements, I'll hand over to you. Yeah, Steve. The operating rates in the October, November period of time, they were around about 90% in coated woodfree. They did drop in January, but we do expect them to come back. The January one is, I think, to do with two things. First of all, number of trading days in the month. Secondly, the uncertainty in COVID. We do see, because the order intake is increasing, we do see that rising. Some of that may well be pre-price rise buying, of course, as well. Our own confidence is built on the fact that there is a good operating rate, and the costs are going up for everybody. We believe now that it's not so much that whether there will be a price rise. Yes, there will be a price rise. I think the real question is how big. That, we will have to see. We have announced our own price rise of 8%-10%, and we'll see how much of that is realizable. Perfect. Thanks, Barry. Thanks, Steve. Just one more question from me, if that's okay. Just on the Saiccor project, if you can just give some thoughts on what sort of returns you think that project will ultimately generate. Maybe just remind me of the actual expansion CapEx spent there. Based on whatever, I guess, pricing and cost assumptions you have in your own expectations or budget, what ultimate return on capital you expect from that, including the impact of, I guess, better fixed cost absorption throughout the rest of the mill. Yeah, look, at the time we did the project, we assumed a dissolving pulp price in the low $800s. The IRRs specifically on that project were in the teens, and based on all the fundamentals that are out there, we continue to believe that we can make those returns. Costs have been a little bit more. We did talk about that on the last quarter. Alex, I think in dollar terms, we're about, what's that? Yeah. $30 million more than the original cost. From a variable cost perspective, the project should drop the cost base of the total mill by $20-$30. Perfect. Thanks, guys. Thank you. The next question comes from Mikael Doepel of UBS. Thank you. Just coming back firstly on the DWP markets and then just to get a bit of a clarification there. Given the pricing that we see now, I'm a bit puzzled not to see more of the closed Chinese capacity coming back and not to see more of the swing capacity moving back from paper-grade pulp. Would you say that in both cases here, it's more a question about timing? Or are there any other dynamics at play, which you think might lead to this capacity not really coming back to the extent that you would assume? Yeah. I think on swing capacity, as we've referred to earlier, paper pulp prices are now starting to run hard as well. I do think some of the existing producers on paper pulp have certain contractual commitments. There could be a time lag, but we do believe that paper pulp prices, the gap between paper and dissolving pulp, will get back to where they're in balance. Mohamed, in terms of the Chinese, obviously we've got the one producer back in dissolving pulp. Your thoughts on the others? Steve, yeah. What I would add to what you've said is that a lot of the Chinese dissolving pulp production relies very heavily on imported wood chips. A lot of the wood chips historically has come from Australia. One, there is definitely a timing issue in order to get the chips. Two, right now there's a lot of tension between China and Australia, and I don't think a lot of the Chinese producers want to import stuff from Australia if they can avoid it. The other thing is that you've got this waste ban in China, which went into effect from January 1 this year. That is also, I think, having an influence in that it's giving a lot of the Chinese pulp producers or swing mills more options. For example, we know that there's some producers are making now unbleached kraft pulp to try and supplement the waste shortage. Also, the softwood bleached pulp at the moment pricing is at a very good level, and I think there's also more interest to make that because they can make that softwood from chips outside of Australia. Okay. That's really helpful. Thank you very much for that clarification there. In terms, on a different topic, I was thinking about your overall cost outlook for the year. Considering what we're seeing on pulp now, then you have your procurement savings and I guess a lot of other moving parts, I would assume. It's hard to do an exact estimate there. How should we think about your overall cost trending 2021 compared to 2020, up or down or flat-ish on aggregate? Yeah, there's a lot of great initiatives being done and that's why we talk about those procurement savings. I think a lot of that will offset other factors. The big story I come back to is on paper pulp. If we are buying 1.3 million tons for the year, obviously, we're now 1 quarter behind us, we've still got the three quarters to go. The big story will be around that rise in paper pulp. Prices have increased quite significantly over the course of the last 2 months. Based on that is likely to drive up the costs overall for the year. In other raw materials, all the regions are achieving savings. It's clearly not going to be enough to offset pulp when you're buying over 1 million tons. That's understandable. That's clear. Thank you. Just a final question, again, on a separate topic. I was thinking sorry, about your specialty paper business. I was wondering if you could talk a bit about the dynamics there across the various segments, excluding containerboard and paperboard. What are the demand trends that you see there? Are there any supply additions, and what do you expect in terms of pricing within this sub-segment, within the segment, if you will? Obviously, you don't want me to talk about containerboard and paperboard, but those are doing well for us. In South Africa, the containerboard volumes are good and paperboard in North America continues to pick up, and we see opportunities and we're growing nicely in Europe as well. The more specialty segments link to barrier papers and the likes. I point you once again to the impact from COVID. There's certain categories that are doing extremely well, mainly in the food segment, but there are other categories that have been under pressure because they're more exposed to discretionary spend in terms of luxury goods and the likes. A mixed performance. Overall, if you look at the segment, it's holding up pretty well. Once again, as the impact of COVID moves behind us, then we are confident that those categories that were under pressure due to COVID will bounce back. We've got a lot of great work being done on barrier paper and technology and flex packaging and all of those categories we're confident that we can continue to grow. Great. That's really clear. Thank you very much. Thank you. Ladies and gentlemen, we have come through to the end of the conference call. I'd now to hand over back to Mr. Steve Binnie for some closing comments. Thanks, operator. I just want to thank everybody for joining us on the call today, and we look forward to discussing our Q2 results in three months' time. Thank you very much. Thank you. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your line.