Rottneros Q2 goes from loss to profit

July 23, 2010 by timbercommunity

Profit after net financial items amounted to SEK 61 (-112) million for the first half of 2010. Operating profit was SEK 55 (-102) million for the first six months of the year. Profit after net financial items amounted to SEK 50 million for the second quarter of 2010. Rottneros retains optimism despite some warning signs on the pulp market, says CEO Ole Terland in a comment in the report of the second quarter.
Demand has so far been strong in both North America and Europe, with increases of approximately 15 percent. However, deliveries to the China has dropped sharply. 

Rottneros INTERIM REPORT JANUARY - JUNE 2010
• Cash flow from operating activities amounted to SEK 134 (34) million during the first half of 2010.

• An interest-bearing net receivable of SEK 101 million was reported as at 30 June 2010, compared with SEK 10 million at the start of the year.

• The pulp market has been strong and demand has improved during the period. Pulp prices have gradually been increased throughout the first six months of the year.CEO-s statement
 

Profit was SEK 50 million in the second quarter, representing a clear improvement on the first quarter (SEK 11 million). Return on capital employed for the quarter amounted to 17% and operating cash flow amounted to SEK 44 million. These are welcome figures after the major redeployment work we were obliged to implement in recent years. As previously reported, we were compelled to stop work at our sulphate factory in Vallvik late May/early June on account of the old part of the evaporation plant – which is being replaced in the autumn – getting clogged up. The cost of this amounted to almost SEK 15 million, primarily owing to production losses. 

The strong improvement to our result is of course mainly attributable to the favourable pulp market. However, as is often the case, when the price of pulp increases the price of wood also drifts upwards, restricting the increase in profit. It has been possible to implement successive pulp price increases the price of pulp over the year and we are now at a historically high level. Demand has been strong up until now, both in North America and Europe, with increases of almost 15% compared to the weak start last year. On the other hand, the relatively firm trend in 2009 for supplies to China saw a strong reversal (down approximately 20%). Certain Chinese macro indicators are pointing downwards and importers- trade prices for pulp in China have fallen over the past few weeks.

We have low sales volumes in China and have not felt any adverse effects of this slowdown. We note that stock levels are low; that customers want to buy more than we can manufacture and all of our price increases during the year, including those for June, have been accepted. We remain optimistic, despite certain warning signals. Both the American and European paper mills have good order books. If the improvement of the business cycle continues, also the weakest part of the paper market, namely printing paper, continues to recover underpinned by the advertising market, in spite of the continual growth of the Internet. 

We are in the midst of intensive improvement work at Vallvik Mill and decided investments in the evaporation plant and the recovery boiler will be carried out in conjunction with the October shutdown, which has been extended this year to almost three weeks to allow these investments. This will provide an initial increase in capacity of 10% and facilitates further increases. 

Our South Africa Project, which involves a new factory being built together with local partners using some of the equipment from our former mill at Utansjö, has been affected by further delays owing to increased guarantee demands on the part of our cooperating partners. The demands now presented go beyond what we consider to be reasonable, for which reason it now appears less certain that the project will in fact be implemented. We have consequently intensified our work on alternatives to this project, calling for some other use for our equipment and skills to be found. 
 
THE PULP MARKET
Demand for all grades of pulp continued to be strong during the second quarter of 2010. The market has been characterised by a good balance, which has made it possible to increase pulp prices.
The price of pulp in USD increased throughout the first half of 2010. Statistics for bleached chemical market pulp for the total global market showed that deliveries during the period January to May 2010 amounted to 16.1 (15.8) million tonnes, 2.1% higher than the same period in 2009. Ninety-two per cent (89% for the same period in 2009) of the global supply capacity for bleached chemical pulp was used for the period January to May. An estimated 92% (84%) of production capacity was utilised for the same period.
Global producer stocks of bleached chemical pulp amounted to 2.8 million tonnes at the end of May. This had consequently not changed compared with the start of the year. However, stock was 0.8 million tonnes lower compared with the same period of the previous year.

Long-fibre chemical pulp (NBSK) (produced at Vallvik)
The price was USD 799 per tonne at the beginning of the year and USD 976 at the end of June. The market for long-fibre chemical pulp is strong. Producer pulp stock levels continue to be low.
Delivery capacity utilisation for the period January to May 2010 was 94% (89% for the same period in 2009) and production capacity utilisation was around 94% (84%).

Mechanical pulp and CTMP (produced at Rottneros)
The price of short-fibre CTMP was around USD 600 per tonne in the Western European market at the start of the year. At the start of the year the price and demand for CTMP did not develop as well as for chemical pulp. There has been a recovery since the end of the first quarter and the price was approximately USD 850 by the end of June. Delivery capacity utilisation for the period January to May 2010 was 98% (80%) and production capacity utilisation was 99% (69%)

PRODUCTION AND DELIVERIES
The Group’s pulp mills in Rottneros and Vallvik have a combined production capacity of almost 400,000 tonnes per year.