Transcript
Good morning. And welcome to Mercer International's Fourth Quarter 2020 Earnings Conference Call. On the call today is David Gandossi, President and Chief Executive Officer of Mercer International and David Ure, Senior Vice President, Finance, Chief Financial Officer, and Secretary. I will now hand the call over to David Ure. Please go ahead.
Good morning, everyone. I'll begin by reviewing the fourth quarter's financial highlights; and following my remarks, I'll pass the call to David, who will comment on our ongoing response to the COVID-19 pandemic, key markets, operational performance, progress on our strategic initiatives, along with our outlook for the first quarter of 2021. Please note that in this morning's conference call we will make forward-looking statements and 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. Our fourth quarter EBITDA was up when compared to Q3, primarily due to improved pulp demand and pricing, record operating results from our wood product segment, solid operating performance from our mills along with lower wood costs. These positive influences were partially offset by the impact of a weaker US dollar and a slightly heavier annual maintenance program in Q4 when compared to Q3, and reduced government wage subsidies at our Canadian Mills. We generated EBITDA in the fourth quarter of about $49.5 million compared to EBITDA of about $45.6 million in Q3. Our pulp segment contributed EBITDA of $34.8 million, and our wood product segment contributed record quarterly EBITDA of $16.4 million. Our wood products segment results reflect high lumber sales prices in the US, strong sales volumes, and the benefit of low sawlog prices. As usual, you can find additional segment disclosure in our Form 10-K, which can be found on our website and that of the SEC. Average quarterly softwood and hardwood pulp prices were up in almost all of our major markets compared to Q3. As a result, our average pulp sales realizations were up almost $30 per tonne this quarter, positively impacting EBITDA by about $18 million compared to the prior quarter. Pulp demand also improved noticeably in Q4 allowing us to sell our quarterly record 563,000 tonnes, which was up about 93,000 tonnes from Q3 and about 39,000 tonnes above production. Our wood products business continues to perform well. We sold about 104 million board feet of lumber in the quarter, which was down about 14 million board feet from our sales volumes in Q3, primarily due to logistical restrictions during the Christmas holiday season. Electricity sales totaled 251 gigawatt hours in the quarter, which is up relative to Q3, primarily due to strong production at all of our mills in Q4 and Celgar's Q3 30-day curtailment. Our Cariboo Pulp joint venture, which is accounted for using the equity method, contributed another seven gigawatt hours to this total. The Cariboo production is down due to unscheduled maintenance on one of its turbines, and we'll keep it down until mid-February. We reported a net loss of $13 million for the quarter or $0.20 per share compared to net income of $7.5 million or $0.11 per share in Q3. The decrease in income reflects stronger EBITDA being offset by a decrease in other income line of our income statement, including the negative impact of the weaker US dollar on certain US dollar denominated assets. Cash generated in the quarter totaled almost $16 million compared to $42 million in Q3. Our cash generation in Q4 was primarily driven by solid EBITDA generation, which was partially offset by increased capital spending and a modest increase in working capital. We invested about $19 million of capital in our mills this quarter, and David will speak more to our spending expectations in 2021. As a result of prudent cash flow management, our liquidity improved in Q4 and at the end of the quarter totaled about $628 million, comprised of $361 million of cash and $267 million of undrawn revolvers. In Q4, our planned maintenance shuts included a successful five-day shut at Peace River, and the final 11 days of a two-week shut at Rosenthal compared to Q3 when we successfully executed a short seven day shut at Celgar and the first three days of Rosenthal shut. The impact of the Q4 maintenance days, including lower production and higher direct costs reduced Q4 EBITDA by about $7 million compared to Q3. As a reminder, our competitors that report their results under IFRS are permitted to capitalize the direct costs of their annual maintenance shuts, while we expense our costs in the period of shut completion. I am pleased to note that in January, we completed an offering of $875 million of senior unsecured notes that will bear interest at 5.125% per year and mature in February 2029. The net proceeds from this offering were used to redeem both our outstanding 6.5% 2024 senior notes, and our 7.375% 2025 senior notes, with the remainder being used for general corporate purposes. Subsequent to this transaction, Mercer's earliest senior note redemption is now 2026, and our annual interest expense will be approximately $12 million lower than previously. And as you will have noted from our press release, our Board has approved a quarterly dividend of $0.065 per share for shareholders of record on March 31, 2021, for which payment will be made on April 7, 2021. That ends my overview of the financial results. I'll now turn the call over to David.
Thanks, Dave, and good morning, everyone. Let me start by highlighting that although we seem to be in the early phases of a global economic recovery, the COVID-19 pandemic still poses significant challenges. While national vaccine programs are progressing, infection rates remain high, partly due to new and more contagious variants of the virus. Consequently, we are maintaining our safety protocols to protect our employees and support the ongoing operations of our plants. I want to extend my gratitude to all our employees for their continued dedication to keeping themselves, their families, and their colleagues safe. I am happy with our operating results this quarter; all our mills performed well, leading to impressive production levels and enabling us to reach record annual production in pulp, lumber, and energy. Our fourth quarter results benefited from the rise in pulp demand and prices. Collectively, our pulp mills achieved a sales volume record in Q4. NBSK pulp prices in Europe steadily increased throughout the quarter, and US prices modestly rose late in the year, while prices in China saw a significant jump towards the end of Q4. The upward pricing pressure in China towards the quarter's close was due to several factors, including low inventories among paper producers, unusually high downtime among pulp producers, a global shortage of containers limiting pulp volumes entering China, and a relatively strong Chinese currency. This pricing pressure led to price increases across all markets, which we expect to continue into the first quarter of 2021. In Q4, the average NBSK net price in China was $637 per tonne, marking a $65 increase from Q3. European list prices averaged $880 per tonne in the current quarter, rising from $840 per tonne in Q3. The average Q4 net hardwood price in China was $480 per tonne, an increase of nearly $40 from Q3, while the hardwood list price in the US market stayed flat at an average of $868 per tonne in Q4. Despite the challenges of the pandemic, global economic activity has been buoyed by vaccine rollouts and ongoing government support worldwide, which has started to reduce economic uncertainty. Currently, we view NBSK fundamentals as improved due to low producer inventories and a weak US dollar favorably affecting pulp prices. We anticipate demand will keep increasing through winter, although we also expect some moderation in the Chinese market as the Lunar New Year approaches. Additionally, we foresee moderate demand growth in certain sectors, including printing and writing, as countries continue to gradually reopen their economies. Enhancements from pulp mill conversions are likely to boost pulp supply, and virgin pulp demand is receiving a slight lift from an increased use of virgin fiber in certain packaging products, given the decline of the recycled fiber supply. Overall, we anticipate a steady recovery in pulp markets through 2021. The current speculation driving up NBSK prices on the Shanghai Futures Exchange may see a slight retreat in late Q1, but we remain positive that the previously mentioned supply and demand factors will support the ongoing recovery of the pulp markets following pandemic-related slowdowns. December market statistics indicate sustained strong demand, with both NBSK and hardwood inventories significantly down. Regarding our wood products business, the European lumber market continues to be stable, showing modest upward pricing pressure influenced by the strong US market, which had historical peak prices late in the quarter, alongside strong demand. Our average lumber sales realization in Q4 was $467 per 1,000 board feet, an increase from $453 in Q3. As Dave previously noted, this has enabled our wood products segment to achieve a second consecutive quarterly record level of EBITDA in Q4. The historically high lumber prices in the US, despite some volatility, remain driven by a robust housing market and consistent demand for home renovations. We expect the supply-demand dynamics in the US market to stay favorable into 2021, as the major American homebuilders project strong sales this year due to low home inventory levels in various regions and anticipated low borrowing costs. The random links US benchmark for Western SPF number two averaged around $700 per 1,000 board feet in Q4, down $68 from the previous quarter. US lumber prices saw a dip mid-quarter before rising sharply late in Q4, a trend that has persisted so far in 2021 when compared to Q3, which included record lumber prices. The benchmark lumber price currently hovers around $945 per 1,000 board feet. In Q4, 37% of our lumber sales volumes were in the US market, with the majority of remaining sales in the European market. As we move into Q1, we expect the European lumber market to maintain steadiness with some modest upside, as some European manufacturers redistribute inventory to the US market. Nevertheless, we anticipate that the US market will remain strong. Our mills performed well this quarter despite pandemic-related challenges, including our Cariboo joint venture, producing nearly 524,000 tonnes of pulp, an increase of 44,000 tonnes from Q3. This boost was mainly due to strong production at our pulp mills, following Celgar's Q3 curtailment. Excluding the Cariboo mill, our excellent pulp production enabled us to generate 568 gigawatt hours of power, up 39 gigawatt hours from Q3. Our wood product segment continues to excel, producing 111 million board feet of lumber, an increase of 14 million board feet due to production interruptions in Q3 to integrate new equipment related to our phase two expansion project. In Germany, we see that wood costs, particularly for pulpwood, remain historically low due to an abundance of beetle-damaged wood. We expect this log supply trend to continue well into 2021. In Western Canada, pulpwood availability has improved, as sawmills operate at full capacity to take advantage of the strong US summer market. We foresee a modest decline in fiber wood prices, yet they will likely stay at historically high levels into Q1 2021. We have a substantial maintenance program planned for 2021, mainly centered around the Peace River recovery boiler rebuild, which will see Stendel undergo 23 days of downtime compared to 6 days last year, due to its major maintenance schedule being on an 18-month cycle. All major maintenance shutdowns carry significant risks due to the pandemic and the number of contractors needed in the mills. We have implemented strict safety protocols to address these risks. Based on our current information, we believe we can complete all maintenance safely and effectively. Our maintenance schedule for 2021 includes a 20-day annual maintenance shutdown at Celgar in Q1, a 21-day 18-month shutdown at Stendel in Q2, an 11-day shutdown at Cariboo, and a 64-day shutdown at Peace River for the recovery boiler rebuild. The Peace River shutdown was postponed from last year due to contractors’ inability to guarantee the availability of skilled trades during the early pandemic. In Q3, Rosenthal has a 15-day shutdown planned alongside a 4-day mini shutdown at Celgar. For Q4, Stendel has a two-day mini shutdown planned. In Q4, we invested approximately $23 million in high-return projects across our mills, with our anticipated 2021 CapEx program projected at around $150 million. The more modest CapEx program for 2020 focused on completing the pre-show phase two expansion and smaller high-return productivity and cost reduction initiatives. We also initiated early work on the production expansion project at Stendel, which will be finalized in late 2021, increasing the total mills' capacity from 660,000 to 740,000 tonnes per year. As we look ahead to 2021, I remain confident that executing our strategy effectively will lead us to continued success. We will concentrate on our world-class assets and sustainable operations, optimizing our fiber handling, logistics, and cost control. While we previously paused the growth aspects of our strategy for financial prudence, we are now looking toward the strengthening pulp markets and reduced economic uncertainty. With our balance sheet in good shape and solid liquidity, we will redirect our focus toward enhancing shareholder value through growth. Any future growth will be in areas aligned with our core competencies while prioritizing the integrity of our balance sheet and liquidity management. I am set to discuss three projects today. Our Board has approved moving forward with the Stendel sawmill project. While the project hasn't been fully approved yet, engineering efforts are underway to secure permits and apply for subsidies. We plan to revisit this for board approval in late summer or early fall. We have also received approval in principle for two wood room projects, one at Celgar and one at Peace River. These projects will transform how we debark smaller diameter logs, previously done using remote chipping in the bush or in satellite yards. We will install a sixth flail at Celgar and a batch rotary debarker at Peace River, reconfiguring our truck fleet in Alberta to be 10-axle cut-to-length, increasing truck weight capacity from approximately 66 tonnes per truckload to nearly 88 tonnes, reflecting a 40% to 50% improvement. The rotary debarker and centralized chipping at Peace River will reduce wood requirements for the same pulp volume by about 8.5%, leading to decreased breakage and loss of white wood. This is an excellent initiative, expected to reduce costs for both mills by about $20 million annually, regardless of pulp prices. The capital cost for the Celgar wood room is around $18 million, alongside costs for trucks and mobile equipment. The Peace River wood room is estimated at about $40 million, also incorporating trucks and mobile equipment, with both expected to generate a $20 million EBITDA impact. Multiple carbon-related government grants are associated with these projects, promising a payback period of under two years. We are pleased that the Board is prioritizing these developments, and final decisions will be made at the end of this month when engineering reaches a 10% accuracy level. Both wood rooms should be operational by March of next year. Lastly, as mentioned in our press release this morning, I am happy to welcome Janine North and Alice Laberge to the Mercer Board of Directors. Both bring substantial experience in the forest industry, corporate board service, and senior financial roles. We are all excited about their joining the board, and I look forward to collaborating with both. That concludes our prepared remarks. Thank you for your attention. I will now hand the call back to the operator for questions.
Our first question comes from Hamir Patel from CIBC Capital Markets.
Hi, good morning. Dave could you comment on the sort of M&A environment for lumber and how attractive that opportunity set is looking versus a potential Greenfield?
Well, there’s a few situations out there, but it's the time in the cycle where valuation expectations are very high, so it's unlikely that we'll be chasing M&A sawmills at this stage in the cycle. We are pretty keen on the Klausner One in Florida; we thought that would have been a great deal for us for a bunch of different reasons, but as you know, we stepped away from the auction when it got heated. So yes, I think, for us, the next step in lumber expansion will be Stendel, and I think that'll be a tremendous project for the company.
And then Dave with the Friesau expansion work being completed this year, what level of lumber output are you targeting this year?
We expect to produce around 500 million board feet of lumber, possibly a bit more. At this point, we have not decided to implement a third shift. Adding that shift can put some stress on maintenance, but we are very happy with the improvements in wood quality that we are observing. We still need to fine-tune some aspects like edge trimming and precision on the new planer, but overall, everything is functioning as anticipated.
Our next question comes from the line of Sean Steuart from TD Securities.
Thanks. Good morning. I have a couple of questions. David, I would like to hear more about your perspective on the current momentum in pulp. It's an impressive increase, considering it comes off a low base for the commodity. While mill inventory levels have significantly decreased from the highs we observed last summer, they typically wouldn't support this kind of price momentum. You mentioned the Shanghai Futures and currency changes affecting the cost curve. How much of that is influencing what we are seeing now, and how do you view the momentum in relation to inventory levels throughout the system?
First of all, regarding the Shanghai Futures, I believe that if the fundamentals and the supply-demand dynamics are not right, the Futures Exchange could become speculative and potentially create a bubble that heats up and cools down. However, I think the physical markets are tight. Hardwood is particularly constrained due to the length of the supply chain for most hardwood mills to their natural markets. That is currently the tightest area. Softwood is balanced, but there is significant supply risk because of upcoming maintenance, and no new supply is on the horizon. Most customers expect prices to remain high or possibly increase, leading everyone to pursue pulp aggressively; no one wants to fall behind, and demand is outpacing supply. This dynamic is driving the market, in my opinion, unless something happens that drastically affects demand, which I don't foresee. It feels like this rally is sustainable. The markets are balanced to tight, inventories are low, and demand is strong. Additionally, the printing and writing segment is recovering as countries reopen, and improvements in travel, school functions, and general workforce return are expected to boost this sector incrementally from our current position.
Okay. A couple of questions on CapEx. So I understand correctly, the two wood room projects, those aren't Board approved yet, but they are in the $150 million budget for this year, is that the correct read?
No, they're not included in the 150. They will be additional to that.
Okay. And as we think about a Stendal sawmill, what sort of CapEx budget are you thinking about for a project like that?
The total cost for completion is estimated to be around EUR 185 million. Our current plan is to approach this in phases. While we have not finalized the specifics, we intend to start with certain elements to initiate lumber production, followed by the addition of log sorting equipment in a later phase. This approach makes sense because setting up a sawmill is different from a pulp mill; you cannot just build a sawmill and start it up all at once; it must be done in sections. We are currently working out the details and plan to provide more information about it in the summer.
Our next question comes from the line of Andrew Kuske from Credit Suisse.
Thank you. Good morning. I think the question is for David, to drill just on the pulp markets. And if you could just give us maybe some color and context on structural end market changes that have happened that you've seen really pre-COVID till where you are now? And then, your thoughts on really the return to normal and you alluded a little bit of just with the paper and writing coming back, but color on that would be appreciated.
The at-home tissue market has been very strong, while the away-from-home segment has been weak, primarily due to a shift towards recycled materials rather than virgin chemical fiber. The printing and writing sector is down significantly, and while many packaging grades have performed well, the overall trend is concerning. We are seeing hygiene concerns driving increased production of towels and napkins, especially in areas where they have not been widely adopted. We've previously mentioned the decline of forced air hand dryers, as I believe people will prefer disposable options over cloth towel hand dryers in places like restaurants and hotels. I expect the hygiene focus will further boost the towel and tissue demand beyond what we have seen historically. Overall, printing and writing markets have been experiencing a yearly decline of around 6% to 7%, and the impact of COVID led to a sharp drop over the last three years. As the economy reopens, some recovery is expected, though not to pre-COVID levels. Instead, we anticipate a gradual decline that aligns with the growth in specialty and other tissue products, which will surpass the falling graphic market and diminish its relevance for us in the chemical sector.
That's very helpful. And then you mentioned also earlier on the supply side risks that you see on NBSK, and a lot of that really being in relation to outages, with your own experiences with just the COVID protocols what have you learned about doing maintenance turnarounds? Obviously, there's an element of increased costs that just come from an outright basis on the COVID protocols, but also, to what degree of the productivity losses, and then what if you went through this?
There are numerous challenges, but one significant issue is organizing travel arrangements for contractors. It’s essential to understand the border restrictions, what the contractors need to do to cross, and how to test and certify that they are COVID-free. Keeping crews separated is crucial, which involves setting up various infrastructure, such as tents, separate washroom facilities, and mobile canteens, to prevent cross-contamination between different teams. We ensure that our personnel remain distinct from our contractors and keep contractors apart as well. Regular assessments and adherence to numerous rules are necessary, including strict sanitization protocols and mask-wearing, with double masks required in certain situations. We have identified the border issues and put our plans in place, which allows us to proceed with upcoming shots safely. However, unforeseen changes at the border or any significant transmission could cause delays or shutdowns. Conducting these operations is more complex than under normal circumstances, and others have experienced similar challenges. Currently, the supply side risks are more pronounced than any decrease in demand.
Our next question comes from the line of Andrew Shapiro from Lawndale Capital.
Hi, David. Thank you. I have a few follow-up questions regarding what was discussed. You mentioned the potential additional capital expenditures for the wood projects, and I see that you want to proceed cautiously. However, have the prospects of a turnaround and the returns from recent investments provided any insight on when the dividend might be restored to previous levels? What factors are you observing to determine when Mercer might be ready to initiate dividend growth again?
The board discussed the dividend, but given the number of high return projects available, it was decided to maintain the dividend at its current level and focus on these higher return projects. Financing the Stendel sawmill will be challenging, and we will need to work diligently to achieve safe financing, possibly through some form of ring fence financing that safeguards bondholders and equity holders. The current level of the dividend is considered appropriate in light of these other short-term cash demands.
Yes, that makes sense. Once we learned about your plans, I was curious about what you're aiming to achieve so that when these projects start generating cash flows, you can concentrate on growing the dividend.
Yes. I don't think the board's thinking has changed that the dividend is something to grow over time. But it's always going to be decided in the context of what the highest return, yes.
Okay. You've talked about some producers with higher costs at the tipping point for closure due to the losses in what was a declining price environment. Can you comment on whether the improved pricing now takes that opportunity off the table? Or there are other factors that might challenge some of that supply out?
Yes, it's, I guess we in the last couple of years, and we've seen a couple of mills go down. There's, as we all notice, there's the whole fourth quarter is full of all smaller mills, these pulp prices are certainly going to help them to keep going. But in the fullness of time, these small, higher cost mills will ultimately become difficult to continue to keep maintaining them.
Yes, go ahead, anything to catch up.
Yes, no, that's fine. I was just got to say the, as the economy starts to strengthen, some of the takeaways things like dissolving pulp that's been running on paper grade will, we're already seeing a lot of that capacity shifting back into the commodity dissolving pulp side. The fluffed markets are stronger. So there's really very little paper grade, southern softwood coming into the market side. I think there's a combination of all of these factors that are going to contribute to the restrictions on supply on the chemical softwood side.
You've stated previously and maybe it's been several quarters ago, and it's already been done, but there was still a lot of room for improvement on the power generation at Celgar side, whether it was to increase the power or the by-product profitability. Has that all been accomplished? Or is that another one of the CapEx opportunities here?
Well, no, we finalized our deal with BC Hydro. And I think I talked about that on the last call, I think we're pretty satisfied with where we ended up and it's got some optionality for us going forward. So I think that's what it is so not much due to report there.
Okay, so there's nothing more that is high on the table here for investment to enhance further cash flow.
Celgar has potential for expansion, particularly with the addition of blow tanks and larger filtrate tanks. The Canadian mills were designed to operate in a balanced way, meaning that when everything runs smoothly, the system operates efficiently. However, if there is a disruption, there isn't much buffer storage between certain components, like the fiber line and the bleach plant. The implementation of larger tanks would allow for continued pulp production for up to 12 hours during a disruption without needing to go through the bleach plant. This setup would enable more pulp production and lower fixed costs, but we haven't prioritized this yet. Our main focus is achieving competitive wood costs for the mill, which is essential for our operations and can represent a $20 million cost reduction at the current state, regardless of the market cycle. Effective processing depends on factors such as handling efficiency, truck weight capacities, and chipper yields. Utilizing a centralized wood room minimizes wood loss, and we are confident that these changes will yield the expected savings. Once we lower wood costs, we can consider adjustments to our production volume as a future step.
And you guys spoke of CapEx generally being not CapEx but the maintenance turnarounds generally being expensed versus competitors and all that. I think it's Peace River, but there's one of your plants that's going to be doing a major rebuild a boiler work, et cetera where insurance proceeds are to be paying for the bulk of it. Is that Peace River? And then when that happens, how is that going to be accounted for? Will it just not go through the expense line? Will it go through the expense line? And there'll be a below the line recovery? How's it supposed to work?
Yes, so the capital work is all paid for by the insurance company. And so it won't hit our P&L or our balance sheet. And then there is also a business interruption component. So depending on what the margins are in the months prior to the shut, there will be some business interruption recovery that would come into our P&L.
And where would you guys put that as a reduction of cost of goods sold and reduction of SG&A? Something further below the line?
Yes, it will match where the costs are, so it will be offset in the same line as the underlying costs.
For this business interruption, if it's business interruption recovery, where would that be?
Yes, so that would be in cost of goods sold.
Okay. All right. And you'll call that out in the particular quarter and amounts once it comes through, right.
Well, I'm sure we'll talk about it.
Last two questions here on can you update us on the status of both the BioFilaments venture as well as Stendel venture and status progress, timing of cash flows?
The Performance BioFilaments are still in development. This is our joint venture with Resolute, a leader in the field, and they are exploring various applications for BioFilaments. Currently, they are also working on improving masks to enhance performance and reduce production costs in Canada. Regarding the Stendel project, as I mentioned before, we expect to begin harvesting in about a year and a half to two years. The plan is to harvest the trees when they reach 15 years of age, with our first rotation occurring in about one and a half to two years. After that, we will harvest a year's worth, replant, and continue this cycle. This is when we anticipate generating cash flow from that operation. However, I do not want to provide guidance at this moment since I cannot predict the oil market conditions at that time. Nonetheless, we are very pleased with our investment there and believe it will generate significant cash flow once we start harvesting.
So starting in about two years when that there's a batch that turns age 15.
Yes.
Is there a batch every year thereafter?
More or less, yes, it has been developed in a phased manner. There may be some years that are slightly larger or smaller, but generally, there will be a harvest every year, and we will produce the oil, put it in inventory, and maintain a steady supply of products in the market.
Okay, and the last question I periodically asked a little bit, maybe out of, I don't know, out of place, but at least you'll do it via virtually what's the investor relations, non-deal roadshow kind of calendar that you I guess, plan to attend virtually in the coming quarters?
Maybe Dave could speak to that.
Yes, probably for the next quarter, we got two I would call them sort of organized IR events, BofA is hosting us next week on the 24th for a presentation for their investors. And then we'll also be attending the Raymond James Investor Conference on March 3rd. And one of the things, one of the trends we're noticing is that we've got lots of people that are just calling us and not waiting for conferences anymore. So as always, please give David or me a call, anytime. And we can set something up ad hoc. Pleased to talk to you.
Our next question comes from the line of Sam McGovern from Credit Suisse.
Hey, guys, earlier on the call, you guys struck a pretty optimistic tone with regard to the duration and potential strength of the whole pricing environment. With regard to that you what's the ability for you guys to defer any maintenance to capture as much volume as possible, if pulp prices remained strong for quite a while.
Yes, Sam. Not really much ability there, these maintenance shuts take a lot of coordination. The contractors moved from mill to mill to mill, it's kind of all scheduled well in advance. So if we were to step out of that lineup and run, we may have or what we would have challenges rescheduling contractors for certain work. And then there are also the regulatory and insurance issues, all these pressure vessels and pieces of equipment have maintenance requirements that need to be scheduled. And we're not really in a position to defer any of that maintenance at this point in time. And that's normally the case with pulp mills; they need to go down when they're scheduled to go down.
Our next question comes from the line of Paul Quinn from RBC Capital Markets.
Yes, thanks. Good morning, guys. I guess started on the CapEx side, because you got a 150 for the year plus the two wood room projects. So do we assume that it's half that to 8 million in 2021?
Say that again, half.
I'm wondering if the two woodroom projects will be completed in 2021 and whether the $58 million is entirely for 2021 or if part of it will carry over into 2022.
Some expenditures will indeed carry over into early 2022, but a significant portion will occur in 2021. We have received $13 million in government grants, and we are expecting more funding. While this doesn't cover the entire amount of $458 million, part of it is related to trucks and Mobile Equipment, which may be leased by the company or assigned to contractors and recovered through various rates. There are many options available in our approach.
Okay, so on 2021 CapEx, they should be thinking somewhere in the $175 million, including some for their wood room projects.
Yes, that's not a bad number, yes.
Okay. And then just the timing of the Stendel sawmill, if the board approves it, at the end of the summer in the fall, is that a 2023 start?
Yes, probably the equipment suppliers are, they're up in the 18-month range right now for some of the big pieces. So if you're in the fall of 2021, you got all of 2022, and then you're putting it together somewhere in 2023, yes.
Are we investing in the same capacity that you have for production?
It will be somewhat smaller and have a slightly different configuration. It won't be a link, but I believe the input will probably be around 100,000 cubic meters, something of that size.
Okay, and then you guys reference the Rosenthal power price. It's come up and now back on market rates, if you could just help me just understand the impact of that.
Well, today market rates in Germany are I think it's around EUR 45 a megawatt hour. And the green rate, the tariff was around between 80 and 85, depending on the season. So it's roughly half of what it was just right now, low power rates in Germany really a result of the lower economic activity. Before COVID, I would have said yes within a couple of years, the market rate would be more or less equal to what the green rate tariffs were. But they've fallen off as a result of this slowdown in all the industrial activity. They'll come back in time we expect that as Germany's moving away from all their coal and lignite-fired boilers. So it's going to be recovery in power prices, and we'll be, I think it's still something to look forward to. But today, it's about EUR 6 million or EUR 7 million hit to their P&L at Rosenthal.
Okay, and then you sort of referenced to the German government, probably bringing back incentives for green energy, do you expect to get that in the back half of the year, i.e. should we model this as sort of a half that rate in the front half? And then back to the full rate in the backend?
Yes, I don't think you can model that, Paul. We don't have any clarity on what's going to happen in the back half of the year at this stage.
All right and then just maybe overall on pulp pricing. I mean, it's been quite a rally here. Definitely totaling this one. I feel like many of these pulp rallies in the past but sounds like you think it's quite durable here. What do you seen in terms of prices in China for February and March?
Yes, well, prices are going up, it feels like in China. I think there if you were transacting today, you'd be, a typical seven type of thing and spot and in all the markets is up, in an 800 to 900 net range.
And at this time, I would like to turn it back to the speakers for any further comments.
Yes, thanks very much. And thanks everyone for joining our call today. And as Dave mentioned earlier, if anybody has further questions, please don't hesitate to reach out and look forward to speaking with you again in another quarter. Thanks very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.