Good morning, and welcome to Mercer International's Third Quarter 2025 Earnings Conference Call. On this call today is Juan Carlos Bueno, Mercer's President and Chief Executive Officer; and Richard Short, Mercer's Chief Financial Officer and Secretary. I will now hand the call over to Richard.

Thanks, Michelle. Good morning, everyone. Thanks for joining us today. I will begin by touching on the financial and operating highlights of the third quarter 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 Investors section of our website. 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. 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. This quarter, our EBITDA was negative $28 million, including a $20 million noncash inventory impairment, a decrease from negative EBITDA of $21 million in the second quarter. 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 noncash inventory impairment charge. In the third quarter, 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. Third quarter average published prices for NBSK and NBHK 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. The price decline in China was further impacted by an oversupplied paper market and the increase in integrated pulp production. NBSK pulp prices faced additional pressure from the increased substitution of softwood with lower-cost hardwood. In the third quarter, the NBSK net price in China was $690 per tonne, a decrease of $44 from the second quarter. The European NBSK list price averaged $1,497 per tonne, a decrease of $56 from the prior quarter, while the North American NBSK list price decreased $120 in the second quarter, averaging $1,700 per tonne. The market price gap between NBSK and NBHK in China was about $190 per tonne this quarter, a slight decrease from the roughly $200 in the second quarter. In China, the third quarter average NBHK net price was $503 per tonne, down $30 compared to the second quarter, and the North American third quarter price was $1,203, down $107 per tonne. As mentioned previously, the third quarter included a $20 million noncash inventory impairment, primarily driven by lower pulp prices. 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 tonnes to 453,000 tonnes. Pulp production in the third quarter of 459,000 tonnes 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. In the fourth quarter of 2025, we had 18 days of planned maintenance downtime at our Stendal mill. For our solid wood segment, lumber pricing in the third quarter was relatively stable compared to the second quarter in both the U.S. and European markets, as reduced supply offset relatively weak demand. The Random Lengths U.S. benchmark price for Western SPF #2 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. Today, that benchmark price for Western SPF #2 and better is around $460 per thousand board feet, a modest increase from the beginning of 2025. In the third quarter, lumber production decreased by about 4% to 150 million board feet from the second quarter due to planned maintenance at our Friesau 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. 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 Celgar mills. 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. 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. 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 U.S. continue to impact project timelines and overall market momentum. 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 expect improvement in results in 2026. We continue to make progress on our One Goal One Hundred program. 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, 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. 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. 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. 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 Friesau and Torgau. The upgrades are expected to enhance 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. That ends my overview of the financial results. I'll now turn the call over to Juan Carlos.

Thanks, Rich. This quarter's 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. The economic uncertainty created by tariffs and trade disputes is negatively impacting demand for both paper and lumber. Another factor this quarter was the $200 price gap between hardwood and softwood pulp, which incentivizes certain customers to use more hardwood in their furnish. 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. In addition, the ongoing trade disputes are putting downward pressure on the U.S. dollar, which negatively affects our operating results. This U.S. dollar weakness increased our operating costs by almost $11 million compared to Q2. 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. We have named this program One Goal One Hundred. Currently, we expect to achieve $30 million of cost and reliability-related savings by the end of 2025. 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. A significant part of the One Goal One Hundred 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. 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. However, we are beginning to have clarity on the direct impacts of tariffs on our business. During the quarter, the U.S. Department of Commerce concluded their Section 232 review on lumber. 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. 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. We feel, however, that our Celgar mill is well positioned, given its ability to access the U.S. fiber market and our ability to harvest and process whole logs. Nonetheless, we expect to see some cost inflation. On the other hand, our Peace River mill's hardwood supply will not be impacted. Today, our pulp shipments to the U.S. from Canada are not impacted by tariffs as pulp is CUSMA compliant. As mentioned, our main import from the U.S. into Canada is wood chips for our Celgar pulp mill, which today amounts to about 45% of the fiber consumption of the mill. We have the ability to grow this percentage slightly going forward if required. Most importantly, there are no counter tariffs applied to this fiber. Our EBITDA of negative $28 million reflects 20 days of planned downtime, maintenance downtime, including 16 days at our Rosenthal mill and lower pulp prices in all markets. 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. We believe these market dynamics have also encouraged opportunistic pulp substitution in some paper grades as paper producers are running their machines more slowly, given the overcapacity. In addition, we believe pulp destocking 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. Looking ahead, we expect to see some modest NBSK price improvements late in Q4 and into Q1 of 2026 as the impact of the announced European NBSK curtailments impact Chinese port stock and the impact of the delisting of low-quality Russian pulp from Shanghai Futures Exchange is realized. 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. However, we remain optimistic that once trade clarity returns, markets will begin to normalize. In total, our pulp production was flat at almost 460,000 tonnes compared to Q2. As part of our objective to keep all of our pulp mills running reliably, we planned major maintenance shutdowns at all mills throughout the year. Our Q4 shut schedule has 18 days down, or about 36,000 tonnes. Our lumber production was down slightly relative to Q2 by about 4% due to maintenance that was scheduled at our Friesau mill. Overall, we are pleased with our lumber production. And even though the ramp-up of our Torgau mill incremental lumber capacity has been slower than anticipated, we do expect to realize the increased annual capacity rate of about 100,000 cubic meters of dimensional lumber, or roughly 65 million board feet, by the end of the year. 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 logistic costs. However, on the sawlog side, reduced supply due to limited harvesting pushed our fiber costs up as expected compared to Q2. 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, 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. The business environment for our 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 despite some modest price improvements on certain grades in the U.S. lumber market. This segment is also facing the impact of higher wood costs in the short term. 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. Given the many economic forces affecting U.S. construction activity, U.S. 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 antidumping and countervailing duties is expected to push lumber prices up as the resulting production capacity reductions begin to materialize. 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. 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 U.S. markets remains dependent on improved economic conditions and lower interest rates. The cost-competitive configuration we have in Friesau gives us the flexibility to maintain a strong presence in Europe and the U.S., while also serving a quality-sensitive Japanese market. 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. Looking forward, we believe the U.S. 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, we expect these factors will put sustained positive pressure on the supply-demand balance of this business in the short to midterm. European shipping pallet markets remain weak with pricing staying generally flat due to the overhang of the European economy, particularly in Germany. However, once the economy begins to recover, we expect pallet prices to recover towards more historical levels, allowing Torgau to deliver significant shareholder value. 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. Heating pallet prices were flat relative to Q2. We expect demand and prices to be slightly higher in Q4 due to higher seasonal demand and supply concerns 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, the potential sales volumes of these inquiries have been about $400 million and equate to well over 100 projects per quarter. As a result, our order book continues to grow. The projects we're bidding on and winning today are meant to be constructed about nine months from now or well into 2026. 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. 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. 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. 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. 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 that includes both Torgau's lumber expansion project and Celgar's recently completed woodroom 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 FEL-2 engineering review for a potential carbon capture project at our Peace River mill. 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. 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, products like concrete and steel for construction or plastic for packaging. In addition, the potential demand for sustainable fossil fuel substitutes is significant and has the potential to be transformative to the wood products industry. As a result, we remain bullish on the long-term value of our products and what they can bring to society and our stakeholders. Overall, our Q3 operating results were disappointing, driven by a number of industry headwinds. These headwinds are expected to persist in the fourth quarter. As a result, we're taking further actions as liquidity remains our top priority. While we have made good progress on advancing our One Goal One Hundred program and remain committed to rebalancing our portfolio of assets, we're also implementing decisive measures to support our liquidity position. These steps include further cost reductions, capital expenditure reductions and other working capital measures that combined will improve our balance sheet. Above all, we are committed to prudent 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. 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. I am also encouraged by the fact that today's weak 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. As such, we have made very good progress on this transformation with our lignin pilot plant in Rosenthal, a 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. Thanks again for listening, and I will now turn the call back to the operator for questions. Thank you.

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. Thank you for your patience. Your conference will resume momentarily. Richard, I see that you have rejoined. Are you able to hear me, sir?

Yes.

Yes.

Okay. Sir, you may proceed.

Thank you, Michelle. Apologies for the disconnect. We don't know exactly what happened. So I'll repeat the last statement. Looking ahead, we expect to see some modest NBSK price improvements late in Q4 and into Q1 of 2026 as the impact of the announced European NBSK curtailments impact Chinese port stock and the impact of the delisting of low-quality Russian pulp from Shanghai Futures Exchange is realized. 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. However, we remain optimistic that once trade clarity returns, markets will begin to normalize. In total, our pulp production was flat at almost 460,000 tonnes compared to Q2. As part of our objective to keep all of our pulp mills running reliably, we planned major maintenance shutdowns at all mills throughout the year. Our Q4 shut schedule has 18 days down, or about 36,000 tonnes. Our lumber production was down slightly relative to Q2 by about 4% due to maintenance that was scheduled at our Friesau mill. Overall, we are pleased with our lumber production. And even though the ramp-up of our Torgau mill incremental lumber capacity has been slower than anticipated, we do expect to realize the increased annual capacity rate of about 100,000 cubic meters of dimensional lumber, or roughly 65 million board feet, by the end of the year. 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 logistic costs. However, on the sawlog side, reduced supply due to limited harvesting pushed our fiber costs up as expected compared to Q2. 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, 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. The business environment for our 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 despite some modest price improvements on certain grades in the U.S. lumber market. This segment is also facing the impact of higher wood costs in the short term. 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. Given the many economic forces affecting U.S. construction activity, U.S. 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 antidumping and countervailing duties is expected to push lumber prices up as the resulting production capacity reductions begin to materialize. 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. 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 U.S. markets remains dependent on improved economic conditions and lower interest rates. The cost-competitive configuration we have in Friesau gives us the flexibility to maintain a strong presence in Europe and the U.S., while also serving a quality-sensitive Japanese market. 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. Looking forward, we believe the U.S. 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, we expect these factors will put sustained positive pressure on the supply-demand balance of this business in the short to midterm. European shipping pallet markets remain weak with pricing staying generally flat due to the overhang of the European economy, particularly in Germany. However, once the economy begins to recover, we expect pallet prices to recover towards more historical levels, allowing Torgau to deliver significant shareholder value. 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. Heating pallet prices were flat relative to Q2. We expect demand and prices to be slightly higher in Q4 due to higher seasonal demand and supply concerns 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, the potential sales volumes of these inquiries have been about $400 million and equate to well over 100 projects per quarter. As a result, our order book continues to grow. The projects we're bidding on and winning today are meant to be constructed about nine months from now or well into 2026. 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. 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. 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. 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. 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 that includes both Torgau's lumber expansion project and Celgar's recently completed woodroom 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 FEL-2 engineering review for a potential carbon capture project at our Peace River mill. 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. 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, products like concrete and steel for construction or plastic for packaging. In addition, the potential demand for sustainable fossil fuel substitutes is significant and has the potential to be transformative to the wood products industry. As a result, we remain bullish on the long-term value of our products and what they can bring to society and our stakeholders. 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. While we have made good progress on advancing our One Goal One Hundred program and remain committed to rebalancing our portfolio of assets, we're also implementing decisive measures to support our liquidity position. These steps include further cost reductions, capital expenditure reductions and other working capital measures that combined will improve our balance sheet. Above all, we are committed to prudent 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. 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. I am also encouraged by the fact that today's weak 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. As such, we have made very good progress on this transformation with our lignin pilot plant in Rosenthal, a 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. Thanks again for listening, and I will now turn the call back to the operator for questions. Thank you.

Juan Carlos, I appreciate all the points on cost savings initiatives, working capital reductions and lower CapEx. Wondering if you can give some perspective on thinking around potential asset sales to expedite deleveraging on the balance sheet. Anything under consideration? And can you give us a sense of the scale?

Absolutely, Sean. Yes, we've been looking at this in detail for the last few months. At this point, we're not at liberty to disclose anything. We do recognize, however, that the current market environment is not ideal for us for divestitures.

Okay. And on the broader softwood pulp market, it's an extended trough. Mill inventories still look really high. We're closer to the bottom. Can you give perspective on how much capacity you think needs to be taken out permanently to right-size the industry to what demand will normalize to over the next few years?

Yes, Sean, that's a very good question, but it's not easy to provide a precise number. Throughout the year, several mills have been curtailing operations for extended periods. There are some in Finland that were offline for probably more than six months. While these curtailments are significant, they don't have the same impact as a full closure announcement since they are temporary measures. We believe that given the length of this downturn, and although we think we are at the bottom of the price curve, there should be closures of pulp mills. It wouldn't surprise us if some Finnish or Canadian mills, particularly those facing bigger challenges with access to fiber, went out of business. The situation in Canada is very complicated due to additional tariffs. We have seen announcements of several sawmill closures, which puts further pressure on a fiber market that is already tight, especially in British Columbia. This situation has become considerably worse with the introduction of these tariffs and countervailing duties. In the case of Celgar, our location and strategy allow us to be less reliant on British Columbia fiber, which gives us an advantage. However, this isn't the case for many others in the interior of the province. In Germany, we have the benefit of being surrounded by forests. Even though costs are rising, we still have access to fiber and competitive assets that can remain profitable under these conditions, unlike the Finnish and Swedish mills that are dealing with very high wood costs in their traditional sources.

I'm hoping you could talk a little bit more about the substitution issues that you mentioned this quarter. I mean, it's certainly been an ongoing issue for the industry. Would you say the increase is more region-specific or end-user specific? And maybe tied into that also, at what differential do you think that substitution then may abate?

Yes, Sandy, that's a great question. As you pointed out, substitution has been occurring for several years now. It's not a new phenomenon, and it's part of the growth we're seeing in hardwood, which has been driven by substitution. This has been a reality for quite some time. What might be different now is that recently, many paper producers have optimized their processes to take full advantage of the price differences between the two fibers. As this price differential has increased significantly, it challenges producers to reconsider their limits. In Europe and China, for example, a price difference of $200 per tonne has led some producers to reduce softwood usage and increase chemical content. Additionally, many machines are operating below capacity, offering an opportunity to decrease softwood consumption. However, increasing chemical use or pushing beyond established limits does affect the final product quality. For instance, if a producer reduces softwood in a paper towel, the absorbency and quality would decline, leading customers to notice these changes. Currently, we've observed about a 2% substitution rate connected to this $200 price gap when speaking with our European clients. This is on top of the more significant substitution trends that have been ongoing for years. Regarding sustainability, we're already seeing some improvement, with hardwood starting to gain traction as prices gradually increase. If the price gap narrows to the $170s or $150s, we don't anticipate continued reliance on extreme measures, potentially reverting back to previous conditions before the $200 gap emerged.

And I guess, related to that, whether Mercer or other NBSK producers like just further discounted NBSK to close the gap and then at least get the volume, although at much lower margins?

When hardwood prices are very low, it limits the potential for softwood prices. A year ago, the softwood market was tight, and people believed that there was no reason for softwood prices to fall. However, as hardwood prices continued to decline, softwood prices followed suit. This situation is significant because while hardwood prices drop, softwood has some resilience that prevents it from falling entirely. This inherent value in softwood fiber is why the gap has increased to $200. Producers have to make independent decisions on whether to prioritize price or volume, but we have our own strategy and know we can sell everything we produce. We maintain strong relationships with our customers, which provides us confidence and flexibility in pricing decisions.

Okay. And maybe a last one for me, shifting gears on the liquidity front, you mentioned asset sales. Any other liquidity-enhancing actions you could be considering? And I know, on the last call, in terms of minimum liquidity, you felt it was a long way from being uncomfortable. How are you feeling about it now? Have you maybe had to start discussions with banks about maintaining liquidity during this rough period for the company and industry?

Yes. We've started some of those discussions. We started discussions. For example, we have revolving facilities that are due in '27 that need to be renewed. We've started those conversations, and those are going very well. There's no reason to believe that we won't be able to renew those if we decide to go for that. Also, looking at 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 expire. We're acting upon those things. So yes, we're looking at all the things that we have to do preemptively so that we don't let time go by and take us by surprise. We know that it's a complicated market that we're dealing with. We know that asset divestitures are part of the options that are out there. 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. 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, focusing 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 later. So yes, there's things that we can do other than the usual cost reductions that are obviously in full motion already since the second quarter.

Juan Carlos, you mentioned the possibility of reducing CapEx. What range of CapEx outcomes do you foresee for 2026?

Hamir, it's Rich. 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.

Great. And then, I guess, related to that, how should we think about the planned shuts for 2026? And is there any sort of maybe room to stretch some of those out?

Yes. 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. We were actually thinking about that for this particular year, but we decided to keep the 18 months. Otherwise, we wouldn't be having a shutdown right now. So that is good news for 2026, no shutdown in Stendal. On the other mills, Celgar 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. So yes, we're stretching things on shutdowns for next year.

Just one for me. How would you describe the industry supply-demand balance in North American mass timber right now? And with recent changes in capacity and the demand inflection we're seeing, what are your expectations for how that trends into 2026?

Thank you, Matthew. As I mentioned earlier, we are really excited about the developments in mass timber. The volume of project inquiries and the bids we are participating in are quite encouraging. A major factor is the investments in AI data centers, which are gaining momentum. For perspective, companies like Google, Amazon, and Meta are planning a $2.6 trillion investment in data center construction over the next four years. This significant business influx is expected in North America. Currently, I believe there isn’t enough installed capacity to meet the forthcoming demand. Competitors are adding capacity for next year, which will likely align well with market growth. For context, our own sales are projected to increase from around $50 million to $130 million next year. We also plan to implement a second shift at one of our mills, and possibly at another facility, during the year. This indicates a strong demand that we need to fulfill. It's worth noting that European mills, which have been operating at full capacity for several years, are now directing some of their production to North America despite high shipping costs. This has kept them operating efficiently. However, with a new 15% tariff and a stronger currency making their products pricier, their competitiveness has diminished compared to last year. Consequently, we anticipate a decrease in product availability from Europe, exerting more pressure on North American producers to meet rising demand. We maintain strong connections with hyperscalers and are involved in several of their projects, with some already secured and included in our backlog. This is very encouraging, especially considering AI’s significant role in driving this growth.

The next question comes from Cole Hathorn with Jefferies. The growth is expected to continue at a strong pace. We have established solid relationships with several hyperscalers and are involved in various projects they are launching. We have already secured some of these projects, which are included in our backlog and order book. This is certainly encouraging, and I can only emphasize that AI is a major factor driving this growth.

I've got three on 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 the German government for kind of energy-consuming industries. 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.

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. Thank you for your patience. Your conference will resume momentarily. Richard, I see that you have rejoined. Are you able to hear me, sir?

Yes.

Yes.

You may proceed.

No, no rebates.

Following on Germany's elevated wood costs, can you provide some insights on the wood chip prices?

Certainly, Cole. Currently, the price for pallets and biofuels is quite high, exceeding EUR 300 per tonne. This allows pallet producers to purchase wood chips at significantly higher prices than we can. Consequently, they are securing a substantial portion of the supply, which adds pressure on us when we approach the same sawmills for our chips. This dynamic is contributing to the increased volatility in wood chip prices for pulp. It is largely influenced by the demand for wood pallets. We will need to monitor how winter unfolds to see if these conditions persist or if a milder winter leads to a quick reversal. We've experienced these fluctuations in the past and do not view them as structural changes; rather, it’s one industry capitalizing on a specific situation.

And then, we've seen West Fraser Timber, unfortunately, closing a sawmill in British Columbia. I'm just wondering how many do you need to see close before you kind of have that tipping point where too many wood chips are removed from the British Columbia market and we see a pulp mill really under pressure?

I believe that situation is already present, to be honest. I am sometimes surprised that we haven't heard about any pulp closures because access to chips is extremely limited. You might recall that two years ago, we sold our stake in Cariboo, where we had a 50% ownership alongside West Fraser. We decided to divest from that business because we didn’t see a future in terms of fiber supply. As I mentioned earlier in the call, Celgar's situation is quite different since we can leverage the U.S. as a significant source, allowing us to operate at higher levels than we currently are. This limits our dependence on British Columbia. However, we are likely one of only two pulp mills with this advantage, while the others rely solely on British Columbia chips, and they are already under considerable pressure.

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, I mean, considering tariffs and industries like the paper and packaging industry in British Columbia that's under pressure. Have you investigated any opportunities to access much lower-cost financing from either the regional or kind of federal government there?

We are actively involved in lobbying through our industry associations and have direct interactions with officials such as Minister Parmar and Premier Eby. We raise important issues for our interests during these discussions. It's important to note that the BC government's initiatives primarily support the lumber industry, which has been a focal point due to the tariff situation. Other sectors, like steel and auto, are also part of these discussions, but lumber is central to the topic. We do not have sawmills and therefore lack access to certain credit lines that are aimed at that sector facing challenges. The government's counter tariffs and duties may provide some benefit to sawmill companies, but since our business does not depend on sawmilling, we do not have access to those benefits.

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.

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. Otherwise, we look forward to speaking to you again at our next earnings call in February. Bye for now.

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