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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by, and welcome to the Mondi Group Trading Update. [Operator Instructions] I must advise you the conference is being recorded today, Thursday, the 10th of October 2019.And I'd now like to hand the conference over to your speaker today, Peter Oswald. Please go ahead.
Good morning and welcome. Thank you for joining this call. I'm Peter Oswald, Chief Executive of Mondi; and I'm joined by Andrew King, our CFO. I would like to briefly summarize this morning's announcement and then we will be happy to take your questions.As outlined in our half year results, demand in the third quarter remained generally softer across the markets in which we operate and prices for key paper grades were below those of the first half. Consequently, underlying EBITDA for the third quarter was EUR 383 million, down 18% on the prior year and 9% below the second quarter. Lower average selling prices from the highs reached towards the end of 2018 and into early 2019, coupled with the anticipated lower forestry fair value gain, more than offset the benefits of our ongoing profit improvement initiatives. Pleasingly, we are making good progress on our previously announced major capital investment projects in Central Europe.So let's now turn to our business units. In Fibre Packaging, containerboard markets showed signs of stabilizing during the quarter following the sharp price erosion seen in the first half of the year. Corrugated Packaging saw good volume growth and continues to benefit from an innovative product offering and lower input paper costs. Sack kraft paper demand was generally weaker during the quarter, in particular in export markets. Demand for speciality kraft paper remains good. In line with expectations, price reductions in selected kraft paper grades became effective at the beginning of the quarter, although prices remained above 2018 levels. We've taken downtime at certain operations in order to manage our inventory levels in response to softer demand.Industrial Bags volumes were lower than in the comparable prior year period, however, we have seen an improvement in order books over the past 6 weeks. And by this, we mean it's not just consequentially but year-on-year, and that's something new in 2019. Consumer Packaging made steady progress, benefiting from product innovation and continuous improvement initiatives. And we continue to work with our customers, suppliers and other stakeholders to find innovative solutions that improve the sustainability of plastic packaging.In Uncoated Fine Paper, compared to the previous quarter, we saw lower average uncoated fine paper prices, significantly lower pulp selling prices and, as anticipated, a materially lower forestry fair value gain. Strong cost control and shorter planned maintenance shuts could only partly offset these pressures.We also have announced today the reorganization of our business segments. Why? We want to enhance our offering in sustainable packaging solutions and improve the way we partner with our customers, and therefore, we organize alongside value chains. The group will be organized across 4 business units: Corrugated Packaging, consisting of containerboard and corrugated solutions, so the downstream business; Flexible Packaging, consisting of kraft paper, paper bags and consumer flexibles; Engineered Materials, made up of personal care components, extrusion solutions and release liner; and Uncoated Fine Paper, as before.Restated segmental information will be published during the fourth quarter, and the new structure will mean more disclosure for you. The reorganization, as such, has no impact on the overall group results.Turning now to the outlook. As we entered the fourth quarter, prices were, on average, marginally below those of the third quarter. If sustained, the impact of this lower pricing is expected to be largely offset by an easing of pressure on the cost base, supported by our ongoing profit improvement initiatives.The group's robust business model centered around our high-quality, cost-advantaged asset base, our portfolio of sustainable packaging solutions, clear strategic focus and culture of continuous improvement, gives us confidence in continuing to deliver a strong and industry-leading performance.Thank you for your time. Andrew and I would now be happy to answer any questions you may have.
[Operator Instructions] Your first question comes from the line of Matthias Pfeifenberger.
I've got 2. The first one is really on corrugated. Maybe you can shed some light on really the demand development there. Has it become a little bit weaker? Because it's astonishing how this business holds up well when something like 1/3 of the volumes are also driven by industrial, [ car parts ] and white goods. And also, pricing has been very resilient even with containerboard, prices going down, so maybe some color there. And then basically, the second one would be on the reorg. It seems like you split the Flexible Packaging business, and we saw your efforts in the HPC business over the years and now the release liners are a separate division. So is that also a basis for a potential disposal of the HPC business?
Yes. Thank you, Matthias. So on the question of corrugated, I mean, as you can see from industry statistics, demand isn't great, but European markets are growing in the range of, let's call it, 1%. The number -- so we are growing more than that, which is simply a consequence of our innovation work we have done and some specific contracts. So -- and in terms -- I think you were also alluding to the questions of prices. Prices have indeed held up fairly well, so the price decline, which we have seen in containerboard, has only been partly passed on. But it's also obvious what we see most recently that the willingness of some box producers to pass on more of that is increasing.In terms of reorganization, yes, you picked it right. So we split basically Consumer Packaging into the 2 parts, which we think it should be split. There was a historical reason after the acquisition of Nordenia that this was one business unit, but it always consisted, as was highlighted in all of our presentations, always of 2 parts: one is the genuine plastic business, so a business which -- where we would find a company like Berry Plastics in; and the other was the genuine consumer flexibles business where the global market leader is Amcor, just to give reference to other groups. So that made, just from a -- just made sense. And so finally, we have done it.And this enables us also -- as we see a very good development of our EcoSolutions project, which is basically about how to make packaging more sustainable, so in some cases, moving plastics to paper; in some cases, making plastics recyclable, that it's very favorable that our paper bag business and our consumer flexibles business is what we would call them going forward. So the CGP business historically are within one business unit because we see a lot of projects and where we constantly -- where we didn't know where to put it. So I think it makes us more efficient. It's clearly targeted towards our customers who don't care, at the end of the day, how we are organized. And I think it will make us stronger and make our product offering stronger. And yes -- and then you said -- you asked on is it a potential disposal. No. We have very strong markets position in our Engineered Materials or leading market positions from extrusion coating, release liner, stripe film, label film. So it has nothing to do with a disposal, but just making it clear what it is. So one is a materials business and the other is packaging business.
The next question comes from the line of David O'Brien of Goodbody.
Firstly, if I just comment on the ongoing improvement initiatives, can you give us some color on them and maybe quantify what the impact of those are going to be in Q4 to offset the pricing pressure that we're seeing through the numbers? And secondly, just on the downtime on the kraft business that you're taking, could you quantify the amount of tonnes you're taking out and the financial impact? And given that, that environment persists that you feel the need to take a downtime, should we expect more price pressure in that space? And then finally, on containerboard, you intimated during the last conference call that order books were improving through Q2. Has that manifested itself in a better delivery number in terms of volumes in Q3? And how are you seeing order books at the moment? And sorry, maybe finally, I'll chance my arm. Could you quantify what corrugated pricing have done sequentially on a like-for-like basis Q3 versus Q2?
So these were 4 questions. If I may, I -- so Andrew, if you start with the first.
Yes, sure. I think, David, obviously it's always a huge multitude of things that we do to -- on an ongoing basis, and I think that needs to be stressed. It's not as if we suddenly accelerate any issues or anything. We're continually working on the cost base. I think it's clear that we are now also seeing some benefit come through, through lower input costs. So we saw in the Q3, generally speaking, the key input costs of wood, obviously a little bit on the paper for recycling side as well. But energy, chemicals, all of these did show some sequential decline in the cost of those inputs. And we certainly, as we sit today, expect more of that in the fourth quarter.And then we're simply saying, on top of that, we would obviously be looking to continue our, what we call, our profit improvement initiatives because it's not just cost takeout. It's also efficiencies and pricing strategies, et cetera, which will complement that reduction in those key input costs. It's, as always, very difficult to quantify exactly that amount. But what we are suggesting in the outlook statement is that it would largely offset any pricing erosion we're seeing which goes into the fourth quarter given the current spot prices.
Okay. Then your second question was the take-up of volume in kraft paper. Obviously that's also difficult to say. You see, in a soft environment, what happens is that you get lower order book and you have to make your trade-offs between volumes and prices. And so we pragmatically, so to say, decide upon it, and therefore, we can't really give an outlook. Yes, it is a soft environment, as is reflected in the figures. What does it mean for year-end negotiations? It's too early to tell, but -- and it's different according to different grade, different according to different continents. We should also keep in mind that given our good position of forward integration, obviously a kraft paper price reduction doesn't need necessarily to be a reduction in bags. On your question with containerboard order books, our order book in containerboard is very good, yes. It has further improved. And then another question maybe for you, Andrew, that was on corrugated prices.
Yes. I think on the box prices, we're not going to give a quantification because it's, frankly, it's a bit misleading because it's all a function of the different markets in which we operate. It's all the currency effects. Clearly, we operate in some markets like Turkey where the currency movements are quite significant. So I think it would be wrong to try and pin it down to some specific kind of index number.But as Peter rightly says, I mean, obviously, you've seen quite a significant decline in the containerboard price. And box prices have come off sequentially if you try and index it and look through all the currency effects but clearly not nearly to the extent of the drop in the input cost being the -- the key input cost being the containerboard side.
Okay. If I -- just one follow-up. Just on the current stats, the order books in containerboard look very good. How do I weigh it up first, the efforts to increase containerboard pricing during the summer not really coming to fruition?
Yes, it seems we can't speak for the industry. But as we have not got any support and as I think the order books throughout the industry might not be as good as our order book, what we know from individual cases, we see at the moment no possibility in the very near future to increase containerboard prices.
The next question comes from the line of Mikael Doepel of UBS.Your next question comes from the line of Alexander Berglund of Bank of America.
I think most of my questions have already been answered. I just want to try to get a bit more color on containerboard, just if you see currently any difference in the market environment for the different grades, I mean, talking both kind of virgin versus recycled, but also kind of the niche spreads, SC fluting and white kraftliner. And then my second question is kind of on the kraft paper Industrial Bags portfolio. I mean if we think about our portfolio, given that we're having -- it seems like we're having a little bit different trends on the kraft paper side versus speciality kraft, can you just remind us, if you look at the whole portfolio, what percentage currently is speciality kraft? Those are my questions.
Yes. Yes, thank you, Alex. So with regards to grades of containerboard and individual movements, we see still some weakness in recycled containerboards. So we are well booked, but for reasons which are not so clear to me, the market doesn't think about the paper price increase. There are even rumors about a 10% -- EUR 10, sorry, a EUR 10 reduction. Kraftliner is -- brown kraftliner is pretty stable. And we are happy with white top kraftliner and thus, basically, semi-chem fluting is absolutely constant. So we have -- we shouldn't forget that 40% of our volume is speciality containerboard, which we define as white top kraftliner and semi-chem fluting. And in this area, we really had -- we are more like minus EUR 30, minus EUR 40 as opposed to [ above ] EUR 100 for the other grades. There are sometimes, for the normal grades, even higher numbers mentioned, which we can't follow exactly. It is not EUR 140 for us, which is sometimes mentioned. So we are in the range of EUR 120. And on the other -- the question of kraft paper. So as we've said, so 3/4 of our volume is sack kraft paper and 1/4 is speciality kraft paper. We should, however, be aware of the fact that some machine can't produce both, only some and only for some grades. And so this composition can also change marginally over time, but that's the rough split at the moment.
And I guess as a follow-up on that. So if we continue to have this trend, we can -- the demand for the speciality kraft is relatively better, you could potentially increase that a little bit, that share.
Yes. We've already done it to a small extent. And with the new machines at the end of 2020, our flexibility increases again.
We will now take our question from Mikael Doepel of UBS.
I have a couple of questions. First of all, on the fine paper business, we've seen demand trending -- well, being below trend, you could say, this year. Is this something you think will continue? Or is this reflecting destocking? How should we think about demand declines in fine papers going forward? And also, on fine papers, how do you view the pricing situation now? We have seen some erosion during the summer. Do you expect that to continue or perhaps stabilizing?
Yes. Thank you, Mikael. So the demand decline, yes, that's anyone's guess. So we think, given the overall weakness of the economy, obviously, this decline, which is in Europe around 4% to 5%, we don't believe this is the new trend. We've always guided in Europe minus 1% to minus 2%. We are currently of the opinion, it's probably around the range of minus 2%. With regards to pricing, I wouldn't expect 2 big movements. But obviously, the weak pulp price has, as a trend, a negative implication. But we know from the past that the correlation between the 2 prices has weakened, so you can't translate drop in -- or a lower pulp price 1:1 into a lower uncoated fine paper price. But equally, it would be wrong to say the 2 are completely decoupled. So I think we will see some softness. And we shouldn't forget that supply side has been reduced. And again, good news also from the U.S. but also from Europe, and this is supportive.
Yes, that's clear. Then just a final question on your gains from investments. Is the guidance still intact for this year? I think it was EUR 45 million or so. And can you say anything about 2020, what we should expect to see there?
Yes. Mikael, I'll take that. I think when you mean gains from investment, that's our organic capital and expansions as opposed to the sort of acquisition-led gains. Yes, as you rightly said, we said at the half year around EUR 45 million is our expectation for the full year. Yes, we start -- we hold by that. I think it's probably -- it will be a little bit below that purely because obviously the big exposure there is expansion of the kraft paper operations in Štetí, which came through the beginning of the year. And obviously, that also brings a little bit of pulp as well. Clearly, with the current spot prices of pulp and the lower kraft paper price, that could come off a little bit. But given that we sort of bought [ hunt ] along in the year, it's not going to be a material impact in the year.Next year, obviously, the big incremental expansion comes through in the Slovakian operations with, again, a pulp expansion in Ružomberok, which then gets integrated into that new white top kraftliner machine or white top hybrid machine. And that's -- so clearly, in the first instance, the pulp price being a bit lower means that the guidance would probably be a bit lower than it would have been 12 months ago. But it's still very robust returns because you're effectively getting very low-cost incremental pulp out of that operation being a debottlenecking project. We haven't fully quantified the full effects of next year given current pricing, et cetera, but I guess somewhere in the range of EUR 30 million to EUR 50 million would be the expectation for next year's incremental gains from CapEx.
The next question comes from the line of Barry Dixon of Davy.
Two questions, please. First, Andrew, maybe you might just help us to bridge the fair value gain for Q3 and for H2 given the outperformance that you had in the first half and possibly you might do the same for the maintenance costs.And second, a more general question, that sort of demand environment and the reorg of the business. And I suppose just kind of think as to, a, how much the sort of shift from plastics to paper is driving that thinking around the shift and the reorg of the business; and I suppose, more importantly, can you try and give us some sense as to where we are in that trend in terms of that shift from plastics to paper and how that sort of informs your capital allocation thinking within the business on the consumer packaging side, the flexible side versus the corrugated or the specialty kraft side?
Barry, I'll take the first prosaic question, and Peter can take the more visionary second question. On the fair value gain, yes, to be very explicit, I think we did EUR 52 million, off the top of my head, in the first half of the year on that, and that was second quarter weighted in terms of the way it was booked. As we said at the half year very, very clearly, we didn't expect anything like that to repeat in the second half because we've got the big, call it, price increase on the export tender, which is really the big determinant there in the first half for this year. And that is certainly what's played out in the third quarter.We don't explicitly say it, but it's somewhere between EUR 5 million and EUR 10 million we booked in the second -- third quarter, sorry, on that. I would expect something similar again in the fourth quarter. There's no reason to believe it can be materially different to that. But of course, I always say that under advisement, because if any last-minute moves in key variables that affect that valuation, of course, that can have a short-term impact, be that a decline in the rand or an increase in the export price of timber again or something like that. But in the absence of something like that, I would expect it to be something similar again in the fourth quarter, and that would be our best guidance at this stage.
And Andrew, sorry, just what would that have been in Q3 last year, the fair value gain?
It was also pretty low number of gain. I don't have it on -- off the top of my head, but it just was a small number last Q3 as well. It's a not very similar number.
Yes. Then on the question of plastics to paper, actually, what we see very clearly now is that this trend is gaining momentum. So that is also -- was one of the reasons why we did the reorganization that it's just inseparable, so who does what. And it puts us into a very strong place because we have, thanks to our consumer flexibles, still very good access to the FMCGs and the retailers. We have the paper solutions. We are developing these paper solutions. So we think that this is a secular trend which will be very important for our growth prospect in kraft paper but also in paper bags. And finally also in consumer flexibles and the lines [ agree ] also, sometimes, we can't say where it is. Having said that, it's also clear that we work from a very low base, so it's like e-commerce being a driver of corrugated boxes 10 years ago. So we got now several exclusive deals for individual countries where retailers or FMCG companies make tests with our products. So for instance, paper trays instead of plastic trays, that's all very promising. But if I told you about the numbers involved, so it's 1,500 tonnes here and it's 2,000 tonnes there. So the numbers are still small. But if, going forward, if these tests are successful, and we have every reason to believe in it, then the numbers will finally get bigger. But over the -- for 2019 and 2020, it doesn't have a material impact, but it's very important because it has better margin and interesting products. And EcoVantage is gaining momentum with a supply problem there because the machine isn't operating [ today ] for a year.
And your next question comes from the line of Lars Kjellberg of Crédit Suisse.
First, going back to your [ comments on improving ] order books on the sack kraft side, is there sort of any particular region that is happening [indiscernible], I should say...
Sorry, Lars, it's a bit -- the line is very bad. I can hardly hear you.
Okay. Can you hear me any better now?
Much better, yes. Could you please repeat?
And so I was saying, just the -- yes, so the -- your comments about improving order books on the sack kraft side, are there any particular regions this is happening in? And what do you see is driving that?
So I was specifically referring to bags that here we see the uptick, and it's interestingly more or less around the globe. We haven't seen this yet in paper, so in our kraft paper. But normally, it's a good indication. If one gets stronger, then sooner or later, the others will follow. I think the major reason is that in the stock -- the very high stocks which typically cement companies but also retailers have built up, have been worked off. And therefore, we are more coming back to a normal situation. And again, it's not like -- it's not a boom. It's just a return to normality. But it is very encouraging that if you look week after week how you did against last year, that we see now for 6 weeks, 6 or 7 weeks an improvement. So it's destocking in one word. That's I think the main reason. You can't see an acceleration of overall business.
Got it. And you obviously have a number of investments ongoing and you called out Ružomberok as the big one. But you also talked in the past about Syktyvkar multiple projects that we're doing there with various, I guess, debottlenecking impacts. Where are you with that? And what exactly are you doing? If you can share any further color on that, please.
Yes. So in Syktyvkar, we are continuing with a smaller debottlenecking so that we are at the energy side on pipe. And we will see more effect, so the effect this year and also next year is fairly limited. The major effect will flow through in 2021 because obviously the debottleneckings depend on each other. So it's pipe and energy in the -- mainly.
And exactly what is the impact on pulp then that you expect in 2021?
Yes. Overall, we said 100,000 tonnes and that's -- half of that will be -- it depends on the debottlenecking of the paper. Let's say the majority will be more than 50% will be more paper and the rest is market pulp.
Got it. And finally, can you comment anything about the operating environment in South Africa? I mean it seems to be on and off again. There is load shedding and issues. How are you doing in South Africa? Is that still a good place to operate?
Yes. So overall, we have no specific problems in South Africa. What we have in general is, and we are working very hard on this, a somewhat lower operational efficiency. So more machine stops or maintenance works to do. And we have now assigned a number of expatriates to -- and trainings program for local people to improve it. But overall, it's -- let's say, we are doing operationally clearly better than we did 2 years ago.
I think, Lars, it's very important to note that obviously, Richards Bay or the South African business, and that is energy self-sufficient. In fact, we can produce surplus energy at Richards Bay, so we are less exposed to those issues around the grid. Although, obviously, if it affects your supplier -- key suppliers, et cetera, then of course, it can have an impact. But certainly, we haven't been impacted by that. In a way, we've been able to operate.
Your next question comes from the line of James Twyman of Prescient.
So firstly, on the sacks business, you're talking about downtime, but you've also mentioned that you're seeing a pickup in orders. So are you expecting downtime to be happening in Q4 as well as Q3? And if so, what sort of size or volume decline you're expecting in Q4? Is it marginal or is it 5% or what? And secondly, kraftliner, are you seeing any demand for kraftliner from China due to the waste paper issue there in terms of fiber shortages, which I know is something that's been discussed before?And then finally, just on box prices, I know you're not being specific about the fall in prices that's happening there. But given the fall that we've seen in containerboard prices, has the fall in box prices been half what you expected, quarter, 3/4? Just some sort of idea of scale of that, please, would be great.
James, maybe I could just quickly take the first question on the downtime in particular. Just to be very clear, I think as Peter said in the last discussion, the pickup in the order book is on the industrial bags front. The downtime you referred to is on the kraft paper. So the one is the upstream activity being the kraft paper side, and then the industrial bags is where we've seen a slight change in the trend of the order book over the last 6 weeks or so.So clearly, they have an actual effect on each other, but there's always a delayed reaction to that. But it's obviously encouraging that the end demand, which is, in our case, illustrated by the order book on industrial bags, is showing an improving trend now, having softened over the last 2 quarters or so. How that then translates upstream into the kraft paper demand is obviously one assumes it does over time, but it's too early to call that at this stage. So there is a difference between the upstream and downstream activities just at the moment, but there will be a link over time. So we -- it's encouraging that, that pickup has happened, but we will have to see how that then translates up the value chain. I think the second question on...
Yes. On kraftliner to China, so there is a lot of interest in China. But according to our knowledge, the situation in China is obviously worse than we all appreciated and, therefore, there is a bit more demand, but it's not the huge volumes which we would have expected. And obviously, their shortfall is also split between recycled containerboard and kraftliner. So kraftliner is -- so China is a marginal positive for kraftliner, but unfortunately, not the main positive. With regards to box prices, it's very difficult to generalize also across different markets in Europe. And you know that we have also a limited footprint in countries. You talked about Europe overall. But generally, what we have seen, and we have explained that in the half year results, is that normally you would see prices drop with a 3- to 6-month delay. And we were positively surprised from what we could see with our price is that the price pressure really started in around August, which is actually 8 months after paper prices had fallen, which is positive.But equally, you see that the discipline amongst converters, so to say, no to pass their prices immediately on is waning over time. And things are getting a bit rougher. So finally, some part of it will be passed on. That's pretty obvious. It's difficult to track because it depends. We have existing products, new products, how our new product's priced, but we will see in the Corrugated Packaging further pressure.
If I could just ask the question in a different way. Are you expecting more downtime in kraft paper in Q4 than in Q3? And then also this latest divisional restructuring...
That's very, that question. No.
So it's no worse, maybe better?
It's no worse, but again, also not significantly better, I guess, because converters have still fairly high paper stocks. And so the positive trend impact is not yet visible in our order book in kraft paper and sack kraft paper.
Okay. And finally, this latest divisional restructuring, is there any cost to that? Or is it pretty negligible?
It's absolutely negligible. I mean we have, below the business unit, business segments. And basically, they're completely identical. It's just that the reporting lines then to the business unit process have changed. So instead of someone being responsible for containerboard and kraft paper is now responsible for containerboard and corrugated packaging. And we've moved consumer goods packaging to now called consumer flexibles to the value chain of kraft paper and bags. So it's a pure organizational change. Obviously, we have used it also to take a bit of cost out, but that was not the main driver.
The next question comes from the line of Cole Hathorn of Jefferies.
Could you make some color on what you're seeing from the U.S. exporters into Europe on kraftliner? And if you think that at current prices what they're exporting to Europe, they're broadly there by their marginal cash cost production.
Yes. So U.S. exports are still below last year, but so to say that the gap to last year, the minus has decreased a bit, so we are now at about minus 20%. Overall, yes, they are dumping at fairly low prices. We ignore them because it's a different quality proposition. I mean we -- in terms of the grammages you need, you need much higher grammages if you use lower-quality U.S. kraftliner. And so -- but overall, it's supportive of the market in terms there are less imports.
And just following up on that. I mean with all the debate on U.S. and European tariffs around different sectors, has there been a question that the industry body, like CEPI has raised at all on kraftliner imports from the U.S.? Because, I mean, there is a very big gap between U.S. domestic price and export prices.
Yes. As you say, Cole, it's a clear case of dumping. And -- but Europe is generally a very liberal market, liberal -- has a very market-liberal approach. So it depends on the absolute level. But let's say, if there was a trade war or if there will be a direct trade war between Europe and U.S., then import duties will be imposed for sure. If there is no direct trade war, it will then depend on the absolute level because a requirement in Europe is that companies are significantly hurt by it and -- yes, it depends then on the profit level, which in Mondi's case is still very satisfying. For some others, it's getting more a problem, and that could then trigger import duties.
Sure. And then, Andrew, I wonder if you can give us some color on uncoated fine paper prices. I mean they've held up relatively well, but they didn't rise as much as they did when pulp prices went up. Do you have any color or expectations on where uncoated fine paper prices may be at the moment and where we are versus kind of the marginal cost producer in that grade?
Yes. I think, as Peter said earlier, I mean, clearly, the pulp price is a factor. But as you rightly point out, when the pulp price went up very rapidly over 18 months ago or something, the paper price only moved very modestly. I mean you can see it in the various index prices, et cetera. So while it is a factor, it's not a key driver. Clearly, people use it as an argument when in price negotiations, if there's less cost support from pulp with the unintegrated players, but we wouldn't say, by any means, that it's the single biggest determinant of the direction of paper prices.As Peter said earlier, I mean, clearly, we've seen the demand side decline this year in excess of what we would typically expect to see. And I think that's clearly also a reflection of the macroeconomic slowdown more than a structural issue. I mean there is the normal structural, call it, 1% to 2% decline. And then on top of that, it's being exacerbated at the moment. But of course, that can also change. So I think that's the bigger driver behind why you're seeing some price erosion right now on the paper side. But having said that and as Peter said earlier, we are seeing some supply-side reductions. We obviously saw some capacity taken out in the first half. We expect some more from competitors in this half with the machine conversion taking place, which will take some tonnes out of the market, which, of course, is supportive at the same time. So I think that is the tradeoff which one needs to focus on. The pulp price is a contributor, but it's by no means the single biggest driver behind paper prices.
There are no further questions on the line, sir.
Yes. And I thank everyone for joining, and have all a good day. Thank you. Bye.
That does conclude our conference for today. Thank you for participating. You may all disconnect.