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Hello, everyone, and welcome to the Empresas CMPC Third Quarter Earnings 2020 Results Conference Call. [Operator Instructions] On the call with us today are Ignacio Goldsack, Chief Financial Officer; and Colomba Henriquez, Head of Investor Relations. [Operator Instructions] Please note this event is being recorded. Please note that statements made today during the presentation and Q&A may include forward-looking statements to assist you in understanding our expectations for future performance. These statements are subject to some risks that could cause actual results and events to differ materially, and I'll refer you to the company's press release and regulatory filings for discussions of those risks. In addition, statements during this call, including statements related to conditions in the global pulp, personal care, forestry product and paper and packaging markets, are based on management's views as of today, and it is to be expected that future developments may cause these views to change. Please consider the information presented in this light. The company may at some point elect to update the forward-looking statements made today but specifically disclaims any obligation to do so except where required by law. And now I'll turn the floor over to Mr. Ignacio Goldsack, Chief Financial Officer. Please, Mr. Goldsack, you may proceed.
Thank you and welcome, everyone, to our third quarter 2020 results conference call. Starting on Slide #3 of the presentation. During this year, we have faced some headwinds, like the COVID-19 pandemic and lower pulp prices, but we are satisfied with how CMPC responded to these challenges. It shows that we are able to adapt and overcome difficulties and continue to deliver a good operational result. EBITDA for the third quarter was stable compared to last quarter, despite the scheduled maintenance downtimes in Guaiba II and Pacifico mills. This is partly the result of the strong operational performance of the Pulp and Biopackaging business units, together with a low cost and expenses base which is part of our ongoing efforts to increase our profitability. We ended the quarter with a solid financial position. And even though our level of cash decreased as we [ faced ] the liquidity plans we executed in the first quarter of this year, we closed the quarter with $958 million in cash, while decreasing our net debt position. We also have $300 million in committed trade facilities until 2022 to reinforce our liquidity position if we need it. Now turning to Slide #4. Pulp prices continued to be weak during the quarter, both grades decreasing 3% quarter-on-quarter. Pulp production was slower than the last quarter as a result of maintenance downtimes, but we were able to increase our sales by 9% quarter-on-quarter, as we had increased our inventories last quarter. Biopackaging volumes increased 6% quarter-on-quarter, and paper sack volumes returned to normal levels after the restrictions we had during the last quarter in some of our operations. The Softys division saw a decline in their tissue paper sales volumes as the away-from-home segment continues to be affected by the pandemic. As a result, the company's third quarter EBITDA reached $254 million, stable compared to last quarter and down 11% compared with the third quarter of last year. Net income was $0.6 million, mainly explained but negative effect in exchange rate differences and in other gains and losses. The net debt-to-EBITDA ratio reached 3.27x, stable compared to last quarter and within our corporate policy. I would like now to turn the call over Colomba Henriquez, our Head of Investor Relations. Colomba will provide more detail on our results. Please, Colomba, go ahead.
Thank you, Ignacio, and good morning, everyone. Please turn to Slide 5 of our presentation, where there is more information on consolidated operating costs and other operating expenses for the third quarter of 2020. Cost of goods sold reached $858 million, a 7% increase compared to the previous quarter and a 7% decrease compared to the same period of last year. Total [ direct ] operating costs represented 67% of total revenue, compared to 65% in 2Q20 and 3Q19. The 7% sequential increase was primarily due to higher costs in the Pulp division related to maintenance downtimes of the Pacifico and the Guaiba II mill. Also, there were higher operating costs in the Softys business. The year-over-year result is primarily due to lower unit costs in all divisions, supported by lower fiber costs, higher efficiency and the positive effect related to local currency depreciation. Consolidated other operating expenses reached $138 million (sic) [ $178 million ] for the quarter, stable quarter-on-quarter and down 11% year-over-year, representing 13% of total revenue, stable compared to the second quarter of 2020 and in the third quarter of 2019. This quarter-over-quarter result is explained by lower expenses in the Pulp business, while the year-over-year decrease is related to lower administrative expenses in all business areas. Also [ there were lower ] distribution costs in Pulp and Softys and a positive effect related to the depreciation of local currencies both quarter-on-quarter and year-on-year. This was offset by expenses related to COVID-19. Please move to Slide 6, where we can see more details on our Pulp business results. Pulp production reached 1 million tons, decreasing 6% quarter-on-quarter and 5% year-over-year. Pulp production was lower as a result of the maintenance downtimes during the quarter, which affected both softwood and hardwood production. Pulp prices during the third quarter reached $546 per ton for softwood and $454 per ton for hardwood, a decrease of 3% for both compared to the second quarter of 2020. Year-on-year, hardwood prices declined 13%, while softwood decreased 1%. Total market Pulp sales volume increased by 9% quarter-over-quarter and decreased by 7% year-over-year. The quarter-over-quarter increase is explained by the inventory buildup in 2Q20 in preparation of the Guaiba II and Pacifico scheduled maintenance in this quarter. Looking at our quarter-over-quarter performance, we saw a 12% increase on the softwood sales and an 8% increase in hardwood sales, with higher shipments to Asia and Europe. For the year-over-year comparison, sales volumes decreased 2% for softwood, as a result of lower exports to Asia, excluding China, and 9% for hardwoods, with lower exports to Europe and China. Revenues for the Pulp business totaled $439 million, increasing 3% quarter-over-quarter but decreasing 19% year-on-year. Third-party Forestry sales volumes increased by 23% quarter-over-quarter due to higher volumes in most product categories. We saw a significant increase in sawing logs during the quarter as well as higher [indiscernible]. This was partly offset by lower pulpwood sales [ through ] Chile. Year-over-year, Forestry sales volumes to third parties increased by 11%. Just like the quarter-over-quarter comparison, we saw a significant increase in volumes in all categories, except for pulpwood. Forestry revenues totaled $137 million, showing a 13% sequential increase and an 11% annual increase, driven by the previously mentioned increase in sales volumes. Revenues for our Pulp & Forestry business increased by 5% sequentially and decreased 13% compared to 3Q19. Also, EBITDA increased 5% sequentially, but decreased 23% compared to 3Q19. Breaking down the quarter-over-quarter EBITDA increase, we can see that it was primarily due to higher sales volumes during the quarter as well as lower SG&A. This was partly offset by the maintenance downtime expenses during the quarter. In the year-over-year comparison, the decrease resulted largely from lower hardwood prices, which were down 13%, together with lower pulp sale volumes. These was partly compensated by the positive effect in cost and expenses and depreciation of the BRL and CLP during the quarter. Now let's move on to Slide 7, where we will take a closer look at the Softys business. Softys revenues increased by 1% quarter-over-quarter and decreased by 5% year-over-year, reaching $501 million. Tissue paper sales volumes decreased 4% compared to the previous quarter and increased 10% compared to 3Q19. Quarter-over-quarter, we registered lower sales volumes in Uruguay, Mexico, Brazil and Peru. Year-over-year, the increase was mainly a result of higher sales volumes in Brazil, driven by the consolidation of SEPAC, and in Argentina, as a result of the new tissue machine in Zarate. This was partly offset by lower volumes in the away-from-home segment in most of the countries where we operate. Personal care product sales volumes decreased by 2% compared to 2Q20 and increased 15% compared to 3Q19. The quarter-over-quarter decrease was driven by lower wet wipe sales in Chile and Argentina. On the other side, feminine care products sales were up 5%, with increases in all countries, with the exception of Argentina and Colombia. In the year-over-year comparison, personal care sales volumes benefited from higher sales volumes in all categories, with significant increases in most countries where Softys operates. Average sales prices measured in dollars increased 6% for tissue paper and 1% for personal care products compared to 2Q20. The increase in prices is related to the appreciation of the Chilean peso on the Mexican peso as well as higher prices in local currencies. Softys EBITDA reached $59 million during the quarter, decreasing from $76 million in 2Q20 and $60 million in 3Q19. EBITDA margin reached 12%. The quarter-over-quarter decrease relates to lower sales volumes of tissue paper, combined with higher COVID-19 expenses and operating costs. Also, it is worth mentioning that we registered $6 million in the operating results during the second quarter of 2020 related to ICMS credits in our Brazilian subsidiary, which affects the quarter-over-quarter comparison. The year-over-year increase is driven by significantly higher volumes for tissue paper and personal care products as well as higher prices in local currencies. There were also lower operating costs related to lower [indiscernible] costs and administrative expenses. These were compensated by the negative effect of local currency depreciation. Let's now move to Slide 8 of the presentation to give further details on the Biopackaging results. Sales volumes to third parties increased by 6% quarter-over-quarter as a result of higher volumes in paper sacks, corrugated paper and boxboard. Year-over-year, volumes increased 2%. This is explained by higher corrugated paper sales in Argentina, paper sacks sales in Mexico as well as higher [indiscernible] boxes in Chile. Average sale prices increased by 2% sequentially and decreased 3% annually. As a result, revenues increased by 8% quarter-over-quarter and decreased 1% [ year-over-year, reaching $213 million. ] [ The Biopackaging business EBITDA reached $30 million during the quarter, compared to $27 million in 2Q20 and $11 million in 3Q19. EBITDA margin reached 14%. [ The sequential increase is mainly driven by higher sales volumes as well as higher average prices. General increase is mainly from ] lower costs as a result of lower operating costs related to better operational performance and lower fiber costs. This was partly compensated by lower average prices. Ignacio will now go over our financial position. Thank you all.
Thank you, Colomba. Please turn to Slide #9. Free cash flow was positive $111 million during the third quarter. This is a result of a lower [ taxes ] and CapEx during the quarter. CapEx reached $68 million, which is mostly related to maintenance. During the third quarter, we paid back the committed credit line that we had withdrawn as part of the liquidity plan of the first quarter of this year. This way, we decreased our total debt by 5% quarter-on-quarter. Our cash position continues to be solid, at $958 million at the end of the quarter, supported by the positive free cash flow generation. This way, our net debt decreased by 2% compared to the previous quarter, and our net debt-to-EBITDA ratio stood at 3.27x, with only a slight increase compared to the previous quarter. Moving to Page #10 of the presentation. Finally, I would like to mention that we are satisfied with the financial performance we have had up to now. Looking forward, we are committed with the execution of our strategy. We expect to continue working to consolidate our leading position in the markets where we participate, while maintaining a strong liquidity and a solid financial position. We also expect to continue advancing on the operational efficiency and productivity initiatives that we have been implementing over the past years in each of our business divisions for further improvements in this [indiscernible]. I would like to mention that Francisco Ruiz-Tagle, CMPC CEO; Raimundo Varela, Pulp CEO; and Felipe Arancibia, Softys CFO, are also joining the conference call. They will be available to answer any questions you may have. Operator, please open the floor for questions.
[Operator Instructions] The first question comes from George Staphos, from Bank of America.
I'll try to make it a 2-part one question here. On the Pulp side, can you talk a bit further about the volume decline in light of the fact that other producers did see growth in the quarter? Were there any constraints placed on you from the maintenance outages? I wouldn't think so, that it would be that large. But were you satisfied with your volume growth? Why was it not at a higher rate? And what kind of cash cost performance should we see into fourth quarter? And then on tissue, and I'll stop, explain to us why you remain comfortable with your strategy. You've been obviously building a leading position around South America. Yet with all the investment and all the growth, EBITDA is actually down versus last year. Tell us why you are constructive, why you are happy with your strategy and what you expect to see, going forward?
This is Raimundo. I can take the question regarding Pulp. I think Q3 was going to be, and actually it was, the toughest quarter has been in the pulp market. I think Q3 usually is slow. And I think this year also because of COVID during Q3 you had the full impact of the [indiscernible] decline and the benefit of the tissue [indiscernible]. So in that sense, we are satisfied with our volumes. We believe that our volumes were very reasonable and in line with what we were expecting. I think we are very sensitive of the markets and we put through the volumes that we believe are reasonable at a given time. And I think in that sense, we are [indiscernible] maintain what we were expecting. They are slightly above normal, but maybe 20,000 tons. So it's nothing relevant. And I think that the overall situation during Q3, even though it was the toughest quarter, [indiscernible]. So in that sense, we are happy. And I think in your question about cash costs, we have been working for a while in our operational excellence program, which of course costs are very much part of that. [indiscernible]
But beyond that, if you look at our operational indicators we are seeing good improvements. This is part of our program that will never end and we're happy with the performance [ we see in costs ].
Just to complement Raimundo, this is Francisco Ruiz-Tagle. And regarding the costs, what is happening during the last quarter is also we had the maintenance period for 2 of our mills. One is Guaiba II and the other one is Pacifico. So part of these increasing costs also has to be with that. That's a comment. The other thing is it is totally under budget and considered for this period. As Raimundo said, we have had a nice performance in terms of costs in softwood and hardwood.
And on tissue?
[ George, this is Felipe Arancibia speaking. ] So related to your question, let me start with a broad perspective of our strategy. I'm then going to go back to the numbers. First of all, as you will know, we have been working in the last month since the outbreak of COVID-19 in 6 main priorities. Health and safety of our employees and consumers and this is number one. Number two is accelerating our digital transformation, let's say, in ecommerce, procurement, [indiscernible] other optimizations; mainly because higher quality data in real time allows us to, let's say, quickly response and better efficiency. That is a better way to have a very capacity utilization. This is number two. Number three is a manufacturing and road map program. Let's say, footprint optimizations, regional sourcing, efficiency of working in a more linear way. Number four is accelerating for the innovations, not just in consumer tissue but also in personal care; let's say, when we started a couple of months ago with a fast mask. Number five is, I would say, top line growth. We have 2 main issues: revenue management, for one side, and the other one is, let's say, world-class, in-store execution in order to serve in a better way our customers. And the last one is cost saving programs, not just procurement, as was mentioned in other costs before, but also zero-based budget that we have in place now. So having said that, we are quite comfortable with our, let's say, business plan or long-run strategy. And if you look at our full year results, in order to put it in more perspective, we have been able to increase our EBITDA more than double than the previous year, compared with, let's say, on a comparable basis, almost double, including a huge exchange rate or the devaluation of most of our currencies. So in order to be more precise to your question, if I may, even though that we are facing a huge exchange rate impact, we have been able to increase price in local terms but also a quite disciplined execution in cost savings program. So, so far, we are quite comfortable with our business plan that we have in place.
The next question comes from Isabella Vasconcelos, from Bradesco BBI.
I have one, more specifically on the near-term outlook for the pulp market. I don't know if you could comment on how negotiations have been evolving in China after you announced the $20 per ton price hike for hardwood pulp. And also related to the price negotiations, if you could comment a little bit on how high are the inventory levels at paper makers in China and if that could, in your view, hamper the implementation of further price hikes in the region. Those are my questions.
Yes, we announced an increase in price in China for hardwoods of $20, to $470. We think that the market is prepared for that increase. We are in the middle of the negotiations. We are optimistic. I think that the -- it's always difficult in China, but I am confident that I think that increase will [indiscernible]. We have actually already done [indiscernible] and we are in the negotiation with the rest of our customers. But I think that the customers also understand that the level of price, that even the $470 is still very low. And therefore, I think that the chances of gaining that level is relatively high. I think that the inventory levels in China, we monitor more than the absolute inventory levels. We monitor the withdrawals from the warehouses on the main ports into the customers. And that withdrawals have been very healthy, with some ups and downs. But if you look at the numbers from even late July into August and September and October, those withdrawals have been gradually in an increasing trend. And the customers are not actually [indiscernible] in the pulp at their mills, because the same customers are coming back again and picking up a week later more pulp to convert into paper. And the paper demand in China is good, in general. It has been quite good paper production and paper demand. As a result of that, several [indiscernible] paper pricing in China have increased. So in that sense, I think we still have an oversupplied market in hardwood, [ but I think that oversupply will decrease and that's why we are seeing a small but strong price improvement. ]
[ Just a follow-up on your comments. So as market conditions are improving, ] do you see room for further price hikes still this year? Or should that be postponed until after the Chinese New Year?
Well we have to see first if this price increase and then we will have to evaluate the situation again. Whether it's possible to get another one this year, I am not sure. It might be that at the end of the year maybe, [indiscernible]. I think depending on how things go with this [indiscernible], we might try again, but I don't think [ it will be again for sort of late on the year, sort of could be ] second half of December or even January. That's my view.
The next question comes from Carlos De Alba, from Morgan Stanley.
My question is basically if you could elaborate on the volume strength that we saw in Forestry and tissue. Forestry was quite robust. What are you expecting for the coming quarters? And then on tissue, [ you sort of mentioned clearly the COVID-related particularities of this year in terms of volumes. But have we now normalized and the big restocking by consumers that we saw in Q2, has it normalized now [ in third quarter and we should expect now more traditional seasonality and pattern in the fourth quarter and beyond? If you could comment on that, that would be great. ] And then if you may add just on cost trend [indiscernible]. But if you could comment [ on the cost trends of the Biopackaging business, that would be great. ]
[indiscernible]
We had a very good Q3 in Forestry, our volumes. I think the market has been [indiscernible] at the beginning of the COVID, we had some decline in several markets. [ I think over all what happened around the world is that several mills shut down, they did shut down in different parts of the world. That was the first. ] [ And second, the home improvement demand started to increase. ] I think with people being at their homes all around the world, everybody sort of making some improvements at their home. And we have quite a lot of exposure to that segment, a segment that [ for many years in different countries. And so I think we were well positioned for that. ] [ As a consequence, our volumes were and our prices have also been improving in ] several of our products, in plywood, in some of the moldings as well et cetera. I think the U.S. has been very dynamic in that sense as well. So I think again, and I think when we postponed the maintenance of our [ plywood ] mills, that was really going to be in March and we did it in August. So we have in that period [indiscernible] more volume. Now we do not have that additional volume. We have [indiscernible] regular volumes. So our Q4 volumes will be back to growing from [indiscernible], not a higher Q3.
Carlos, this is Felipe. Related to your volume question, in general terms, as you mentioned before, Q2 was a quarter with a high level of inventory. And in Q3, we have been seeing some kind of destocking. So now we are looking some, let's say, normal level of demand in most of our countries. This is, let's say, the short answer. Let me elaborate a little bit more. When you see consumer tissue, decrease is a small single digit, mainly due to a slowdown in traditional trade, where we have a strong position and this is highly related to what happened with the COVID-19. But when you look at comparing year-over-year, our sales volume increased more than, let's say, on a double-digit when you consolidate all of our operations. So in consumer tissue it's pretty much, let's say, on a normal course of demand during this Q3. However, in away-from-home we have improving as governments allow more activities, the volumes in Q3. But as you can imagine, it's still below compared with the situation pre-COVID. Having said that, personal care has increased in a double-digit rate year-over-year, driven by our brand-based value growth in baby and child care. [ So we have seen some, let's say, strict from tissue to personal care. ] And from our point of view this is quite positive because the return on capital employed and return on investment is much, much higher in personal care than in tissue. So again it's part of our strategy and we are doing quite well so far. Thank you, Carlos.
Just to clarify, do you expect the fourth quarter to continue to show the double-digit year-on-year growth as you have seen in the third quarter?
As you well know, it's quite difficult to say because there are a lot of [indiscernible]. But we expect it pretty much the same as we are seeing today, obviously with some up and down. But so far, I would say that, yes, we can see that.
The next question comes from Thiago Ojea, from Goldman Sachs.
I think my questions are a little bit more long term. My first question is regarding capital allocation. You're currently around 3x EBITDA, net debt to EBITDA. How do you see the future of the leverage of the company? What to expect in terms of future projects or capital distribution for shareholders? And secondly, I don't know if Raimundo can comment a little bit on now that he is the CEO of the Pulp division what's his view on the market long term, how is he seeing the entrance of new capacity in the market, and what he believes would be a better strategy for CMPC for the next maybe 3, 4 years.
Well, Thiago, let me take the first part of the question. This is Francisco Ruiz-Tagle. So again a little bit about our strategy looking at the long term. Well, of course we are living kind of a hard time because of the COVID-19. But still, with our strong definition and being a leading player, one of the leading players, in the pulp market. So we will continue seeing opportunities here in our operations in Chile and also Brazil is, as you know, it's a very important place for us. Same in tissue. We have defined to be a leading player in LatAm, and we are advancing in that sense since we acquired SEPAC a year ago. We also started a new tissue machine in Argentina last year. So we are continuing our commitment with that. Business is very strong in the region. And in the case of our packaging business, working, I would say, hard in the boxboard business and being again an important player in the world and making our business of [indiscernible] stronger. We have invested some in Mexico now and Peru and also in Argentina. So I would say that those are always priorities for us. And of course we have to consider what is happening today. We are living in some ways the day, because for us it's very important to maintain a strong liquidity and a prudent, as you said, level of leverage. So this will be more or less my comments on this. Probably I would transfer to Raimundo for the second part of the question.
Thank you, Francisco. Thiago, what I can say is that we I think we're very well aware of course of the new capacity entering the pulp market. A lot of that was already announced and was well known. I think that the pulp market, in general, is still [indiscernible]. But no doubt that the COVID has had an impact. And I think this year we have seen demand destruction. We do expect recovery next year. But at the end of the day, the market, we lost 2 years. Because at the end of '21, we will be more or less the same level as in '19 in terms of demand. So that, of course, should make us all think about the market. We want to grow. We want to remain to be one of the key players in the pulp market worldwide. But at the same time, we want also a healthy market. So there's a balance there that has to be maintained. And I think we [indiscernible]. So in that line I think we do have plans. We are growing our [indiscernible] to date in Brazil [indiscernible]. And we are open also for other growth alternatives. [indiscernible] we are living a bit of uncertainty in time with the COVID pandemic. It's very difficult to predict when it's going to end. So we have to be cautious I think in the near term. We have to be cautious with that. That's my view.
Okay. If I may follow up on both of you, Francisco, if you have at least a rough idea in terms of CapEx for next year and maybe the year after. And Raimundo, do you think that the [indiscernible] be enough to offset this new capacity coming? And congratulations on the new position.
Okay. Let me start with your question. In terms of CapEx, this is Francisco, we expect to be this year in a range of $400 million. We started the year saying that it will be probably close to $500 million. And because of the situation we live this year we are considering that, and that's the reason why we have postponed some of the projects we have. Looking to the next year, I would say we'll be in the range probably of in the range of $450 million, $500 million, that range. We are still in the process of defining some of the projects we have for next year. And of course, looking to the future, we are considering some investments in our pulp mills in order to make them more productive and some normal increases in our capacities. And so we will consider that for the future. But it's hard to say now, talk about now about the figures of those investments, although it's important to consider, as Raimundo said, we have been incorporating some standing forest in Brazil and preparing in some way the forest base for potential growth. I don't know if that answered your question.
On the second part on whether the market can absorb the new capacity, I think the answer is yes. I think the market will absorb the new capacity. Given that because of COVID we have probably lost some demand, it will take a little bit longer and the capacity-to-demand ratio will stay a little bit lower than originally expected for a few years. But I think that, over all, I think we are confident that the pulp demand will come back to positive in '21, and we think '22 will be again positive and '23 as well. So we believe that the speed at which -- or the size of the growth is slower than what it used to be. The market is more mature, over all. I think the market is more mature. So, growth has slowed than before. But still, I think it is a healthy market. That's our view if you take a more broad perspective.
The next question comes from Marcio Farid, from JPM.
I have just a couple of follow-up questions. Maybe one to Raimundo. Raimundo, can you please talk a little bit about how you're seeing the market situation in Europe? There has been some price hikes announced for softwood. It's been more of a volatile market recently. Should we expect any movements over the next couple of months or going into the first quarter of next year on the hardwood side? And in China, have you closed any deals at the new price levels? How have been the negotiations so far for the $470 that you are trying to push there? And another follow-up question, maybe to Francisco or Raimundo, Ignacio, anyone else on the line, you mentioned you are increasing the forest base in Brazil, potentially preparing for a growth movement. But there are a couple of projects in Brazil and even in Paraguay that are looking for either investors or partners for growth. Would you consider alternatives, partner with those other peers or other market leaders, to ramp up growth or M&A? Or the organic growth and just growing the forest base is the most likely scenario that you're going to be taking from here?
Marcio, it's Raimundo. I can take the first part. Europe has been the slowest market during this year, no doubt. It was very slow, especially May, June, all the way until the end of July, I would say; very, very slow. By far, the worst performer all over the world, in both [indiscernible], I would say. However, I think slightly it's improving. I think [indiscernible] a little bit better. September was much better than August, and October was slightly better as well. So I think slowly things in Europe are improving. Still it's much slower than the other markets, continues to be the worst performer, but things are improving. We are seeing some of the specialty segments are increasing their demand, [indiscernible]. And before we were expecting a lot of closure of capacity. And the tissue has been sort of [ mixed ], I would say. The retail, very good, and the away-from-home, slow. So we were able to increase prices in softwood in October, by about $15 net, and we see a very good possibility of increasing softwood prices again in November [indiscernible]. So we will see. In hardwood, I think that provided that we are successful in Asia with the increase in China, I think Europe we see a possibility to increase prices in December. And you asked about deals in China at the new level. Yes, I mentioned earlier that we already closed a couple of deals at $470 in China, and we're in negotiations with the rest. And we are confident that we will be able to implement this new price level. Francisco, do you want to take the other?
For the other part, I can say, well, as I said before, Brazil is a strategic country for CMPC. And so we always are analyzing growth opportunities. [indiscernible], for your question, I can say that, first of all, to be clear, that we haven't approved any public expansion right now. Of course, we're looking for opportunities. And in that sense, I would say that it could be of course an organic definition. We are open to other alternatives, like how you mentioned, inorganic or with others. But in general terms, we haven't defined, and we are mainly looking probably organic movements at this moment and not really relevant right now.
The next question comes from Rafael Barcellos, from Santander.
I guess my first question is about the price gap between hardwood and softwood pulp. How do you see the difference between both fibers in terms of fundamentals and supply-demand imbalance? And also, what are your expectations for these price gaps in the coming months? Should we expect some substitution from the softwood towards hardwood pulp? And my second question is more a follow-up on the tissue segment. What are your expectations for tissue demand, particularly in Brazil and Mexico?
Rafael, it's Raimundo. I'll take the first question. I think the spread between softwood and hardwood has been very strong this year, in part probably because in the softwood we have seen more closure of mills and more impact basically, therefore, in the production, while the demand has been, especially in Asia, in China, quite good. I think also the softwood market benefits from a more dynamic because of the futures market. The local futures market also gives more dynamic. New players and new traders, local traders, participate in that market. So it has been an impact to both sides: less production and a more dynamic demand. So I think that has maintained, has made softwood the one that has been leading the movement in prices. And I think now the spread is high enough. I would expect that to narrow a little bit, given mainly because there are generally some substitution in several places, not only in China. Customers are increasing their requests basically or even technical advice in how to increase hardwood in the blend and use a little bit less of softwood. So I would think that we will see some of that, and I think a more sustainable level. It's probably $100, [ or something like that and it's currently $140 that we are seeing in China. ] In the rest of the world, the spread is not as high. It's probably $70 to $80, which is more normal, I would say, [indiscernible] more sort of a sustainable level long term. Thank you.
Rafael, this is Felipe speaking. Related to your tissue question, looking forward, as you can imagine, it's very difficult to say related to, let's say, performance in LatAm and, specifically, in Mexico and in Brazil, because of the several uncertainties we are facing so far: the second wave of COVID-19, social and political issues in the region, how strong will local currencies be, the international raw material costs and so on. So having said that, we are working tirelessly to keep our current margin, execution our business. So having said that, particularly in Brazil, our [indiscernible] is execute in the proper way the SEPAC acquisition. It has been quite well so far, better than our expectation, and we are sharing some best practices between Softys Brazil and Softys SEPAC. This is number one. And number two, related to Mexico, the performance has gone quite well, not just in consumer tissue but also in personal care. So, so far, I would say that, probably as you remember, with Mexico and Brazil defined as a growth market and has been quite in that sense. I don't know if I answered your question, Rafael.
The next question is a follow-up from Carlos De Alba, from Morgan Stanley.
Just I think from my prior question, if we could discuss the cost trends in the Biopackaging business, that would be useful.
Carlos, Colomba here. So I would say the Biopackaging business, the costs from the Biopackaging business have benefited from 2 things, 2 main things. One of those is, of course, the low fiber costs. And there, of course, pulp is a main part. And the other part is all the productivity and efficiency programs we have been implementing on that business division. First, of course, to extract the synergies out of all the unification we did last year in the corrugated segment, but also in terms of implementing lean management at our boxboard and also at our corrugated paper mills. And those efficiency measures and those programs have brought very good results, as you can see, on the cost base of all this year. So that should continue, going forward, of course. And we continue to work on continuous improvement on our cost base and on our production. But of course, fiber cost is something that we can't predict. And of course, that would be kind of the variable output.
There are no more questions in the queue. This concludes our question-and-answer session. I'd like to turn the conference back over to Ignacio Goldsack for any closing remarks.
Thank you, everyone, for joining this call. And if you have any further questions, please contact our IR team. Have a nice weekend. Bye, bye.
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