Empresas CMPC SA

SGO:CMPC

Earnings Call Transcript

[Operator]

Hello, everyone, and welcome to the Empresas CMPC 2018 First Quarter Earnings Results Conference Call.

On the call with us today is Ignacio Goldsack, Chief Financial Officer; and Colomba Henríquez, Head of Investor Relations. [Operator Instructions]

As a reminder, this conference is being recorded. Please note that the statements made today during the presentation and Q&A may include forward-looking statements to assist you and 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 the conditions in the global pulp, personal care, forest products and paper markets, are based on management's views as of today, and is anticipated 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.

It is now my pleasure to turn the floor over to Mr. Ignacio Goldsack, Chief Financial Officer. Please Mr. Goldsack, you may proceed.

[Ignacio Trebilcock, executive]

Thank you, operator. Welcome, everyone, on the line to this conference call to discuss CMPC performance on results during the first quarter of 2018.

Please let's start on Page #3 of the presentation.

The first quarter of 2018 was a good start for the year with Guaíba II resuming production at full capacity for the full quarter and even considering the plant maintenance stop adjust on Santa Fe II and Pacífico, we were finally able to capture the full impact of the wood pricing environment. This historically high operational result is the reflection not only of the positive contribution of the pulp business, but also the result of implementation during the last year of a strategy based in gaining efficiencies, a productivity after decades of continuous and successful growth. We have proved that even when facing challenging times, we have been able to advance and implement several different initiatives that have already started to show good results.

We are proud to say that in this quarter, we reached our internal target regarding leverage, which is 2.5x. We are confident that with the positive pulp environment and the continued execution of our efficiency program, we are going to be able to maintain the ratio near to current level. This is fundamental for us. We are strongly committed with our financial policies and also maintaining our investment-grade.

Looking forward, we will continue growing, focusing our efforts in the Tissue business. As you may know, we approved a new tissue machine in Zárate, Argentina. The project includes a tissue paper machine with a capacity of 60,000 tons on 3 conversion lines. The complete project will require approximately $130 million investment and its construction should be begun during the second quarter of 2018, and should start production during the fourth quarter of 2019. We are confident that this is in line with our strategy and reinforce our position as a leading Latin American player in the Tissue business.

If you please now turn to Slide 4, we see more details of results of this first quarter of 2018. Pulp market fundamentals continue to support it, as has been the case for more than 1 year now. Prices for both hardwood and softwood continue to climb higher and drive revenues. With the Guaíba II mill operating at full capacity, sales volumes increased to 880 -- 838,000 tons, up by 18% sequentially and by 10% year-over-year. Tissue volumes fell 2% versus the previous quarter and increased 1% year-on-year.

Consolidated revenues reached $1.5 billion, increasing 14% quarter-over-quarter and 23% year-over-year, as such EBITDA reached the highest in our history with $399 million, and was up 56% quarter-on-quarter and 90% year-on-year. EBITDA margin stood at 26.7%. It is normal to see an increase in working capital needs, but we see fast revenue growth that was the case this quarter. Despite that, we maintained our positive cash generation trend. As I also mentioned, our net debt-to-EBITDA ratio continued the trend lower a bit every quarter of 2017 to 2.5x.

I would like now to ask Colomba Henríquez, Head of Investor Relations, to cover our results in more detail. Please, Colomba, go ahead.

[Colomba Benavente, executive]

Thank you, Ignacio. Good afternoon to everyone. We would like now to discuss Slide 5 of our presentation. In the first quarter of 2018, cost of goods sold totaled $916 million, up 5% from the previous quarter on the back of a higher pulp and paper sale volumes, higher direct costs in Tissue and Papers due to higher fiber costs, higher forestry protection costs, all of this partially compensated for lower maintenance expenses. Year-over-year cost of goods sold were up 9%, also affected by the same factors, mainly higher pulp and paper sale volumes and higher direct costs in Tissue and Papers due to higher fiber cost. Cost of goods sold represented 61% of revenues in this quarter, well below the 67% from the previous quarters and 69% from the first quarter of 2017.

In other operational expenses, we accumulated $180 million in the first quarter of 2018, 1% lower sequentially, but 11% higher year-on-year. The quarter-on-quarter drop is attributable to lower administrative expenses and particularly to lower expenses in Tissue related to some productivity initiatives implemented during the quarter. The year-on-year increase, on the other hand, was caused by administered expenses in the Pulp and Paper divisions, mainly related to the appreciation of the Chilean peso and higher distribution costs in all divisions as sales volumes went up. Other operating expenses were also lower as a percentage of revenue at 12% in 1Q '18 compared to 14% in 4Q '17 and 13% in 1Q '17.

Please moving on to the Slide 6 of the presentation, we will have more detail on the business lines.

Pulp prices have enjoyed closed to more than 1 year with a very positive trend. During this first quarter of 2018, hardwood prices climbed further to reach $737 per ton, while softwood prices reached $836 per ton. As Ignacio mentioned, we have the Guaíba II mill operating normally this quarter, and despite the planned maintenance downtime at Santa Fe II and Pacífico, pulp production was 12% higher quarter-on-quarter and 26% year-on-year.

Total pulp market sale volumes were up 18% sequentially and 10% year-over-year. The sequential increase was concentrated on hardwood, where higher export volumes to all markets increased volumes by 25%. Softwood, meanwhile, saw sequential decrease of 6%, mainly on lower exports to Europe. Year-over-year volumes increased for both grades. Hardwood was up by 11%, mainly higher export to China, while in softwood we had a 5% increase also due to mainly exports to China.

Forest reserve volumes to third-party showed mix performance, up by 4% sequentially, but down 15% year-on-year. Forestry average sale prices decreased marginally by 1%, but still had a positive changes in the product mix, with plywood and sawn wood resulted in an 17% increase of average prices year-on-year.

Revenues in our Pulp and Forestry business were up by 23% over 4Q '17 and by 45% compared to 1Q '17. While EBITDA was 58% higher sequentially and 157% higher year-over-year, demonstrating that we are passing difficulties brought by the Guaíba II stoppage and can take full advantage of the positive pricing environment.

Turning to Slide 7, we will have a look at our Tissue business. Tissue sales volumes showed fairly small changes during the first quarter of 2018, dropping 2% sequentially with lower volumes in Brazil, but increasing 1% on a yearly basis, driven by higher volumes in Chile and Mexico despite some drag from lower volumes in Argentina. Sanitary Products sale volumes had a 2% sequential increase, supported by higher wet wipes volumes in most countries and a higher baby diaper volumes in Mexico and Brazil. Year-over-year, volumes were mostly stable. Average sale prices measured in U.S. dollars were up 1% quarter-on-quarter for tissue paper, but down 2% quarter-over-quarter for Sanitary Products. The change is mainly a result of higher prices measured in dollars in all countries, except Argentina, which had a negative effect due to the depreciation of the Argentinian peso during the quarter.

Revenues were stable sequentially and increased by 6% year-over-year. Despite that, strong SG&A performance allowed us to have EBITDA climbing 33% quarter-on-quarter. The year-over-year comparison, however, was still impacted by higher direct costs caused by higher pulp prices and a higher distribution cost resulting in 4% lower EBITDA.

Moving now to the Paper business on Slide 8. Sale volumes to third parties were up 13% quarter-over-quarter, with higher boxboard and corrugated boxes volumes. Year-over-year, volumes were 1% lower, with drops of corrugated paper and boxboard sale volume. Average sale prices increased by 6% sequentially. That combined with the volume increases resulted in 1Q '18 revenues increasing by 20% quarter-over-quarter. The positive trends of volume, particularly in boxboard and prices across all paper grade, resulted in EBITDA doubling sequentially. Year-on-year, average sale prices increased 7%, revenues were 6% higher and EBITDA fell 27%, mainly on the back of higher operating costs related to higher pulp prices.

Please turn to Slide 9. During the first quarter of 2018, hardwood demand continued to increase at a healthy 3.5% rate, which is a little over 210,000 tons. On the contrary, softwood pulp demand decreased almost by the same amount, leaving total pulp demand during the first quarter literally flat. Eucalyptus demand continued to be the fastest-growing grade with a 5.6% increase. Eastern Europe, Other Asia and Africa and Japan are leading the growth this year, partly offsetting the declines observed in China, North America and Latin America.

Global pulp market inventory slightly increased from March 2017, but are still within normal levels at 31 days for softwood and 45 days for hardwood, still indicating a healthy market. I now will turn the call back to Ignacio for a review of our financial position. Please Ignacio, go ahead.

[Ignacio Trebilcock, executive]

Thank you, Colomba. So please go to Slide 10. During the quarter, we generated $70 million in free cash flow, up from the $17 million of the previous quarter, but down from the $106 million for the first quarter of 2017. We were able to reach this level of free cash generation despite the need for additional working capital investment. This increase in working capital is natural during the periods of rapid revenue growth, but this additional investment was more than compensated by the strong operational performance. We ended the first quarter with a cash position of $143 million (sic) [ $843 million ] 1% higher sequentially and 25% higher compared to last year. The increase was primarily driven by positive free cash flow generation. With a strong cash position, we have flexibility to execute our CapEx program without compromising our liquidity ratios. CapEx reached $103 million during the first quarter of this year.

Finally, turning to Slide 11. Going forward, we will maintain the same focus on executing our diversification strategy. The results so far confirm that our strategic goals and our execution are on track, while we still have additional steps to take aiming at increasing operational efficiencies and better cost controls. We expect that market conditions should continue to offer a comfortable operating environment for us to pursue our strategic goals.

We work, however, with a clear view that we can manage our decisions if we have this capital structure to do so. Our diversification, operational efficiency, our up-to-date manufacturing plants and the strong balance sheet are all very clear and strong competitive advantages. If conditions are right, we're ready to deploy capital to make the best of those competitive advantages with a firm commitment to our investment grade. We believe that by doing so, we can maintain our leading position in our industry and create value for all stakeholders.

Before starting the Q&A, I would like to mention that Mr. Guillermo Mullins, CMPC's Pulp Commercial Director; and Mr. Hernán Rodríguez, CMPC's CEO are joining the conference call. They will be available to answer any questions you may have. Operator, please open the call for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Carlos De Alba with Morgan Stanley.

[Carlos de Alba, analyst]

So the first question has to do with the allocation of cash or cash going forward. I mean, clearly the leverage has gone down systematically over the last year or so, and now it is at the lower end or slightly below the internal policy range. There are some products in the future, but presumably the combination of market outlook and good execution will continue to generate cash. So what is the company prepared to do with that excess cash? And second, given the potentially more disciplined environment in the pulp sector, if the combination of Fibria and Suzano does take place and that helps the market to be more rationale, has the company changed or is reconsidering its position of investing in a new pulp mill in the near term? And if that were the case, in what country do you think you could do that?

[Hernán Rodríguez Wilson, executive]

It's Hernán Rodríguez, Carlos. Thanks for your questions. Regarding the first question, the first measure is not a measure. Actually, it was a decision that the board proposed today to the Annual Shareholders meeting, it was to increase the dividend yield from the minimum of 30% to 40%. Secondly, we have important CapEx projects that the CapEx expanded to for this year should be in the range of $400 million to $500 million, including the normal CapEx plus new projects that we have approved already, such as the new paper machine in Argentina. And obviously, we would look for further growth both in Brazil and Mexico in Tissue. And probably if other opportunities arise, we will take a look of them. Regarding your question of Suzano and Fibria and what are we going to do? We have said many times that we are planning to continue our growth in the pulp business, mainly organically. And Brazil, it's a country that we have already a big presence. And probably growth will come from Brazil, but not further than 5 of 7 years from now, when it starts building a new forestry base before thinking into new notes in Brazil. And in Chile, in our case, there is no more room to have a new pulp mill within the foreseeable future.

[Operator]

The next question comes from the line of Juan Tavarez with Citi.

[Juan Tavarez, analyst]

My first question is on the current pulp fundamentals. Guillermo if maybe you can give us a bit of a sense of how this price implementation that we've heard several producers announce for April, is trending? And if there's is any specific region that you would highlight as being either easier to implement or having a bit more challenges? And second, if I can ask on the Tissue business specifically. When I looked at your sales volumes this quarter, Brazil stood out to me in terms of a decline quarter-over-quarter and just no growth year-over-year. I'm curious if you can just give us an update of what's happening there in the market? Is it becoming more competitive? Where exactly are you seeing any loss of market share, if that at all? And maybe even commenting on Mexico where it does look like you're saying some solid growth. How much more market share do you think you can grab in Mexico?

[Guillermo Mullins, executive]

Hi, Juan. This is Guillermo, You known that the market today is so complicated because it's a mixture of a lot of external effects that are affecting the market. However, I use 2 simple metrics to check how the market is going on. The first one is how quick can we close our business in a given month. And the second is, how much complaints would the customers have on the price we are quoting. And in this case, this month we had no problem. We closed our business in -- both in Asia and now in Europe with no problem whatsoever. Actually, there was no delay on doing that, especially in China, which you know, when China -- when the expectations in China are that the price will change, they start delaying the decision to meet at the end of the month. This time we closed our business both in long fiber and in short fiber in China and Asia, in general, very, very quick. And the second is how much do the customers complain about the price. And actually, what, we had no complaint whatsoever. Mostly we had complaints that we weren't giving them enough pulp. They wanted more pulp and they wanted to ensure that pulp from the coming months was there. I think there's a lot of, sort of, I would say, expectations. And so many gossips going on about the availability of wood, chips, the problems in China, problems in Scandinavia, et cetera, that customers are reacting to that, and maybe, in some cases, overbooking. What I can only highlight is that, the other thing that has been strange this month has been the panic some customers have had in Europe about long fiber. We have our sales in long fiber quite limited in Europe, mostly in Southern Europe. We don't sell a lot in Northern Europe because of that, Scandinavia because of the Germans, but now because of the problems we -- you have had in Scandinavia, customers that we don't sell, normally long fiber, are coming in panic asking for long fiber in Europe. So that is strange. But all the rest has been driving on wheels. It's been absolutely great. If you ask me how long, I don't really know, and I think nobody knows. What I would say is that I think that May and June are sort of done. I don't think that we will have a problem in those 2 months. Further than June, it's impossible to say. That's my answer, Juan.

[Hernán Rodríguez Wilson, executive]

Regarding your Tissue question, Juan, it's Hernán, I will take it. I would -- in order to avoid seasonal effects, I will comment more quarter compared to first quarter of last year rather than the fourth quarter of 217 (sic) [ 2017 ]. Comparing year-over-year, we have shown important growth sales in Tissue in Chile, Mexico and Peru, as you pointed out. In these 3 markets, we are growing more than the market. We are gaining market share, in one -- in some of them more than the other ones. And we are also presenting lower volume sales in Argentina and in Brazil. In the case of Argentina, retail sales are declining quite importantly since consumers are -- their disposable income in Argentina, it's lower than last year, if you see what is happening with types of utilities growing up, and we are seeing even the supermarket sales are declining in Argentina in this quarter and also in the last year, if you take as a whole year. In Mexico, we are growing more than the market. We are gaining market share and our target, it's to be somehow in the range of the 15% market share.

[Juan Tavarez, analyst]

Okay. Great. And I'm just curious, I know last year during your Investor Day in Peru, you mentioned that you were trying to unify the brand overall across the region. How is that progressing? Are you seeing the need to spend a little bit more in building a unified brand? Or are you kind of done with some of the spending there in that restructuring?

[Hernán Rodríguez Wilson, executive]

Before answering that question, I didn't make any comment regarding Brazil. In Brazil, our sales volume compared to a year ago was flat. We are seeing, on one hand, consumption in Brazil just being recovered from the deep recession that we faced in the last 3 years. Secondly, very strong competition within the Brazil and local markets, especially from local players, regional local players and for that reason, our sales are at nil growth between this year compared to last year. And we think that the market is also pretty flat in Brazil. Regarding our regional brand, we are already with one regional brand. We positioned Elite as one of our top brands in all of the 7 countries in which we operate. And in most countries as well, we have some, what we call, specialized brands, which are Confort in Chile, it's Higienol in Argentina. We just launched last year Higienol in Peru. In Mexico, the similar brand, it's a premier. So we have one brand that goes across all the markets, which is Elite, which we also launched the same brand for away-from-home products, calling it Elite Professional. And depending on the market we have, what we call, specialized brands, as the ones that I mentioned. And obviously, to build a brand, you need to invest, and we'll do so depending on the volume sales. This is sort of the hen and the egg problem. The more you want to sell, the more you need to invest. But in this year, which the markets are pretty tough and also the fiber cost is going up, you need to be very careful regarding investments even in brand support.

[Operator]

The next question is from the line of Jon Brandt with HSBC.

[Jonathan Brandt, analyst]

So first, I just wanted to come back to the potential expansion in pulp. You mentioned sort of 5 to 7 years from now is when you think about it. Given the lead time for building the forest, is that something that you're actually looking to do? Are you investing in increasing your forest in Brazil to be prepared for this expansion in 5 to 7 years from now? And my understanding is that there is a potential for partnership, a smaller partnership in Brazil or smaller M&A. Is that a route that you're also considering? And secondly, just on Tissue and prices. How much of a headwind is the higher fiber costs that you're seeing? Are you anticipating any issues, I guess, passing through the higher pulp prices into the higher prices on the tissues side? And so how do we think about margins in the next few quarters?

[Hernán Rodríguez Wilson, executive]

Okay. Regarding the expansion in pulp, when I said 5 to 7 years, obviously, we need to first build our forest base, not only ourselves, but also should -- could be in combination with small producers that -- in sort of partnerships with small producers in Brazil. And in 5 to 7 years, it's just to make the decision that we're going ahead with the new pulp mill. So we'll take in order to produce pulp not early than 7 to 8 years from now. Regarding Tissue price -- and you mentioned a question regarding M&A. Today in Brazil, we're not looking any alternative now. And regarding Tissue prices and increases due to cost pressure, consumer products tend to be a lot more stable in terms of prices rather than -- and not very much affected with pulp prices. There is a strong -- there is a lag between pulp prices and across -- and price increases in Tissue. It will depend not only the cost, but also on the competitive side. In countries in which you have overcapacity, it will be very difficult to put price increases. In countries in which capacity is more balanced, it's easy to pass price increases. The only good thing is that the pulp price affects all of the industries. So probably all producers want to increase prices, but it's not only depending on cost pressure, it also depends on market conditions. In the market where consumption is flat due to other reasons, it's very difficult to increase prices. So having said that, if you take the Tissue business as a whole, the margins should be hurt in this quarter compared to the previous one due to pulp prices to the whole industry, not only to ourselves.

[Operator]

The next question is from the line of Barbara Angerstein with Itaú.

[Barbara Angerstein Hintze, analyst]

Following up the questions on the Tissue margins, you mentioned that you took some measures to increase the productivity of that business. Can you give us some insight on what type of changes you applied in order to protect your margins in Tissue?

[Hernán Rodríguez Wilson, executive]

Well, as you mentioned, we are working very heavily in increasing productivity at all of the mills. We are working in TPM program in all of our sites in order to increase productivity, that means producing more using less capital at the end of the day or being more efficient using less converting equipment. So that's the easiest way to increase productivity. On the other hand, as I mentioned in one of the earlier questions, it's the balance between a brand support and sales due to market conditions. So that's another way how to increase. Thirdly, we are also working in -- very hard in distribution cost, being more efficient regarding, as an example, how we load the trucks to give as a very tiny example, but we are working pretty much in all cost and expenses lines in order to be more productive in Tissue as well as in all of our businesses.

[Operator]

Next question is from the line of Thiago Lofiego with Bradesco.

[Thiago Lofiego, analyst]

I have a few questions for Guillermo Mullins. Guillermo, it's more of a, sort of, philosophical question, I would say. What in your view can prevent pulp prices, and let's assume hardwood pulp prices as an example here. What could prevent pulp prices to grow let's say to $1,000 per ton in China net in the next 2 to 3 years, should there be no change in the current demand growth trend? So just trying to really understand your view and your mindset on what's the potential here on a structural basis, considering, again, no disruption on the demand growth trend? The second question is also related to that and maybe to Guillermo, but also to [indiscernible] everybody there. What can be the end game for tissue producers in general, but also in Asia, that have been having difficulty in raising prices because of the input cost pressure? What's the end game -- and I know tissue can be very regional, can be and actually is a very regional business, but what's the end game for tissue producers that are seeing margins squeezed because of input cost pressure? The end game is basically pulp prices won't have to go up any more or they will have to do some kind of restructure on the tissue business?

[Guillermo Mullins, executive]

Of course, everything is possible. We could see $1,000 price in pulp, we have seen it in the past. And they were [old] dollars, which is much more than what we have today. The problem here is have to do a lot with paper prices and the structuring of the whole thing. Now what has been this time quite, I would say, surprising is that in the past 10 or 20 years, we have had a lot of problems with our customers raising prices when prices of pulp went up. So when prices of pulp went up, it was very difficult to raise paper prices and, therefore, the rise of the pulp was very short-term because they couldn't cope with that. This time the rise was quite dramatic, but also our customers, starting in China, put prices of paper up a lot. And that basically is like a new normal, in the sense that they always told us it's impossible to put prices up because the competition is so great, because of the overcapacity, but that was not true. Even in Europe, where today there is competition, prices have been going up slowly. So it would -- I think that you could have a situation in which all these affects the pulp market is going through and things that could happen in China with the sort of ban of imports of wood chips, et cetera, that would push situational pulp to $1,000. It's going to be quite a struggle for the paper producers because the paper producers have been growing in capacity and, therefore, there will have to be some sort of consolidation, some sort of restructuring of the market, because otherwise the overcapacity will not go through. But also in Tissue, in Tissue, it has been the easy way out for a lot of producers. You see a lot of producers have been producing other products simply going to tissue as a way of exploring a new business. They have heard that tissue is a good business, and they got into it. Basically, I've been hearing that in the next 3 years in China, there is a potential or there's projects for nearly 3.5 million tons extra of tissue what we have today. Obviously, when that happens, there has to be restructuring because I don't think the markets will grow in that consumption in order to take that extra capacity. But I still think that in China and other countries, there's still very old-fashioned tissue producers, small converters, et cetera, will have to die. There's no other way forward because otherwise they will not be able to cope with the prices of pulp. I don't see that day in Asia, particularly a lot of the tissue producers take downtime and try to that way control the market. But even -- with a very high overcapacity, even that doesn't really work. And finally, I think that what you is in the heads of all the big tissue producers, especially in China, is that the China government does want to get rid of all the small and medium producers of not only tissue, of paper and, therefore, I think most of our customers are in a quest to grow, because they feel that the biggest ones will survive. The Chinese authorities want good, big companies that have a clean act and they want to get rid of the small ones. So I think that everyone is a quest of survival in some ways. And that's why they are putting more and more capacity. But yes, we could get to $1,000. It's going to be quite tricky for a lot of papers. And, yes, there has to be a restructuring, not only in tissue, but in other papers, in order to support higher prices and sort of prices -- high prices of paper and the prices of pulp.

[Operator]

Our next question is from the line of Juan Tavarez with Citi.

[Juan Tavarez, analyst]

Just a quick follow-up on pulp, again. Could you give us an update of where your pulp inventory stands today? And whether you're comfortable with those levels today? Or could we see more increases? And second, with the price gap that we see today on softwood versus hardwood, what are your thoughts there? Do you think it's sustainable? And where could we see that gap narrowing via either more hardwood price increases? Or do you see any visibility for softwood to eventually correct?

[Hernán Rodríguez Wilson, executive]

Juan, it's Guillermo again. We actually -- our inventories are normal to low, because if you remember we're coming out of a situation in which in order to be able to have our customers supply during last year under the [promise of waiver], we tend to use more of our normal inventories across the world in order to -- both of Santa Fe and Guaíba in order to try and help our customers. So we started this year with low inventories. We continue having low inventories. We are, obviously, trying to build up those inventories to a manageable level because otherwise we'll start having service problems with our customers. But our stocks are low. And they would get a little bit higher only because of practical reasons. So that's it. Sorry, and the second question was...

[Juan Tavarez, analyst]

What's the differential between softwood and hardwood?

[Hernán Rodríguez Wilson, executive]

Differential. We have today about $100 price differential between softwood and hardwood. I think it's still rather high. I think that if you look back of what is the sort of the common wisdom is that price differential between softwood and the hardwood should be around $60 maybe $70, maybe $50, that sort of things. So still there is room there in order for further substitution and for prices of either hardwood coming up or softwood coming down. And it's more likely that hardwood prices would come up, softwood will come down under these environment. What I would say, yes, there is about $30 to $40, that's the difference. But still there is a difference also between softwood prices in China and softwood prices in Europe. So Europe will probably have to continue -- prices continue rising of softwood in Europe in order to match the prices in China. That's my view.

[Operator]

Our next question is from the line of Sebastián Ramírez with Toesca Asset Management.

[Sebastián Ramírez, analyst]

I have three questions. One -- the first one is on accounts receivables. We saw a spike during the first quarter, and I want to understand the increase in domestic market customers’ accounts receivables, it's due to what? And what should we expect going forward to stay in the current levels as an investment that you made during this quarter, or to keep seeing this going forward? Second question is regarding cash cost on pulp. We still have some maintenance during this quarter. So I want to understand, going forward, what's your expectation in cash cost in the way that you present, especially if you can develop a little bit more to what you comment within the press release in terms of the good costs going a little bit up in Chile, especially. So that would be interesting to get more addressed on that. And the last one is, in the Paper division, during the last call, you were referring that there were some -- during the last year, we observed a one-off with that division and some nonrecurring costs regarding the Maule expansion and CapEx doing there. So I want to understand, how far are you from the ideal operation of that plant? And how big should be the impact of the new contract of energy being negotiated during last quarter -- last year within that division? What is the size of the improvement that we should be expecting in that division? That will be from my side.

[Hernán Rodríguez Wilson, executive]

Thank you, Sebastian. I will take the first question. Of course, it will depend on pulp prices, the main effect during this quarter in accounts -- in our accounts receivable are due to these effects. looking forward, of course, again, it will depend on pulp prices. But despite that, we will continue executing our working capital initiatives. Also, you have some seasonality, but I will say that the main effect is our sale pulp prices.

[Colomba Benavente, executive]

Sebastian, here Colomba. I will take the question on cash cost. As you all tracked during this first quarter, we had maintenance downtime in Santa Fe II and in Pacifico. And of course, that puts a lot of pressure in terms of cash costs. But we also had some other effects mainly on higher pulpwood cost, mainly in Chile, and also higher chemical cost. Of course, the part of the maintenance downtime is, of course, that is nonrecurring. But I would say the pulpwood cost in Chile, which are, I would say more an industry thing should be -- we should still have it in the next quarter. The same for the chemical, the higher chemical costs, which is because of the higher caustic soda prices. And of course, that is -- that should be sustained over the next quarters. So well, I'm going to take the Paper business question. Also the Maule mill was the main reason of the not-so-good result during the fourth quarter of last year. This quarter, the Maule mill has been operating a lot better. We're now in the ramp-up process. Production has been a lot more stable, but we are still in the ramp-up curve. So I would say, the ideal cost levels and production levels will be reached when we get full capacity at project and that should be around August this year. So we still have a couple of quarters to go.

[Operator]

[Operator Instructions] Thank you. It appears to be our last question. I'll turn it back to Ignacio for closing remarks.

[Ignacio Trebilcock, executive]

Thank you, everyone, for joining this conference call.