Mercer Intl posts negative EBITDA of $28 million in Q3 2025, driven by lower pulp prices and ongoing trade challenges affecting market demand.

Good morning and welcome to Mercer Intl's third quarter 2025 earnings conference call. On this call today is Juan Carlos Bueno, Mercer's President and Chief Executive Officer, and Richard Short, Mercer's Chief Financial Officer and Secretary. I will now hand the call over to Richard.

Thanks Michelle Good morning everyone. Thanks for joining us today. I will begin by touching on the financial and operating highlights of the third quarter before turning the call to Juan Carlos to provide further color into the markets, our operations and our strategic initiatives. Also, for those of you that have joined today's call by telephone, there is presentation material that we have attached to the Investors SECtion of our website. But before turning to our results, I would like to remind you that we will be making forward looking statements in this morning's conference call according to the safe harbor provisions of the Private Securities Litigation Reform act of 1995. I'd like to call your attention to the the risks related to these statements, which are more fully described in our press release and the Company's filings with the Securities and Exchange Commission. This quarter our EBITDA was negative $28 million, including a $20 million non cash inventory impairment, a decrease from negative EBITDA of $21 million in the SECond quarter. One of the key drivers of our results was negative pressure on pulp pricing and demand from global economic and trade uncertainty. We had lower sales realizations for both softwood and hardwood pulp, which negatively impacted EBITDA by roughly $15 million and was also a key factor behind our non cash inventory impairment charge. In the third quarter, our Pulp segment had negative quarterly EBITDA of $13 million, while the Solid Wood segment had negative EBITDA of $9 million. Additional segment disclosures are available in our Form 10-Q, which can be found on our website and that of the SEC. Third quarter average published prices for MBSK and MBHK decreased across all our markets compared to the SECond quarter. This decrease was due to weakened demand caused by a sustained uncertain global economic and trade environment. The price decline in China was further impacted by an oversupplied paper market and the increase in integrated pulp production. MBSK pulp prices faced additional pressure from the increased substitution of softwood with lower cost hardwood. In the third quarter, the MBSK net price in China was $690 per ton, a decrease of $44. In the SECond quarter, the European MBSK list price averaged $1,497 per ton, a decrease of $56 from the prior quarter, while the North American MBSK list price decreased $120 in the SECond quarter averaging $1,700 per ton. The market price gap between MBSK and MBHK in China was about $190 per ton this quarter, a slight decrease from the roughly $200 in the SECond quarter. In China. The third quarter average MBHK net price was 5, $503 per ton, down $30 compared to the SECond quarter and the North American third quarter price was $1,203 down $107 per ton. As mentioned previously, the third quarter included a $20 million non cash inventory impairment primarily driven by lower pulp prices. Of this amount, approximately $15 million was attributed to hardwood inventories and the remainder was primarily against softwood inventories. Pulp sales volumes in the third quarter increased by 26,000 tons to 453,000 tons. Pulp production in the third quarter was of 459,000 tons was flat compared to the SECond quarter. We had 20 days of planned maintenance downtime in the third quarter compared to 23 days in the SECond quarter. In the fourth quarter of 2025 we had 18 days of planned maintenance downtime at our Stendahl mill for our solid wood segment. Lumber pricing in the third quarter was relatively stable compared to the SECond quarter in both the US And European markets as reduced supply offset relatively weak demand. The random links US benchmark price for Western SPF 2& better averaged $477 per thousand board feet in the third quarter, a modest increase from $472 per thousand board feet in the SECond quarter. Today that benchmark price for Western SPF number 2& better is around $460 per thousand board feet, a modest increase from the beginning of 2025 in the third quarter. Lumber production decreased by about 4% to 150 million board feet from the SECond quarter due to planned maintenance at our Frieselle mill. Lumber sales volumes also decreased to 110 million board feet, down about 9% from the SECond quarter, reflecting the lower production and timing of sales. Electricity sales for the quarter totaled 204 GWh, a 6% decrease in the SECond quarter due to planned turbine maintenance at the Rosenthal and Celgar Mills. Third quarter pricing increased to about $106 per megawatt hour, up from $90 in the SECond quarter driven by higher spot prices in both Canada and Germany. Fiber costs for both our pulp and solid wood segments were flat in the third quarter compared to the SECond quarter. Overall fiber costs remained high in Germany with strong sawlog demand constrained supply, while in Canada Demand Demand was stable Our mass timber operations within the solid wood segment had stable revenues in the third quarter compared to the SECond quarter as the elevated interest rates in the US Continued to impact project timelines and overall market momentum. However, despite the headwinds, our mass timber business has developed a healthy order book as we continue to see growing interest in mass timber and we expect improved results in 2026, we continue to make progress on our One Goal 100 program. As a reminder, this initiative focuses on cost reduction and operational efficiencies with a target to improve our profitability by $100 million by the end of 2026. Using 2024 as a baseline, we currently expect to realize approximately $30 million in cost savings and reliability improvements by the end of 2025. Juan Carlos will provide more details on our progress on this initiative. We reported a consolidated net loss of $81 million for the third quarter, or $1.21 per share, compared to a net loss of $86 million, or $1.29 per share, in the SECond quarter. In the third quarter, we consumed about $48 million of cash compared to $35 million in the SECond quarter. This increase was primarily driven by lower EBITDA. In the third quarter, we invested a total of $30 million in capital across our facilities. These investments were primarily for maintenance, but also included upgrades to the log yards at Frieseau and Torgau. The upgrades are expected to enhance efficiencies, positioning us favorably for improvements in the solid wood market. At the end of third quarter, our strong liquidity position totaled $376 million, comprised of about $98 million of cash and $278 million of undrawn revolvers. That ends my overview of the financial results. I'll now turn the call over to Juan Carlos.

Thanks, Rich. This quarter's operating results were disappointing, mainly due to trade uncertainty, which created significant industry headwinds such as China increasing its paper exports to Europe, thus negatively impacting European paper producers. Economic uncertainty created by tariffs and trade disputes is negatively impacting demand for both paper and lumber. Another factor this quarter was the $200 price gap between hardwood and softwood pulp, which incentivizes certain customers to use more hardwood in their furnish. In spite of these factors, demand for softwood pulp has been steady, but weak hardwood pricing is holding softwood prices down despite strong overall softwood fundamentals. In addition, the ongoing trade disputes are putting downward pressure on the US dollar, which negatively affects our operating results. This US dollar weakness increased our operating costs by almost $11 million compared to Q2. While these uncontrollable factors create significant macroeconomic headwinds for our business, we continue to focus on the things we can control. In this sense, we have made good progress on our mill reliability and our cost control initiatives are gaining traction. As a reminder, in the second quarter, we launched a company wide program aimed at identifying $100 million in cost savings and profitability improvement opportunities by the end of 2026 when compared with 2024. We have named this program One Goal 100. Currently we expect to achieve $30 million of cost and reliability related savings by the end of 2025. This initiative also includes targeting working capital reductions of $20 million as well as $20 million in CapEx reductions relative to our previous 2025 guidance. A significant part of the One Goal 100 program relates to reliability improvements that, combined with additional cost savings expected to be realized next year, gives us high confidence that we will reach our 100 million target by the end of 2026. In parallel, our working capital and CAPEX reduction plans are tracking as planned. The trade war has created an unprecedented level of uncertainty in the markets in general. However, we are beginning to have clarity on the direct impacts of tariffs on our business. During the quarter, the US Department of Commerce concluded their Section 232 review on lumber. European lumber is now subject to a 10% tariff, as is Canadian lumber. The 10% incremental tariff on Canadian lumber brings the total duty and tariff impact to about 50% on average for Canadian lumber. As a result, we have already seen Canadian lumber curtailment announcements and we expect more to come. This will create a reduced supply of residual chips for pulp mills and will inevitably create pressure on fiber costs. We feel, however, that our Celgar mill is well positioned given its ability to access the US Fiber market and our ability to harvest and process whole logs. Nonetheless, we expect to see some cost inflation. On the other hand, our Peace River Mills hardwood supply will not be impacted today. Our pulp shipments to the US From Canada are not impacted by tariffs as pulp is CUSMA compliant. As mentioned, our main import from the US Into Canada is wood chips for our Celgar pulp mill, which today amounts to about 45% of the fiber consumption of the mill. We have the ability to grow this percentage slightly going forward if required. Most importantly, there are no counter-tariffs applied to this fiber. Our EBITDA of negative $28 million reflects 20 days of plant downtime, maintenance downtime, including 16 days at our Rosenthal mill and lower pulp prices in all Markets. Overall, pulp markets weakened significantly in the third quarter. Seasonality driven weak paper demand combined with low fiber costs in China contributed to this weakening. We believe these market dynamics have also encouraged opportunistic pulp substitution in some paper grades as paper producers are running their machines more slowly given the overcapacity. In addition, we believe pulp destocking by paper producers is putting additional pressure on pulp prices. At present, we believe paper producers Pulp inventories are low, supported by the availability of prompt delivery pulp. Looking ahead, we expect to see some modest NBSK price improvements late in Q4 and into Q1 of 2026 as the impact of the announced European NBSK curtailments impact Chinese port stock and.

Please stand by. We are experiencing a technical difficulty. Please stand by. Pardon me. This is your host. Please stand by. Your conference will resume momentarily. Thank you for your patience. Your conference will resume momentarily. Richard, I see that you have rejoined. Are you able to hear me, sir?

Yes.

Okay, sir, you may proceed.

Thank you. Thank you, Michelle. Apologies for the disconnect. We don't know exactly what happened, so I'll repeat the last statement. Looking ahead, we expect to see. We expect to see some modest NBSK price improvements late in Q4 and into Q1 of 2026, as the impact of the announced European NBSK curtailments impact Chinese port stock and the impact of delisting of low quality Russian pulp from Shanghai Futures Exchange is realized. Despite the recent announcements of trade deals, the global trade landscape continues to be unclear. We expect this trade uncertainty will persist at least through the near term, likely keeping commodity prices subdued. However, we remain optimistic that once trade clarity returns, markets will begin to normalize. In total, our pulp production was flat at almost 460,000 tons compared to Q2. As part of our objective to keep all of our pulp mills running reliably, we planned major maintenance shutdowns at all mills throughout the year. Our Q4 shut schedule has steadily down for 18 days, or about 36,000 tons. Our lumber production was down slightly relative to Q2 by about 4% due to maintenance that was scheduled at our Frieselle mill. Overall, we are pleased with our lumber production and even though the ramp up of our Torgau Mill incremental lumber capacity has been slower than anticipated, we do expect to realize the increased annual capacity rate of about 100,000 cubic meters of dimensional lumber, or roughly 65 million board feet by the end of the year. Pulp fiber costs were essentially flat relative to Q2. In Germany, reduced demand for pulp logs pushed fibre prices down modestly. While in Canada costs were up slightly due to increased logistic costs. However, on the sawlog side, reduced supply due to limited harvesting pushed our fiber costs up as expected compared to Q2. Looking ahead to Q4, we expect fiber costs to increase for both our pulp and sawmill businesses. Our pulp business will be impacted by reduced sawmill residual availability and our German pulp mills will also face increased seasonal competition for wood chips from biofuel producers, while our German sawmilling business adapts to the impact of reduced harvesting levels. In Germany, we expect harvesting levels to improve as the lumber market improves, while in Canada, lower fiber availability will keep prices under pressure on fiber unless the demand side of the equation changes. The business environment for a solid wood segment was consistent with Q2. Our solid wood segment continues to be held back by a weak European economy and the impact of high interest rates on the construction industry and high mortgage rates. Despite some modest price improvements on certain grade in the US lumber market, this segment is also facing the impact of higher wood costs in the short term. As a result, our solid wood segment posted a negative EBITDA of $9 million in Q3 with essentially flat lumber pricing and sustained weak demand for pallets. Given the many economic forces affecting US construction activity, US Lumber pricing could be volatile in the short term. Currently, weak housing construction due to high mortgage rates is a headwind, but the implementation of significantly higher anti dumping and countervailing duties is expected to push lumber prices up as as the resulting production capacity reductions begin to materialize. However, the market has been slow to react due to large volumes of lumber being shipped prior to the implementation of the higher duties and tariffs. In contrast, we expect modest upward pricing pressure in the European market primarily due to increasing solog prices. However, any meaningful long term improvement in either the European or US markets remain dependent on improved economic conditions and lower interest rates. The cost competitive configuration we have in Freesal gives us the flexibility to maintain a strong presence in Europe and the U.S. while also serving the quality sensitive Japanese market. In Q3, 44% of our lumber volume was sold in the U.S. as we continue to optimize our mix for products and target markets to current conditions, looking forward, we believe the US Lumber market will be driven by favorable homeowner demographics. Additionally, factors that we believe will improve lumber market dynamics include potential Canadian sawmill curtailments in the aftermath of higher softwood lumber duties and relatively low housing stock. Combined, we expect these factors will put sustained positive pressure on the supply demand balance of this business in the short to mid term. European shipping pallet markets remain weak with pricing Staying generally flat due to the overhang of the European economy, particularly in Germany. However, once the economy begins to recover, we expect pallet prices to recover towards more historical levels, allowing Torgau to deliver significant shareholder value. We're optimistic we will see that recovery start in 2026. As a reminder, a $1 per pallet increase, or roughly 10%, will put our pallet business into a clear positive cash flow position. Heating pallets prices were flat relative to Q2. We expect demand at prices to be slightly higher in Q4 due to higher seasonal demand and supply concerns as a result of higher German fiber costs. With regards to our mass timber business, we continue to see a steady volume of incoming project inquiries. In the last two quarters, the potential sales volumes of these inquiries have been about $400 million and equate to well over 100 projects per quarter. And as a result, our order book continues to grow. The projects we're bidding on and winning today are meant to be constructed about nine months from now or well into 2026. We expect revenue will start picking up momentum now to the point that we're planning on ramping up one of our FAC2 shifts in the early part of 2026. Today, our mass timber backlog of projects sits at about $80 million. We remain confident that the environmental, economic, speed of construction and aesthetic benefits of mass timber will allow this building product to grow in popularity at a pace similar to what happened in Europe. We're also seeing increasing interest for data center construction applications in an effort to reduce the carbon footprint of these facilities. This is exciting for us because we're well positioned to capture this growth due to the location of our industry leading North American capacity on our technical capabilities. As a result, we are highly confident in this business being a growth engine for Mercer. We have roughly 30% of North American cross laminated timber production capacity, a broad range of product offerings including design, assist and installation services, and a large geographic footprint with manufacturing sites in the Northwest as well as the Southeast, giving us competitive access to the entire North American market. In light of the ongoing economic uncertainties, our planned CAPEX spend is about $100 million in 2025. This capital budget is heavily weighted to maintenance, environmental and safety projects. That includes both Torgau's lumber expansion project and Celgar's recently completed wood room project. While we're still early in our planning, we expect 2026 CapEx to be meaningfully lower than our 2025 spend. As we prioritize our liquidity through this trough, we're in the process of conducting a FEL2 engineering review for a potential carbon capture project at our Peace River Mill. This project is a few years away from potential completion, but we're excited about the prospective economic benefits such a venture could bring to this mill. We remain committed to our 2030 carbon reduction targets and believe our products form part of the climate change solution. We also believe that products like mass timber, green energy, lumber, pulp and lignin will play important roles in displacing carbon intensive products. Products like concrete and steel for construction or plastic for packaging. In addition, the potential demand for sustainable fossil fuel substitutes is significant and has the potential to be transformative to the wood products industry. As a result, we remain bullish on the long term value of our products and what they can bring to society and our stakeholders. Overall, our Q3 operating results were disappointing, driven by a number of industry headwinds. These headwinds are expected to persist in the fourth quarter and as a result we're taking further actions as liquidity remains our top priority. While we have made good progress on advancing our One Go 100 program and remain committed to rebalancing our portfolio of assets, we're also implementing decisive measures to support our liquidity position. These steps include further cost reductions, capital expenditure reductions and other working capital measures that combined will improve our balance sheet. Above all, we're committed to prudent financial management. Finally, the headwinds facing our industry have proven to be both longer and more severe than many anticipated. Global trade tensions haven't helped in this regard, however. Our experienced management team has navigated through previous commodity downturns and we have strong assets in our portfolio that will allow us to weather the storm. I am also encouraged by the fact that today's weakness commodity cycle is validating our long term strategic plan which revolves around transforming our pulp mills into biorefineries with additional revenue streams that can not only help balance our product mix, but grant us further resilience during the pulp down cycles. As such, we have made very good progress on this transformation with our Lignin pilot plant in Rosenthal, the carbon capture pilot plant in Peace river, and the work that we're doing in Stendahl on sustainable aviation fuel. We will navigate through these turbulent times and implement our strategic plan by transforming our pulp mills into biorefineries. Thanks again for listening and I will now turn the call back to the operator for questions. Thank you, thank you.

To ask a question, please press star 11 on your telephone and wait for your name to be announced. And to withdraw your question, please press star 11 again. The first question comes from Sean Stert with TD Cohen. Your line is now open.

Thank you. Good morning, Juan Carlos. Appreciate all the points on cost savings initiatives, working cap reductions and lower capex. Wondering if you can give some perspective on thinking around potential asset sales to expedite deleveraging on the balance sheet. Anything under consideration and can you give us a sense of the scale? Absolutely, Sean. Yeah. We've been looking at this in detail for the last few months. At this point we're not at liberty to disclose anything. We do recognize, however, that the current market environment is not ideal for us to divestitures. Okay. And on the broader softwood pulp market, this is an extended trough mill inventory still look really high. We're closer to the bottom. But can you give perspective on how much capacity you think needs to be taken out permanently to right size the industry to what demand will normalize to over the next few years? Yes, Sean, it's very good question, not easy to answer with a precise number. We do see we have seen along the year several mills curtailing and curtailing for extended period of time. We know about a few in Finland specifically that were down for probably more than six months of the year. And while those are important steps, they do not end up making the impact or having the impact as an announcement of a full cloture will have, as they are obviously temporary situations. We do think that given how long this trough has been, and even though we do believe that we're, as you said, in the bottom of the price curve there should be closures of pulp mills. We wouldn't be surprised if either some of the Finnish mills or the Canadian mills that have bigger situations or bigger problems to deal with access to fiber would be going belly up. The situation in Canada is obviously very complicated. In the back of the additional tariffs, we've seen the announcements of several closures of sawmills which as we already know and have said, that puts pressure on fiber. On a market that is already tight on fiber, particularly in bc, I think that gains a significant improvement, very strong significance. So we see those conditions in B.C. at least deteriorating significantly with the introduction of these tariffs and additional countervailing duties. As we said in the case of Celgar, because of our location and because of our strategy, the fact that we're less dependent on that BC fiber gives us that edge. But obviously that's not the case for many others in the interior of the province. So yeah, again in Germany we have the advantage of having the forest around us. And even though the costs are going up, it's still fiber that we can access and have assets that are very competitive and they can still make money in these conditions, different from the Finnish mills or the Swedish mills that are facing very, very high wood cost in their normal additional fiber baskets. That's useful detail. That's all I have for now. Thanks very much. Thank you, Sean.

And the next question will come from Sandy Burns with seafl. Your line is open.

Hi, good morning. I'm hoping you could talk a little bit more about the substitution issues.

That.

You mentioned this quarter. I mean, certainly been an ongoing issue for the industry. Would you say the increase, is it more region specific or end user specific and maybe tied into that also at what differential do you think that substitution then may abate?

Yes, Sandy, very good question. As you well said, substitution has been going on for several years now. This is not a new concept. This is not something that we have not seen before. That's part of the growth that we all see in hardwood is on the back of substitution. And yeah, that's our reality and has been with us for several years. What is probably different this time around is that over the past few years, I think everybody has or paper producers of all kinds have taken their furnish to what they believe would be their limits on taking advantage of those price differentials between the two fibers. Now, as that differential has grown significantly and well above what we've seen in previous years, then that kind of puts it to another level, another test of, okay, we thought we've done everything. Can we do anything more? And I think that's what we've seen happening not only in Europe, we've seen that happening in China as well, where that price differential of $200 per ton would allow them to. Would allow some of the producers to say, okay, well now we're going to use less softwood and add more chemicals. Or now that again, there's a lot of capacity out there with machines running slowly, then that gives them the opportunity also to reduce the amount of softwood naturally. So those additional measures of adding chemicals or taking things beyond the limits is what we see with this $200 price. Now, it does have an impact, and we've discussed this with certain customers, it does have an impact on the end quality of the product. So there's limits to that. If you think about a paper towel that you buy traditionally, if they were to just reduce even further to softwood, then the absorbency of the paper towel would not be the same, the properties would not be the same, and the customers would understand that the product has change and the quality has deteriorated. So there is a limit to it. What we've seen in terms of substitution recently with this $200 gap is about 2%. That's how we've measured it. When we look at our European customers and how much has gone as we talk to them about how much they have changed, that's the dimension of it. 2%, given this $200. But again, as you said at the beginning, this is on top of the substitution that has already been taking place for several years, which is, I think on percentage is much bigger than that. So do we see that maintaining. Well, we already are starting to see the gap closing a little bit. Hardwood is gaining some traction. There's some order around how hardwood producers are being able to push prices up. Still very little. $20 here and there's. But it's a trend that is obviously encouraging. If we close that gap to the 170s, 150s, then that the use of chemicals and the use of these things, these extreme measures, we don't see them continuing. And there could be more of a going back to where we were before the $200 gap.

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

Obviously, when hardwood pulp prices are that low, it puts a cap on softwood. When you think about a year ago, what everybody was talking about was that the softwood market was very tight and that there was no reason for softwood prices to deteriorate because it was just very, very tight. Then we got into a situation where hardwood pulp continued to drop. Continued to drop, and it puts downward pressure on softwood naturally. So I think that's a big element of the whole equation. It doesn't pull it completely down. And that's why the gap increases so much, because there's some resilience in pulp. Otherwise it would fall just as hardwood pulp falls. Excuse me, it maintains certain value in it and that's why that gap increases to 200, precisely because there's that inherent value in the softwood fiber. So we do feel that obviously it's independent decisions on producers, whether they want to sacrifice price for volume. We have our own policy on it and we know that we can sell everything that we produce. We have very good relationship with customers for many, many years. That gives us that confidence and doesn't put us in a situation where we're forced to do things that we shouldn't be doing from a price perspective. So yeah, that's about that. Okay.

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

With banks about.

Maintaining liquidity during this rough period for the company and industry?

Yeah, we've started some of those discussions. We started about discussions. For example, we have revolving facilities that are doing 27 that need to be renewed. We've started those conversations and those are going very well. There's no reason to believe that we won't be able to renew those if we decide to go for that. We're also looking at to the senior notes coming in 28 and 29. There's still runway for them, but we're not necessarily waiting for all that runway to expire. We're acting upon those things. So yes, we're looking at all the things that we have to do preemptively so that we don't let time go by and take us by surprise. We know that it's a complicated market that we're dealing with. We know that asset divestitures is part of the options that are out there. As I mentioned before, anybody would say today that probably the conditions are not the best for you to go out and try to sell something. Nonetheless, obviously we look at options and are actively working on things, looking at what can be done on that end. But in the meantime, it's all about reducing the other things that we can reduce that are significant, focusing on working capital. And there's good progress that we've made. Same thing on CapEx. There's still room for us to reduce CapEx and focus basically on maintenance and leave some of those growth projects for later. So yes, there's things that we can do other than the usual cost reductions that are obviously in full motion already since the second quarter.

Okay, great. Thank you and good luck with everything.

Thank you.

And the next question will come from Hammer Patel with CIBC Capital Markets. Your line is open.

Hi, good morning, Juan Carlos. You indicated looking at reducing capex. What do you for 20, 26? What's sort of range of CAPEX outcomes that you could see?

Hey, Amir Trich. We're sort of starting around 75 million, but we're looking to see if we can reduce that as well. So that's probably the ballpark we're going to play in for next year.

Okay, great. Thanks Rich. And then I guess related to that, how should we think about the planned shuts for 2026 and is there any sort of maybe room to stretch some of those out? Yeah, in fact, for example, in 2026 we won't have a shut in Stendhal. Stendal is under an 18 month cycle. An 18 month cycle that we're actually reviewing whether it could be a two year cycle. We were actually thinking about that for this particular year, but we decided to keep the 18 months otherwise we wouldn't be having a shutdown right now. So that is Good news for 2026. No shutdown in Stendahl on the other mills. Celgar is on an 18 month shutdown and Pease river, we're looking to also moving a little bit beyond the traditional 12 months that we have for that mill. So yeah, we're stretching things on shutdowns for next year. Great, thanks. That's all I had. I'll turn it over.

And the next question will come from Matthew McKellar with RBC Capital Markets. Your line is open.

Good morning. Thanks for all the details so far. Just one from me. How would you describe the industry supply, demand balance in North American mass timber right now and with recent changes in capacity and the demand inflection you're seeing, what are your expectations for how that trends into 2026? Thanks very much.

Thank you, Matthew. As I was mentioning, or we were mentioning before, we're pretty excited about how we see mass timber developing. The amount of project inquiries, the amount of biddings that we're participating, that I already talked about is very encouraging. Probably the biggest element there, and I think it's of incredible significance, is the AI data centers and all these transformative AI investments that are coming through. To give you some order of magnitude, when you think about the hyperscalers, I'm talking about the Googles, the Amazons, the Metas, those companies, the Amazons. Their plan for the next four years includes a 2.6 trillion dollar investment in construction of data centers. So this is a massive amount of business that is going to come into North America. I don't think that right now there is capacity installed that would be able to not even get close to serving the demand that will be coming. When we see the actions from other competitors, we see already the addition of some capacity coming next year which will be very well absorbed with the market growing. If you think for a minute our own results, we were going to be moving from 50, let's say, let's call it $60 million this year to $130 million next year sales. And we're going to be doing second shift now in one of our mills and probably in one of our other assets as well during the course of the year. It just proves that there is an incredible demand that we will need to serve and we all would need to shape up and do our best. Keep in mind, and this is important, over the last couple of years, as Europe has been more mature and those mills in Europe are running or have been running at full capacity for now several years, they've seen opportunities to direct some of their volumes to North America. Even though they're shipping across the Atlantic at very high cost, it has been good business for them. It keeps them running at full speed rather than slowing down. Well now what they are seeing is that they have to pay 15% tariff and their currency is 15% more expensive now. So that puts them at a lower competitiveness versus where they were just a year ago. That is significant because that means there's going to be less product coming from Europe, more pressure on North American producers to cope with that demand. That is, that will continue to grow at a very good pace. Again, the way these, we have obviously very good connections with some of these hyperscalers. We're active with some of the projects that they're bringing to the market. We have gained some of those projects already. We have secured some of those projects. Those are part of our, our backlog and part of our order book. So yeah, it's very encouraging. That's all I can say for that. And again, AI being a very, very significant driver for this.

Very helpful. Thanks very much. I'll turn it back.

As a reminder to ask a question, please press star 11 on your telephone. The next question comes from Cole Hathorne with Jeffries. Your line is open.

Good morning. Thanks for taking my question. I got three. My side. I'll take them one by one. The first on any items that you're expecting into the fourth quarter around kind of energy rebates and things like that from the German government for energy consuming industries. I'm just wondering if there's anything that we should be thinking about for your business for the fourth quarter which might be positive.

Please stand by. We are experiencing a technical difficulty. Please stand by. Pardon me. This is your host. Please stand by. Your conference will resume momentarily. Richard, I see that you have rejoined. Are you able to hear me?

Yep.

You may proceed.

Apologies call. I don't know what's going on today.

No problem. Let me start again. Richard, maybe you. Could help with one. On any rebates or items that we should think about on the energy side in your German business, is there anything like that we should expect in the fourth quarter?

No, no rebates.

Then following on in Germany, on the lower, well, elevated wood cost, you're referring to kind of the sawlog prices. Could you give a little bit of. Color on what you're seeing on the wood chips on that side?

Absolutely, Cole. On the wood chips, the situation is right now the pellets and biofuels are being sold at pretty good price levels. They're above €300 per ton. That means that the pellet producers are able to buy wood chips at much higher prices than what we are able to buy. And therefore they're taking obviously a significant piece of the equation and putting a lot of pressure on us when we go to those same sawmills and ask for our chips. So that is basically what's creating that increased volatility in prices for wood chips. For pulp specifically, it's the impact of wood pellets. We'll have to wait and see how the winter plays out. If those conditions will persist or if it's a milder winter, those conditions will reverse quickly. We've seen these fluctuations before. We don't see them as structural changes. It's one business taking advantage of a very particular situation.

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

I think that situation is already there, to be honest with you. I sometimes I'm astonished by the fact that we haven't heard of any pulp closure because the situation in chip access is incredibly tight. You remember that two years ago we divested caribou. We had 50% on caribou together with West Fraser. And the reason for our divestiture from that business was precisely because we didn't see a future there in terms of fiber supply. As I said earlier in the call, it's completely different for Celgar because we have the US as a very significant source that we can play at even higher levels than what we're doing already. So we're very limited to the dependence on British Columbia itself. But we're probably one of maybe sawmill two pulp mills that have that luxury. The rest are stuck with PC chips. And, yeah, there's incredible amount of pressure on them.

And then I've got a more challenging question, but I've been asked to ask it around potential financing and government support from Canada considering tariffs and industries like the paper and packaging industry in British Columbia that's under pressure. Have you investigated any opportunities to access much lower cost financing from either the regional or federal governments there?

We do a lot of lobbying as part of our industry associations. We are very, very active through the associations as well as through direct contacts we have with for example Minister Parmar or even Premier ebi. So we do have interactions where we bring to the table some of the issues that obviously are important for us. However, be reminded that since we most of the efforts that the B.C. government have put out are in favor of the lumber industry because obviously with all the tariff situation that is the core of the focus, beyond steel, beyond auto, beyond those things that we know are heavy in those conversations. Lumber is the element and then that goes into sawmills of which we have none. So we don't have access to particular credit lines or something that are more geared towards the lumber business. The sawmills that are in very difficult situation now with the counter tariffs adding up, with countervailing duties adding up and now additional tariffs, all these measures that the government have made public, they will benefit hopefully some of those sawmill companies. But again, we're not privy to those as our business is not through sawmilling.

Very clear. Thank you.

I show no further questions in the queue at this time. I would now like to turn the call back to Juan Carlos for closing remarks.

Okay, thank you, Michelle and thanks to all of you for joining our call. Rich and I are available obviously to talk more at any time, so don't hesitate to call one of us. Otherwise, we look forward to speaking to you again at our next earnings call in February. Bye for now.

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