Feb 18, 2022
Operator
Good morning and welcome to Mercer International’s Fourth Quarter 2021 Earnings Conference Call. On the call today is David Gandossi, President and Chief Executive Officer of Mercer International; and David Ure, Senior Vice President, Finance, Chief Financial Officer and Secretary.
I will now hand the call over to David Ure.
David Ure
Good morning, everyone. I would like to remind you that in this morning’s conference call, we will make forward-looking statements.
And according to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, I’d like to call your attention to the risks related to these statements, which are more fully described in our press release and in the Company’s filings with the Securities and Exchange Commission. We achieved record EBITDA in Q4 on strong pulp and lumber sales volumes, high energy sales prices, a much lighter scheduled maintenance program when compared to Q3, and the settlement of the business interruption insurance claim associated with the repair our Peace River recovery boiler amidst 2021.
These positive impacts were partially offset by lower pulp realizations in all markets. Our Rosenthal pulp mill ran the entire quarter without the benefits of its turbine generator, which had the impact of lowering our EBITDA by about $30 million at today’s electricity prices.
However, I’m happy to report that the turbine is being repaired and has returned to service in mid-January. We also experienced modestly higher fiber prices in both Canada and Germany.
In addition, our freight costs were up at our Canadian operations due to the an increased use of trucking and higher warehousing costs due to extreme weather and COVID-related supply chain slowdowns. Our Peace River mill recovery boiler damage insurance claim was settled in late December, which allowed us to record it in Q4.
The total Q4 EBITDA impact was about $32 million. We are pleased to have this claim behind us and that our 2021 fiscal year includes both the loss associated with the downtime needed to repair the boiler and the insurance proceeds meant to compensate us for that lost income.
We regenerated record EBITDA in the fourth quarter of almost $165 million compared to EBITDA of about $148 million in Q3. Our pulp segment contributed record quarterly EBITDA of roughly $143 million and our wood products segment contributed total quarterly EBITDA of almost $24 million.
You can find additional segment disclosures in our Form 10-K, which can be found on our website and that of the SEC. For the full year, we also generated record EBITDA totaling almost $479 million, exceeding our previous record by well over $100 million.
And this was achieved despite our Rosenthal turbine being down for almost six months, which negatively impacted EBITDA by over $40 million. On average, softwood and hardwood pulp prices in Q4 were lower than Q3 in all of our major markets.
In China, the Q4 average NBSK net price was $723 per ton, down $109 from Q3. European list prices average $1,302 per ton in the current quarter, compared to $1,345 per ton in Q3.
NBSK remains at a considerable premium to hardwood with the average Q4 net eucalyptus hardwood price in China at $562 per ton, down $61 from Q3. In total average pulp sales realization movements negatively impacted EBITDA by just over $30 million compared to the prior quarter.
Pulp demand was strong in the quarter, and our modestly higher overall production led to higher sales volumes compared to the previous quarter. Our Q4 sales totaled almost 516,000 tons which is up about 68,000 tons from Q3.
We did not take any planned downtime in Q4 while our Q3 -- in Q3, our mills were down a combined 44 days for capital and annual maintenance work. This is roughly the equivalent of 43,000 tons of production.
The impact of no planned downtime in Q4 compared to Q3’s maintenance downtime included higher production and lower direct costs benefited Q4 EBITDA by almost $15 million. Our lumber realizations were also mixed this quarter compared to Q3.
The Random Lengths U.S. benchmark for Western SPF 2 and better, averaged $711 per 1,000 board feet in Q4, which was up $217 per 1,000 from the last quarter.
Our average European sales realizations were down approximately $44 per 1,000 board feet compared to Q3. The benchmark lumber price in the U.S.
is currently $1,275 per 1,000. Our wood products business continues to perform well.
We sold about 104 million board feet of lumber the quarter, which is up slightly compared to our Q3 sales volumes. Our electricity sales totaled roughly 207 gigawatt hours in the quarter, which was up relative to Q3 due to less planned downtime.
However, our sales volumes were held back due to the absence of generation at Rosenthal for the entire quarter. Our Cariboo pulp mill joint venture, which is accounted for using the equity method, contributed another 16-gigawatt hours to this total.
We reported net income of $74.5 million for the quarter for $1.13 per basic share, compared to net income of $69 million, or $1.05 per share in Q3. For the full year 2021, we reported record net income of $171 million, or $2.59 per basic share, compared to a net loss of $17.2 million, or $0.26 per share in 2020.
Cash generated in the quarter totaled approximately $7 million, compared to cash used of $46 million in Q3. Our cash generation in Q4 was primarily the result of strong EBITDA being offset by working capital movements, primarily in the form of higher accounts receivable and to a lesser extent, higher inventory balances.
Our higher accounts receivable balance is principally the result of timing of sales late in the quarter, along with the recommendation of the Peace River insurance claim, receipt of which did not occur until January. Higher inventory was due to finished goods increases in North America due to logistics restrictions, and higher priced raw materials, combined with relatively high seasonal inventory levels.
We expect the majority of this working capital build to reserve -- reverse itself in Q1. We invested almost $34 million of capital in our mills this quarter, which put our total capital investment in 2021 at $159 million.
In addition, in 2021, we completed the $51 million acquisition of Mercer Mass Timber, our cross-laminated timber production facility located in Spokane, Washington. David will provide updates on this business and our CapEx program shortly.
At the end of the quarter, our liquidity position totaled about $631 million comprised of $346 million of cash and $285 million of undrawn revolvers. Our strong liquidity position will support our planned working capital movements along with our ambitious 2022 high-return capital spending programs.
In January, we entered into a new C$160 million revolving credit facility for our Canadian operations. This new syndicated facility has a five-year term and replaces the two C$60 million Canadian facilities for our Celgar and Peace River mills.
This will be a lower cost facility, secured by working capital and gives our Canadian operations significantly more financial flexibility. In addition, we have commenced discussions with our property insurer on a business interruption claim for our Rosenthal turbine downtime and expect settlement sometime in the second half of 2020.
And we are pleased to highlight that our Board has approved a 15% quarterly dividend increase, which will increase it to $0.075 per share for shareholders of record on March 30, 2022 for which payment will be made on April 6, 2022. That ends my overview of the financial results and I’ll now turn the call over to David.
David Gandossi
Thanks, Dave. Good morning, everyone.
Let me begin by saying how pleased I am with our overall operating results this quarter. We benefited from our global operating footprint.
The strong European pulp market conditions helped mitigate the impact of supply chain restrictions that we experienced at our Canadian operations. And while our strategic core focus to maintain world class assets keeps your costs and carbon impact low in normal times, in times of high energy prices like we are experiencing at the moment in Europe, our net energy export position is a tremendous differentiator for us.
In Q4, our operations generally ran well and the year ends with a number of operating records, including record quarterly EBITDA. You will also remember, 2021 has been a year of considerable evolution as a company with the addition of Mass Timber and engineered wood products, and steady expansions of lumber capacity.
And while we continue to diversify our products, we also remain committed to our legacy as our standout pulp expansion will attest. These results reflect the hard work of our team during the period under often challenging operating conditions, along with the benefits of our recent investments.
Again, our mills generally ran well this quarter, and strong production, combined with steady -- overall steady demand for products were key drivers behind our record Q4 results. In fact, our results would have been even better but for the complete absence of power generation at the Rosenthal to conduct turbine repairs.
While the lengthy downtime was unfortunate, we took the opportunity to pull 84 days of plant turbine maintenance from 2022 into 2021, and this decision will reduce our insurance claim for the period but we also expect it will result in a net benefit to the mill, given that electricity prices in Germany are much higher today than they were back in 2021. While still relatively strong, average pulp prices fell modestly in Q4 as negative sentiment in parts of the market caused by fears of new eucalyptus hardwood capacity, a general negative economic outlook and logistics restrictions for paper products made it challenging to ship product economically, all started to weigh on the markets.
However, the sentiment seems to have shifted in the early days of Q1 due to supply chain restrictions for pulp producers in Western Canada, along with the labor dispute affecting NBSK production in Finland. These supply side restrictions have created upward pricing pressure, and most pulp makers have been able to implement some modest price increases.
In addition, we believe that low consumer inventory levels, heavy pulp producer maintenance levels and new hardwood supply coming to market more slowly than anticipated will create average pricing conditions that are sequentially higher in Q1 and possibly Q2. Lumber markets, like pulp, are relatively strong but variable.
Average lumber pricing in both Europe and the U.S. weakened modestly during the quarter.
For U.S., pricing has shown considerable strength since late in Q4. While the midterm backdrop for U.S.
pricing conditions remains solid with relatively low housing inventory, low borrowing costs as well as strong homeowner demographics, the dimension in lumber market is currently characterized by short-term weather events, inflexible supply chains, along with labor and home construction supply shortages. Add to this, the sometimes inconsistent supply from Canada and you have the market we are currently witnessing, which is long-term growth with intermittent volatility.
Looking ahead, positive homebuilder sentiment remains, despite the expectation that mortgage rates will rise in 2022, which is consistent with our view that we will continue to see strong lumber demand, based on expected steady U.S. home construction.
The variability of European pricing is much less pronounced. As expected, prices in the European market have moderated, following the trend that is developed over the past few years of European market changes, generally lagging those of the U.S.
Consistent with that trend, after reaching a modest trough in Q4, we are seeing pricing in Europe now recovering to early -- in early ‘22, as European producers, despite the small numbers begin to direct some production to the strength in the U.S. market.
We will continue to optimize our mix of lumber products and customers to achieve the strongest sustainable realizations that we can. In Q4, 46% of our lumber sales volumes were in the U.S.
market with the majority of the remainder of our sales in the European market. Although we feel our logistics strategies put us at a competitive advantage to many of our competitors, we experienced some freight costs increases in Q4.
This primarily came in the form of increased use of trucking and higher warehousing costs in North America caused by extreme weather and pandemic-related shipping delays, which has reduced the availability of railcars. These delays forced us to take our Cariboo mill down for three weeks in December and at times, slow production modestly at Celgar and the Peace River mills in December and into early 2022.
We expect the situation to begin to ease once temperatures begin to moderate. Looking forward, our turbine generator Rosenthal was put back into service in mid-January, we are pleased to once again have our mill producing its own electricity and selling surplus production into a very strong German electricity market.
Having the turbine down from almost six months negatively impacted our annual operating results by approximately $41 million. And having a world class energy balance has never been more important.
I’m sure that most of our listeners are aware of the steep rise in European energy prices over the last few quarters. This affects our business in a few ways.
First, we’re net electricity sellers. In the last year, the gray market energy price has on average more than tripled in price.
As a result, you can expect our revenues to grow in Q1 relative to Q4, now that the Rosenthal turbine is back on line. Further, we believe that the conditions that are giving rise to the current power prices are not likely to abate in the near-term.
Germany remains on pace to decommission its remaining nuclear power plants and the perceived natural gas supply threat amidst tension between Russia and the West bound [ph] do not seem to offer an opportunity for a quick retreat of power prices. And while fossil fuels to become relatively small source of energy for us, limited to our lime kilns, we are impacted by higher gas prices, which increased dramatically.
And we are expecting a knock-on effect of high gas prices in the coming months as we expect the many central European households will turn to alternative supplies to heat their homes such as wood pellets, which will put some upward pricing pressure on our main raw material, low cost pulpwood. However, we believe the benefit of higher electricity prices will more than offset the impact of higher gas and potentially higher wood costs.
Our wood product segment achieved another solid production result, producing 111 million board feet of lumber, which was up 9 million board feet compared to Q3. We’re pleased with the rate that our wood product segment investment is developing, particularly as we’ve been forced to regularly interrupt production during our ongoing construction project.
As I mentioned, we believe that we have the conditions in place to see improving pricing for all of our products, power, lumber and pulp, and we are aware of inflationary pressure on the cost side at the moment. Inflation is limited to natural gas, some elements of our delivery channels and more recently to fiber costs.
In Germany, we are seeing strong demand for both pulpwood and sawlogs, which is driving increased fiber costs. Demand for pulp logs is being driven by pellet producers, as I mentioned, as high European energy prices are creating more demand for wood-based heating solutions.
While sawlog demand and pricing appears to be peaking, we’re expecting increases in the prices we pay for lower value pulpwood drives over the next two quarters. In Western Canada, reduced harvesting due to extreme winter weather combined with COVID related hauling limitations, pushed pulpwood prices up modestly in the quarter.
However, we’re beginning to see incremental harvesting activities and we’re optimistic COVID restrictions will begin to ease, hence we believe the net Canadian fiber costs increases in the near-term. Despite not having any annual major maintenance in Q4, we did continue to invest in our operations.
In Q4, capital expenditures totaled $34 million, mostly in high return projects, like upgrading the woodrooms at our Peace River and Celgar mills. We’re excited about the benefits these projects bring, including improved fiber resource utilization, reduced greenhouse gas emissions, and lower fiber costs.
We’re using our liquidity and strong balance sheet to continue to pursue the growth aspect of our strategic plan in areas where we have core competencies. Specifically as we focus to our growth in building products, green energy, market pulp and chemical extractors, and we will continue to do so in 2022.
And we have another ambitious capital expenditure plan in 2022. We expect to invest approximately $175 million in our mills this year.
The majority of that is on high-return projects that will drive new product development, ESG advances, productivity improvements and input cost reductions. Our two woodrooms at Celgar and Peace River will be completed late this year and we will be making additional investments in our German wood procurement infrastructure that will add to our competitive advantage.
We have one more sorter to add to our Friesau mill to maximize the benefits of our new planar by allowing for even greater grade differentiation. And while most of the Stendal740 pulp expansion project is complete and running as expected, we will complete the final element with some modifications to the pulp machine wrapping line in 2022.
You can also look to us to take steps on our carbon strategy in 2022 as we expect to commence construction of a lignin extraction plant, a leading edge technology that will allow us to look at commercializing derivatives of lignin products that have historically been limited to biomass fuels. And, of course, we remain committed but cautious in our approach to solid wood expansion.
We continue to develop our Stendal sawmill project, but we need more stable equipment supply conditions to emerge before launching this project, conditions that we expect to return when the pandemic wanes. We have long recognized the importance of sustainable operations and planning for the long-term.
We are proud of our sustainable performance, and we’re applying a lot of resources to ensuring that our ESG performance continues to improve and that our performance and objectives are transparent. We’re looking forward to the publication of our sustainability report in early 2022, which will further support our messaging regarding our sustainability reports and values.
Our 2022 annual maintenance schedule will be significantly less intensive than 2021 due to the Peace River recovery boiler rebuild being completed and we will be running through Q1 without any planned maintenance downtime. The timing of our scheduled downtime for the remainder of the year is as follows.
In Q2, Stendhal will take a three-day mini shut; Celgar will have its regular 15-day shut; Peace River will have a 16-day shut; and Cariboo has a 16-day maintenance shut. In Q3, Rosenthal has its regular 14-day shut planned; and in Q4, Stendal has a 14-day maintenance shut scheduled.
In total, we are planning for about 67 days of major maintenance in 2022. The 2021 highlight of our growth strategy was our acquisition of Mercer Mass Timber.
We remain very excited about the potential of this business, and it fits well with our value add, carbon focus, solid wood strategy. We continue to build up the order book for the plant’s core product, cross-laminated timber panels.
We’re already producing long-length finger-jointed lumber, and we’re studying the plant’s ability to produce other complementary engineered wood products. This facility has an annual production capacity of approximately 140,000 cubic meters of CLT, which represents about 30% of the current CLT manufacturing capacity in North America.
We feel that the environmental and construction flexibility benefits compared to traditional steel and concrete construction methods make this product right for future growth. Looking forward, our record 2021 operating results, liquidity position and strong balance sheet leave Mercer well-positioned to use that financial flexibility to add shareholder value by continuing to execute on our growth strategy.
Finally, as Dave mentioned, our Board has approved a 15% dividend increase this year. I believe this emphasizes the confidence we have in our ability of our world class assets to generate strong cash flow throughout the cycle.
The term we’re using a lot within Mercer these days is fit for the future, a commitment to being on the right side of the climate change challenge. Given our role in managing forests and producing physical goods and green power from renewable resources, along with our focus on human talent and our strategy to operate only top performing modern mills, we believe and expect Mercer will be a welcomed industrial player for the future.
This will not be the case for everyone operating in our space and therein lies the opportunity. Now, let me conclude by remarking that the safety of our people continues to be our focus as COVID-19 variants spread globally.
We are committed to our safety protocols to ensure the safety of our employees, contractors and the ongoing operation of our mills. And in keeping with one of our core values, I encourage everyone to get COVID-19 vaccine to keep your families, friends, colleagues, and neighbors safe.
Thanks for listening. Be safe.
And I’ll now turn the call back to the operator for questions.
Operator
Thank you, sir. And we will now begin the question-and-answer session.
[Operator Instructions] Your first question comes from the line of Sean Steuart from TD Securities. Please go ahead.
Sean Steuart
Two questions. You gave a lot of detail on cost trends, freight and fiber.
And I might have missed it. But, can you give us some context on what you’re seeing with chemical costs to your pulp mills right now, quantify the pressure you might be seeing for that element?
David Gandossi
Hey, Sean. Yes.
Go ahead, Dave.
David Ure
Yes. I’d say, at this point, Sean, in 2021, we haven’t experienced material changes in our chemical costs.
But as you might imagine, we have some chemicals that are derivatives of petrochemicals, particularly natural gas and electricity. So, we are expecting some inflationary pressure in 2022, probably as early as Q1 and Q2.
But at the moment, 2022, the increases are not material, but we’re expecting some in the future for sure.
Sean Steuart
And on the Rosenthal generator, couple of questions. The business interruption insurance claim that you expect to receive compensation for in the second half, can you quantify that?
And I think the context you gave was, if that generator was running in the fourth quarter that would have been an incremental 30 million. Can you clarify that as well?
David Ure
Yes. So, maybe start with the latter part of your question there, Sean.
So, yes, 30 million in the third quarter, another 10 million in the second quarter. So, hence, the 40 million or 41 million in total for the year.
And there’s really two elements of that, as you might imagine. One, we’re not selling to the grid at the moment when the prices are particularly high.
And in fact, we’re actually buying. We have been buying some power from the grid.
So, it’s sort of a -- it’s been a bit of a double whammy. And those -- both of those conditions will be gone here in Q1.
In terms of the business interruption, this is definitely an insurable loss and we’ll be working with our insurer to develop a claim and -- but it is a fairly complex claim. There are elements there.
As David had mentioned, we had planned on doing a maintenance check on this particular turbine in 2022. So, that’ll roll into the size of the claim.
It’s a fairly complex claim, and one that we’re just beginning discussions with the insurer. So, I think it’s a little bit too early to estimate the total value of the claim, but possibly in the next quarter, I’ll be a little bit more-clear.
Sean Steuart
Okay. One last one on shipping logistics.
Do you have any sense that things are starting to improve on that front at all? Do you have any clarity on suppose getting back to normal is ways off potentially, but any sense that things are improving at the margin on that front at this point?
David Gandossi
Well, CP’s improved a lot for the Celgar mill. And CN is the company that’s still struggling.
It’s just wind their way out. And for Peace River, we’ve been using more trucks, and we’ve been redirecting tons east out of Edmonton, that kind of thing.
So, yes, it’s kind of -- it’s costing us roughly on average about 12,000 tons a month -- yes, a month at Peace River mill now, in terms of slowing the mill down and we can’t get logistics sorted out. So, it’s annoying but it’s not catastrophic.
So, we have described it. And yes, it is expected to unwind itself over the next one or two months I would guess.
Operator
Your next question comes from Hamir Patel with CIBC Capital Markets. Please go ahead.
Hamir Patel
David, can you maybe help us just understand maybe the magnitude of how energy prices that you receive in Europe, how they may have changed -- or how they’re tracking in Q1 versus Q4?
David Gandossi
Sure. Yes.
Maybe just some metrics here. In the middle of the pandemic, the gray market, which is the rate you can sell at as a generator, not green, just normal, was about €40 per megawatt hour.
The green rate, the tariffs that we’ve had, at both Rosenthal and Stendal are roughly €90 a megawatt hour. And remember Rosenthal came off its 20-year tariffs last year.
Today, the gray rate is about €180. And we -- in December, we saw at times above €200.
So, it’s a very dramatic increase. So, both Rosenthal and Stendal are selling today at the gray rate.
We have the right to clip off the green rate tariffs on to the gray market at our discretion. So, it’s double what the green rates were, on average.
Hamir Patel
I just wanted to ask about the acquisition pipeline. And just given where we are in the cycle, I want to get your thoughts on what do you see more attractive opportunities in pulp or lumber.
And then, within the lumber side, is the focus on Europe or is North America of interest as well?
David Gandossi
Yes. I don’t think you should plan us chasing pulp mills right now.
Our strategy is to operate world class, modern mills fit for the future, and there just aren’t many like that, and those that exist are not for sale. But on the lumber side and the mass timber side, we definitely see a bright future and it’s all about being disciplined and picking the right lane and some of that has to do with synergies with pulp assets as well.
So, we’re open for lumber in Europe and in North America, and we’re also very focused on mass timber engineered wood products. We’ve got quite a bit of work to do at our Spokane plant.
We’re making long-length finger-joint today. We’re getting a tremendous amount of interest on CLT, but there’s other engineered wood products that can come out of that plant as well.
So, similar to what we did with Friesau, when we bought it, as we build our team up and we get going here, I think we’re going to have some pretty exciting projects we can implement at that facility. And it’s going to take a little while, but I’m really super excited about that whole mass timber space.
So, I think that’s a place for us in the future, for sure. So, mostly lumber and mass timber would be the focus right now.
Operator
Your next question comes from the line of Andrew Shapiro with Lawndale Capital Management. Please go ahead.
Andrew Shapiro
Hi. Thank you.
A few follow-ups to Mr. Patel’s and Mr.
Steuart’s questions regarding Mercer Mass Timber. Have you said or updated if at all, what the burn rate of the operation is at present?
And did you expect that to increase before starting its move towards profitability? And when might that be?
What’s your expectation for operations to be geared up to be adding -- being additive versus small grade?
David Gandossi
From a burn perspective, I’d say it’s immaterial to the Mercer scale. We’re selling -- basically, we’re buying boxcars of lumber and converting it into a value added product, called long-length finger joint lumber.
And there’s a margin on that that’s really helping to cover the cost as we ramp up the facility. When we bought the facility, really we didn’t have any employees.
So, this will be extensive ramp-up period, building the team to be able to successfully execute on CLT and other associated products. But, I think what investors should expect is the internal rate of return for the investment in the facility -- as soon as we got through ramp up, which is probably six to nine months is okay.
It’s a good internal rate of return. But, with the additions and the strategy that we’re developing, for reasonably modest investments, we’re going to really knock it out of the park.
We’re really excited about it. That’ll take -- that’ll be something that’ll progressively happen over the next couple of years, similar to -- very similar to how it occurred at the Friesau facility.
So, it’s something we look forward to, Andrew. It is not a burden on the Company at all today.
And really, what we’re doing is building a team that can execute on these high value or high return capital projects that are coming and also help us develop our strategy for growth in that area, so that we can be really smart about it. And turn this into a platform.
Andrew Shapiro
And the follow-up to Mr. Steuart’s line of questioning and just trying to make sure if it’s -- if I’m dealing with apples to oranges.
Your press release spoke about a logistical delay of about 35,000 tons of pulp from Canada to Asia, and you spoke of about 12,000 tons of months of pulp, I think was eastbound instead of westbound perhaps. Are these one on the same?
David Gandossi
No. They’re different.
And I think I might have mischaracterized 12,000 tons, correct that. There is sort of three things going on.
We had a vessel slip from December to January. And that’s just going to push -- you can’t record the revenue until the vessel leaves the berth.
And so, that’s pushed from Q4 into Q1. We also have an inventory unsold pulp that’s higher than normal because it’s taking longer to get it to the ports and to customers at the Canadian mills and I’d say, both the Canadian mills are running with finished goods inventory in and around the 60,000 ton range, they should be closer to 40,000 tons kind of under normal conditions maybe 35,000 to 40,000 each, and they’re both at 60ish.
And then the 12,000 tons I was referring to was because it’s winter and it’s very cold, where these mills are located, we would never dream of allowing them to -- you can’t shut them, but they have to run, to stay warm, to keep things from freezing. So, when we’re short at boxcars, and where you have nowhere left to put the pulp, to say, we slow the mills down a bit and just produce less than their normal operating rate.
And that’s the [$12,000] a month for Peace River. Celgar is running flat out again.
We had some modest curtailments during this last couple of months, nothing really significant. But, maybe for a few days there are times we slow down.
But at Peace River, we’re losing about 12,000 tons a month on average, December and January. I expect the same February because of the shortage...
Andrew Shapiro
So, then, as you’re describing this, it’s fair to assume then that this shifting into Q1 doesn’t impact or force the shifting of Q1 into Q2. This is something that can get made up in Q1 or gradually between Q1 and Q2, be made up, is that right?
David Gandossi
That’s right. Yes.
I mean the -- for sure, that’ll be -- that’s happened already, shipped and recorded in the first quarter. And there’s no challenge selling pulp right now.
At least we can sell every time two to three times. So, we just need the logistics to work through what’s sitting in our warehouses.
And I think we’ll get through most of that this quarter, maybe some into the second quarter.
Andrew Shapiro
So, then, call it Q1 and Q2, there’s a little bit of a kind of a surge and carryover from the Q4. When that happens, are we dealing with the higher Q1 net prices?
Are these already contracted out at the Q4 price level?
David Gandossi
That’s a mix of both. Nothing at -- the vessel that slipped would have been Q4 pricing and that’s going to Asia.
And then, yes, you’re right, there’s a -- there was a price increase in January and February and in March for China. So there’s also some that is unsold today that will connect when we know we’ve got a logistics path to get it to the customer.
Andrew Shapiro
So, are we dealing -- we’re dealing with perhaps a $20 million or more revenue surge opportunity?
David Gandossi
I haven’t done the math. But no, we got a nice tailwind coming, I think, existing prices and we got lots of inventory to sell, so.
Andrew Shapiro
Okay. Moving on to my final two here.
It’s been about half a year since I last asked. So, I do want to ask if you might give us update on the status of the BioFilaments and joint venture, and the status, progress and the timing of cash flows that are in that emerging business?
David Gandossi
The BioFilaments continues to be a research and development project. There -- we still see lots of potential in it.
It’s not -- we don’t have any customer opportunities today. But it’s a small amount of money.
But I think, there is something in it. So, we’re going to stick with it for a little longer and see what we can make of it.
On the Sentinel side of things, the other small sort of on the -- smaller on the side, biochemicals project where -- when we come out of winter, get into harvest season, this is going to be the year that we start that bigger harvest. And as we go towards the end of this year and into next year, and as I signaled before, this is when we’ll really start to notice the benefits of that operation on the sale of higher volumes of sandalwood oil.
So, that’s the update there.
Andrew Shapiro
Yes. I wasn’t going to ask about that one until next quarter and I’ll hold this one off for a half year.
And lastly, I’ve been here for years, and you’re doing a great job with all this. And lastly, what are your upcoming plans for virtual or in-person IR activities in the upcoming quarter or two?
David Gandossi
Yes. Well, I’ll let Dave speak to that in a second.
But one of the things we’re recognizing is that we think, we can do a lot more on the whole ESG story. And we need to get out more in Europe and look for more of the -- try to get more of the retail and the family office -- get on some of these more social media type promotion methodologies.
So, that’s going to be a real focus for the next couple years. So, frankly quite struggle with the multiples that the analysts give us.
And to all the analysts on the call and I apologize for calling you out like that, but I just think you got it wrong. Mercer should have a much higher multiple based on the quality of its assets and the energy story, biochemical situation, and what’s going to happen to all the high cost mills in our space.
So, we’re really going to put a kind of whole refreshed IR move on. Maybe we need to get out to a slightly different audience, audiences that have more understanding of how important particularly the future really is.
So, that’s in the works. We’re doing a lot of thinking and planning for that, looking for some consulting support to help us.
And Dave, maybe you can jump in and just a little bit of more traditional investor relations activity you got.
David Ure
Yes. And it’ll be -- Andrew, it’ll be fairly quiet over the next couple of months.
We don’t have any large formal conferences booked over the next couple of months. But we are taking a lot of calls right now.
So, just a reminder to folks, if you’ve wanted to talk to us, we’re always available, David, and I, and be happy to take calls from investors and folks wanting to learn more about the Company. So, please reach out to us and we’ll make sure that happens.
Andrew Shapiro
Great. Thank you, guys.
And ESG stuff, call me offline and I obviously have some ideas, given the governance and ESG is a very important part of Lawndale’s mission for the last three decades.
David Gandossi
Great. Thanks, Andrew.
Yes. We’ll do that for sure.
Operator
Your next question comes from the DeForest Hinman with Walthausen & Company. Please go ahead.
DeForest Hinman
As we look at the power situation in Europe, I know you talked about selling into the gray market. There’s a lot of uncertainty out there.
Is there any opportunity to enter into a power purchase agreement, either in the short term or long term?
David Gandossi
Yes. There may be some room there.
And we’re looking at it, DeForest, but we’re at spot today for a bunch of reasons. So, more to come in the future I would guess.
DeForest Hinman
Okay. That’s helpful.
And then, just I was checking my notes, on last fourth quarter call, we discussed the woodroom projects, your prepared comments made it sound like there was some amount of woodroom spending done in the 2021 period. Can you tell us the amount that was spent in 2021 on those projects, the amount planned for 2022?
And then, I believe there was a previous discussion about plant realization of some of those projects. Can you give us an update there, and if those will be earned in 2022?
David Gandossi
Yes. Well, I’d say for Celgar, most of the capital spending will be 2022.
I mean, there was engineering and ramp-up and orders made with a big chunk of the civils, and the installations will be this year. Similarly -- but for Peace River, it’s a little bit -- got more done in 2021.
I think they got close to 10 million into the ground and 2022 will be the remainder. Yes, the guidance we gave for both of those was getting better resource utilization, which is with a centralized chipping versus remote chipping, you get a wood recovery of -- could be 8%, so for every log process, you keep the bark for fuel, when you do it in a central location, and you get about 8% more wood from the chipping exercise.
And then, it’s also the -- on Celgar, what we’re doing is we’re bringing in waste wood that used to be left behind. So, that’s all reasonably cheap wood.
The only thing you’re paying for really is the logistics and the processing. And then Peace River, rather than bringing in tree length logs to satellite yards and shipping them there and shipping the chips to the mill, we’re putting cut to length on 10 axle trucks, which carry 100 tons a payload all the way to the mill and shipping it the mill.
So both projects, coincidentally are expected to reduce our wood input costs by about $20 million each per year, including all that greenhouse gas reductions and resource utilization efficiencies. And it’s also -- in the Peace River situation, it’s also a much more attractive type of job driving a truck, where you’re coming back to the mill all the time, because it means they can go home at night.
And so, it’d be easier to develop our own fleet and for contract partners to develop their drivers -- when it’s a circular traffic group where they can be at home at night, which is a big deal for a lot of them. I guess, it makes us more competitive for the trucking market as well.
DeForest Hinman
And then just on the grant realizations. Is that still feasible?
David Gandossi
Yes. All of that’s been committed or will be collected in due course, as part of the project.
Yes.
DeForest Hinman
And that’s just upon completion, and they’re up and running? Is that how it’s going to work, or is there some sort of monitoring…
David Gandossi
Each one has a contribution agreement, each one is slightly different. And we’ll disclose them as they come.
Some of the money already -- each contribution agreement has milestones that need to be reached for funding. But it’s all on track.
DeForest Hinman
And then, on the Stendal sawmill project, I know there was a discussion at the Board level. And you did touch on it in the prepared remarks.
But, can you just give us an update in terms of what you’re thinking now? What you think the pricing number is potentially to do that project?
And you did talk about equipment availability as well. What are some of the things that in your mind need to get better before we’re looking to do this project?
David Gandossi
We’ll even go up -- right up to 100,000 feet for it. The Stendal project is really attractive components of having sawmilling capacity at the Stendal region.
So, a lot of that for us is becoming nice mature timber and will be for some extended period of time. So, it’s an underutilized sawlog timber basket that we want to take advantage of.
And we want to make sure nobody else does. So, we’re ready to go with the Stendal sawmill.
So, engineered -- the land is -- we own the land and it’s -- everything’s ready to go. It’s just, it’s a slow return on investment, because of these long delays with equipment suppliers.
So, there’s no rush to do it today. Like, we don’t need to rush at it.
There are also some M&A opportunities in Northern Germany that with our logistics we could take advantage of and we have strategic opportunities that existing owners might not have. So, we focus on those kinds of opportunities as well.
And we also have Friesau, which we’re currently on track to produce about 550 million board feet of lumber this year. As we get our sorter completed, that’ll creep up again.
But we could also put a third shift on. And if we had a third shift at that facility, we could take it up to the 700 million board feet of lumber.
And so, we’re also focused on that. That’s really a human resource issue, like it’s making -- when you’re running a sawmill on three shifts, you’ve got to have all your operators really well trained.
You don’t want to have anybody making mistakes. You’ve got to have some excess capacity to deal with illnesses and make sure you can cover every shift and you’ve got to have a pretty robust maintenance team and strategy because you’re running the mill harder, so you’ve got to really be on top of your maintenance.
So, that’s where we’re heading. We’re working towards.
That’s 200 million board feet of lumber by putting a third shift on, think of that compared to building up a whole greenfield sawmill. So, we’re going to do the right thing at the right time and take it in steps.
I’m really pleased that we know what the Stendal situation is. Nobody’s going to be able to come in and start planning something and beat us.
They all know that. They know we’re ready to go.
So, we kind of protected the timber resource there. And we just have so many really great strategic opportunities as a company, we just have to evaluate them and do them all at the rate -- in the right order and timeframe and be clever about it.
So hope that helps.
Operator
Your next question is from Andrew Kuske with Credit Suisse. Please go ahead.
Andrew Kuske
You talked a little bit about fiber cost and a bit of attention there. And I guess on the positive side, you see Canada cost going down a little bit, because COVID restrictions coming off.
And then, may be some issues from a German standpoint. But, maybe if we could just dive into that a little bit more, because if I go back, I don’t know, it’s seven, eight years ago, when fiber costs got out of control because of the pellet market in Germany.
It doesn’t seem like those incentives are in place right now for people to consume the pellets to the same degree as they were back then. And your business is -- not being patronizing about it, but your business is just better positioned.
If you could just give us some thoughts on fiber costs, both North America and then Europe, it would be great.
David Gandossi
Yes. Well, I think the -- Germany sawlog prices have moved up quite a bit from, say, the early part of 2021 to what you’re seeing in Q4.
It’s quite different from what it was in Q2, when we had all the beetle wood. And now what we’re really -- what the market is seeing is primarily fresh green wood.
So, it’s back up to what I would say would be more normal sawlog pricing. We don’t see a huge amount of further inflation in 2022, maybe 10% at the most, something like that.
On the pulpwood side, we’ve been enjoying really cheap pulpwood for a couple of years now with the beetle situation. That’s unwound itself.
There’s not a lot of calamity wood at the moment. And there’s pretty strong demand in the winter anyway from the pellet side.
So, we didn’t have a ton of inflation in 2021 from maybe Q2, Q3 up to Q4, might have been 7% rise. And then, in 2022 it’s going to be more significant.
I’m thinking hopefully could get up to maybe as much as $60 a cubic meter, which could be roughly 30% increase from what the calamity level was. But that’s more normal from pre-calamity levels.
And that’s kind of a peak that we’d see. And then, if we get dry summer, we get some beetle kills coming back where things will obviously soften up a bit as well as the pellet demand is more seasonal thing.
So that pressure will come off as things warm up as well. So that gives you the kind of goalpost there, I hope.
Andrew Kuske
It does. That’s very helpful.
And then, maybe for the second question, if we could talk a little bit about the potential in the higher multiple and just the positioning on the CLT facility. And it’s a great position.
And once again, not being patronizing about it, but you’ve got a great market share in North American market. Is this something that you really see yourselves as a little bit of -- maybe the wedge on where you can grow this business, not just in CLT, but in some other areas, and be more exposed to higher multiple, more stable market positions without the volatility?
David Gandossi
Yes. The mass timber definitely deserves a much higher multiple.
It’s a value added product. Our facility -- I mean the amount of sorting and trying and scanning capacity in this facility is enormous.
We’ve got very large CLT press, with -- which gives side press as well. So, I was actually at a building yesterday that was under construction from panels that were produced in the Spokane facility.
And the owner of that project was telling me, this is the best CLT he’s ever seen, and he’s building an office for his engineering group that provide engineering services to mass timber owners. And what’s unique about our press is that it’s got a side press on it, like it squeezes sideways without -- it’s not a side glue, it’s a side press with bottom...
So, that’s one thing. So, very high quality, excellent -- big, big operation already, 30% of the capacity of North America.
But it also -- the sawmilling -- not with the sawmilling, but the grade -- the in-feed gradings, drying, sorting, trimming and all of that kind of cleaning, there’s enough capacity there. We can add a second press.
So, you don’t have to build the whole facility. You can put a second press here.
So, we’ve got this huge upside in terms of capacity and what our thinking is we put a smaller press in that’s more flexible. So we can do the full spectrum from the big four place, the bigger panels that can be cut into all sorts of different products, but we can also custom smaller panels for the more of the catalog things for like row housing and smaller applications.
And we’ve also got the space and the capacity we put in glulam and make other engineered wood products on the site. So, I see this as a really big deal.
And within a couple of years, we’re going to be fully up and really making people notice. And I also think that with our pulp mills and our sawmill and just -- and our logistics and compared to who we’re competing with, like we just -- we’re in the wrong ZIP code, like we’ve got to find a different audience because we’re not getting recognized for the quality of our assets right now.
And that’s what I was trying to say.
Andrew Kuske
I appreciate the thoughts and the detail on the CLT. I think that you’re well positioned there.
David Gandossi
Great. Yes.
Thanks, Andrew.
Operator
[Operator Instructions] Your next question is from the line of Paul Quinn with RBC Capital Markets.
Paul Quinn
Just a question, a little confused on these global pulp markets. Yesterday, we had World-20 pulp stats, softwoods at 43 days, hardwoods at 40 days.
I don’t see any particularly low. But, we’re seeing all kinds of price increases for January, February and now March.
How do you make -- what do you make of the market and how sustainable is it?
David Gandossi
Well, I think in China, it’s -- they’re concerned about supply, like I think it’s really a supply story. I mean, demand is off quite a bit in China right now, as everybody knows.
If we can get through COVID and get back to anything close to normal, I think there’s a huge pent-up opportunity there. But just at the moment, I think what’s impacting paper producers over there is for those who are running, they’re worried about whether they can get pulp.
And there’s a bit of speculation in the market from that perspective. The Shanghai Futures is something they’ll look at, and it’s popped up.
So, you’re right. It’s been 800, 850, 880 type of thing.
In Europe, it’s a really strong market. And I think that has a lot to do with the absence of competition on the paper side caused by logistics challenges.
So, it was -- and I think the finished situation is also kind of all those paper machines are down up in Finland. So, they’re -- those pan-European accounts that have operations in Germany as well, we’ll be running those very hard.
And the U.S. market, yes, spot has moved up there as well.
So, it tells us something. I’m not sure I fully understand it.
I think it’s mostly supply and logistics driven. And as things -- as we come out of COVID, I think on the demand side, we’re going to see quite a tick up because there’s been some pretty significant curtailments that have had to happen on a lot of -- for a lot of the paper guys.
I think I worry a little bit about the cost side for some producers in these energy costs in Europe. They’re tough on paper guys.
Obviously, great for us, but tough on them. And I think one of the things to watch going forward is to see how successful the paper guys are on getting the prices up because they really need to -- I know they’re working on it, but it takes a little bit of time.
I’ll stop there. Paul, see if you want to drill into anything else on that.
Paul Quinn
No. That’s good there.
And just it sounds like you’re equally confused. And just maybe on the European energy side.
Just what are you guys generating on an annual basis in Europe? And thanks for the color on the increased prices.
I’m just trying to see what the incremental revenue or EBITDA could be.
David Gandossi
Well, maybe the way I could answer that is in a way that’s helpful to the audience is, in the past, you would always have thought of Mercer is having this $100 million of revenue that was flat. It was -- 80 of it was -- 80ish of it was energy and 20 of it was biochemicals, right?
And that was at a time when the EEG rates were averaging around 19. So, at today’s rates, like just today, that 80 becomes 160.
Right? Like it’s a double, on average.
That’s how significant it is.
Operator
Your last question is from Cole Hathorn with Jefferies. Please go ahead.
Cole Hathorn
Just a follow-up on the European pulpwood costs, and then, kind of a longer-term demand question. On the pulpwood, you talked about there being less calamity wood available and demand for the pellet producers.
That 30% number kind of off the lows, how should we think about German pulpwood costs relative to other regions? I mean, if I look at Sweden and Finland pulpwood, it’s going up, but the increase is a little bit more muted because there’s a lot of sawmill demand, and there is that pulpwood available.
So, I’d just like to kind of put that pulpwood increases into context. And then, I’ll follow on with the demand question.
David Gandossi
Yes. I’d say, the German wood cost is going to be a little bit higher than Scandinavia, but our energy side of the business and the proximity of our customers to our mills are both significant advantages relative to them.
In Canada, wood cost will be -- gosh, maybe think about it on a per ton of pulp basis, we’d be $70 or $80 lower at Canada compared to Germany. So, we’ve got a very distinct wood advantage, but we’re a little further away from our markets, and we don’t get as much for power.
Cole Hathorn
And then, if I think about wooden construction demand in Europe, we’ve got EU commentary, the EU forest strategy, various other documents coming out of the EU talking and prioritizing kind of the CO2 sink and the benefits of wood construction really trying to promote that as kind of the first use of wood. How do you see this playing out?
When do you expect to start getting legislation that really supports demand, or are you involved in any kind of discussions of how you’d like to see regulation to support demand of wood-based construction in Europe? And do you think this is going to be a kind of underappreciated multiyear, kind of demand boost for wood-based construction?
Thank you.
David Gandossi
Yes, I do. And I think it’s going to really help the engineered wood side of things.
As we move further and further into the future, I think system building, factory-built components going into buildings is going to become more and more how it’s done, like a lot like Japan is miles ahead of us, right? Everything gets built in a factory and it gets taken out and it goes up like Lego, very little waste.
I think that’s got to be the future in all of the developed economies. I mean, that’s why we’re seeing such high growth rates in North America around mass timber.
Yes, I think, we have to be involved in the policy development to make sure the governments all get it right, but a forest -- I’m not talking about wood growth here, but a typical forest like a Central European forest or the boreal forest where we operate or a Southern British Columbia forest. These forests need to be managed.
Like, if you leave the forest alone too long, the trees just get to an age where they become susceptible to droughts, to pests, to forest fires, and you have huge problems. So, I think society is going to figure out if it’s properly managed, and it’s planted and looked after.
It’s a tremendous renewable resource. And, of course, the most important thing is to get the maximum value out of the resource that you can.
So, we’re rewarded for resource efficiency for making high value-added products versus commodity products, utilizing the waste to make heat and steam and electricity. And in the future, we’ll be making biochemicals out of our black liquor and all these other sorts of things.
So we’re really, I believe, on the right side of this whole kind of thing. I think our operations will evolve to really participate well in both, looking after the forest and producing as much high value materials we can from it.
And I think the pure conservation argument is not going to win. People are going to see forest fires.
They’re going to see calamity wood. You got to deal with the forest.
You can’t just leave and sit there. And really good examples are all over the place.
Like in Canada, when they left our national parks, like Jasper and Banff, and so you can’t -- nobody can harvest anything in here. We just got to a -- be a natural forest.
Well, when you get into fire season, you can’t even visit the parks anymore because it’s so dangerous. So, I think there’s a whole movement towards ecosystem-based management doing the right thing, promoting more vibrant, healthy biodiverse forest and creating value from those renewable products.
And I think those products are going to be more and more in demand in the future for all these different reasons.
Cole Hathorn
I suppose, I mean, not just focusing on the CO2 sink benefits of the forest, but the substitution effect, which is, I think, often underappreciated. But if we think about cross-laminated timber, your competitors like Stora Enso and Sodra and the U.S., they really talk up the benefits and the blue skies there and the CO2 reduction in buildings.
I’d love to get some color of how you perceive it in North America. Are you getting similar traction from kind of your architects and support there to build in cross-laminated timber?
Thank you.
David Gandossi
Yes. I think so.
As I was saying earlier, I was visiting a building yesterday that’s still under construction. And I said, "So, what’s the heating source in here?"
And the owner said, "We don’t need a heating source. Humans and laptops are our heating source."
I think out like R48 or whatever it is in the walls is cross-laminated walls and ceiling and the other components come with the installation and the rain screen already applied. The whole building, four stories went up in 10 days, and it’s incredible.
It’s -- so he’s all about demonstrating the environmental benefits of building this way. So, he’s got all kinds of pretty cool features in there.
And more and more, all these organizations where the conscience are going to want to be thinking about having passive buildings like this and homes that are energy and carbon efficient and -- both in terms of their construction and CLT sequesters a lot of carbon, right? That is a renewable carbon sink that’s turned into a row building, and it sits there for 100 years.
It could usually be potentially repurposed whenever the building like this needs to be renovated or whatever. So, what I think?
I think society is going to grow a conscience more and more, and that’s a big part of the story.
Operator
As there are no further questions in the queue, this concludes today’s question-and-answer session. I will now hand the conference over back to David Gandossi, President and CEO, for any closing remarks.
David Gandossi
Yes. Great.
Thanks, Paula, and thanks, everyone, for joining the call. And as usual, and as always, if you have any further questions or you want to connect with us, don’t hesitate to give us a call.
And otherwise, we look forward to speaking to you again on our next call in April. Thanks very much.
Bye, bye.
Operator
That concludes today’s conference call. Thank you for your participation.
You may now disconnect. Stay safe and well.
Have a great day.