Ence Energia y Celulosa SA

MAD:ENC

Earnings Call Transcript 2019-Q3

[Operator]

Good afternoon, ladies and gentlemen. Welcome to the ENCE Third Quarter 2019 Results Presentation. I now hand over to Mr. Ignacio Colmenares, Executive Chairman; and Alfredo Avello, CFO. Gentlemen, please go ahead.

[Ignacio de Colmenares y Brunet, Vice]

Good afternoon, ladies and gentlemen. Thank you for joining our fiscal quarter 2019 results conference call. I'm here with our CFO, Alfredo Avello; and our Head of IR, Alberto Valdes. After the presentation, we will be pleased to answer any questions. Our third quarter results confirm the significant operational improvement in our Pulp Business, with a cash cost reduction of EUR 22 per tonne compared to the previous quarter. Pontevedra's biomill production has increased by 8% after the 20,000 tonne annual capacity expansion started in March. The additional 80,000 tonne capacity expansion in Navia's biomill is being carried out in October. This will strengthen sales volume and reduce costs during 2020. We are currently focused on the cost reduction program that we launched in July, this year, to achieve the cost target set in our strategic plan. However, the Pulp Business EBITDA has decreased by 53% for the first 9 months of the year. Lower Pulp prices accounted for 32% of this decrease. The negative settlement of our hedging program accounted for 16%, and 5% was due to higher costs. The decline in demand in previous quarters and the consequent increase in producers' inventories has continued to depress net hardwood Pulp prices, which are almost $200 per tonne below the last 10-year average and below the estimated production costs of more than 40% of world Pulp production capacity. During July and August, we started to see signs of recovery, such as Chinese Pulp demand growing 19% year-on-year. During the same period, Pulp producers' inventories decreased by 9 days in softwood pulp and by 7 days in hardwood pulp. Also, close to 1 million tonnes of market-related downtime in the industry has been announced for second half 2019. On the other hand, renewable energy business EBITDA was 28% higher than the first 9 months of 2019, thanks to the solar-thermal plant acquired last year. The revamping of some of our power plants, together with the start of 2 new biomass power plants, will improve this business EBITDA by around EUR 30 million as from 2020. In order to keep growing in the renewable energy business, ENCE currently has a pipeline of over 2,100 megawatts. 386 megawatts already have access to the grid, 280 megawatts correspond to PV projects, 81 megawatts to biomass and 25 megawatts to solar-thermal hybridization. For those technologies, we are waiting for the implementation of the European and Spanish renewable energy plan. We have started developing another 1.6 gigawatts in PV energy and 75 megawatts in thermal hybridization. In Slide 5, you can see the evolution of net hardwood prices in China during the last 10 years. They are now $185 below the last 10 years' average. On the right-hand side of the slide, you can see the estimated pulp producers' cash costs at Chinese ports. Considering the current net hardwood price in China, 30 million tonnes of global capacity has a cash cost above this figure. Prices in China are clearly below the cost levels of many pulp producers, which makes the situation unsustainable for them. In Slide 6, there is a graph with the evolution of pulp producers' inventories in days during the last 10 years. The inventories increased significantly during the last part of 2018 and the beginning of 2019, as you know. We believe that around 1 million tonnes moved from stocks in the supply chain of paper producers to the stocks of pulp producers as a result of the strong fall in prices. During July and August, we started to see some reduction in the global level of inventories, helped by producers' production cuts and Chinese demand increase. I expect to see a higher demand in the pulp market during the coming months, driven by an increase in final demand and by restocking in the supply chain of paper producers. Let's now move to Slide 7, where we summarize our views on Pulp supply and demand. We updated our estimates in the light of lower pulp demand and Suzano's announced production cuts during the second half of 2019. We also took into account the increase of pulp producers' inventories and their expected reduction, along with the supply chain restocking. In the medium term, the lack of large capacity increases until the second half of 2021 still supports our expectation of a tight supply and demand balance. Let's continue with Slide #8, which shows our financial results. The group's EBITDA decreased by 41% in the period due to the fall in the Pulp business EBITDA. Pulp business EBITDA was affected by FX hedging settlements, which had a total negative impact of EUR 29 million. Also by lower pulp prices and higher commercial discounts and by cost increases. In the absence of the EUR 29 million negative impact of hedges during the period, group EBITDA would have decreased by 28%, and pulp business EBITDA by 38%. Finally, our group net income decreased by 70%. Our first interim dividend of EUR 0.051 per share was paid in September. No second interim dividend is due in 2019, and the final dividend is subject to our 50% payout policy. Let's turn to Slide #9. During the first 9 months of 2019, free cash flow before growth CapEx and dividend payments amounted to EUR 83 million. Our growth CapEx added up to EUR 214 million as a result of the big investments in both the pulp and renewable energy businesses. Our leverage ratio is 2.5x. 1.8x in the pulp business, 4.3x in the renewable energy business. The net debt-to-EBITDA ratio has been penalized by the negative effects of the FX hedge settlements, and by the investments already made, which have not yet generated EBITDA. In Slide #10, we explain the evolution of our cash cost. Our third quarter cash cost decreased by EUR 22 per tonne compared to the second quarter of 2019 as a consequence of an improvement of EUR 12 per tonne in conversion costs, also a decrease of EUR 8 per tonne in overhead costs. And finally, the fall of EUR 2 per tonne in wood costs, which will continue to fall in line with the fall we have already seen in pulp prices. Our top priority is to reduce costs in the coming quarters. We launched a cost-cutting program during the third quarter in order to achieve the annual cash cost targets of our strategic plan. In Slide 11, I would like to give you an update of Navia's streamline project. During the first quarter of 2020, the Board will decide whether to go ahead or to delay the project by 1 year, depending on pulp market conditions and in order to comply with the self-imposed leverage limits set in our strategic plan. A delay can be expected. Considering our willingness to maintain a net debt-to-EBITDA ratio below 2.5x in this business and the priority we are giving to cost reductions. Let's move now to Slide 12, where you can see our current renewable energy asset base and the 2 new plants, which will be operating shortly. Including the repowering of some of the plants, we will add near EUR 30 million more EBITDA by 2020. If you go now to Slide #13, you will see our medium-term growth plan for the renewable energy business. We are working on several projects. PV projects amounting to 280 megawatts, access to the grid and location has been secured, and environmental authorizations are in progress. Biomass projects amounting to 81 megawatts and biomass solar-thermal projects amounting to 25 megawatts. They have access to the grid. Locations have been secured and environmental authorizations are in progress. These projects await the implementation of the European and Spanish renewable energy plan. And finally, we have 1.6 gigawatts in PV energy and 75 megawatts solar thermal hybridization under development still at an early stage with guarantees already in place for access to the grid. Finally, in Slide 14, we summarize the legal situation of the Pontevedra biomill. We expect a first ruling by the National Court in the next few months. The evidence phase concluded in June. ENCE asked for the ruling of 3 court cases to be unified into one single case. We expect these to be approved in the coming weeks. We still believe the legal proceedings could take as long as 4 years, including any appeal before higher courts. I will now invite Alfredo to review the figures in more detail.

[Alfredo Avello De La Peña, Chief Financial & Corporate Development Officer]

Thank you, Ignacio. Let me start with our Pulp business results, which you will find on Slide 16. Although sales were slightly higher than those in 2018, a net pulp price decrease of EUR 83 per tonne, combined with higher cash cost levels and negative FX settlements in the period for EUR 23 million drove our EBITDA down to EUR 85 million. Increasing focus in our cost reduction program is starting to be seen. Conversion costs in the third quarter were cut by 20% and our overheads by 11%, resulting in a EUR 22 per tonne cash cost reduction compared with the previous quarter. Also, Pontevedra's biomill production increased by 8%. We expect this cost-cutting trend to continue showing positive results, although some lower in the fourth quarter, impacted with current Navia shutdown period in October, but is speeding up after it linked to its ramp-up process. Going forward to the Pulp business P&L in the next slide. After EBITDA, depreciation amounted to EUR 46 million, in line with our growth CapEx program, followed by EUR 3.2 million related to ENCE's environmental pact in Pontevedra with no cash outflow effect. Finally achieving an EBIT of EUR 35 million for the period. Financial expenses of EUR 6 million keep showing the 75% reduction coming from last year's refinancing process. Other financial results amount to EUR 2 million, mainly included the positive FX effect on receivables. Finally, after taxes, the pulp business ended with a net profit of EUR 24 million in the period. Continuing with Slide 18, we can analyze the Pulp business cash flow generation. Normalized free cash flow after changes in working capital, maintenance CapEx, financial payments and taxes attained EUR 65 million, with lower EBITDA being partially offset by lower financial payments and increased thereafter by EUR 8 million, mainly related to non-paid commercial [ rubbles ]. All this cash, for the EUR 5 million coming from the sale of the Portuguese plantations has been used to partially finance the growth and sustainability CapEx of EUR 112 million related to the Pontevedra and Navia capacity expansions. Moving on to Slide 19. Let me update you on our ongoing hedging program. Again, the only aim of our hedging program is to mitigate currency volatility in the Pulp business. For this reason, we hedge at least 50% of our expected revenues in dollars for a period that encompasses the next 12 to 18 months on a rolling-on basis. These hedging structures are reviewed, monitored and timely adjusted on a monthly basis. This program has had a negative impact of EUR 23 million in our P&L for the first 9 months of the year versus a positive effect of EUR 5 million during the same period last year. If the U.S. dollar-euro exchange rate stays at an average of 1.12 for the rest of 2019, the full year impact should be of approximately EUR 28 million. If we now move to Slide 20, you will find our Pulp business balance sheet. Net debt amounts to EUR 272 million. This figure represents a levered ratio of 1.8x LTM EBITDA. This ratio includes the capacity expansion investments linked to our strategic plan almost completed at this time of the year, but not showing their pro forma LTM EBITDA. Applying it significantly reduces the ratio to below 1.6x. Just remembering that the application of IFRS '16 on leases, in January, led to recognition of a financial liability of EUR 44 million in this business. Cash in balance at the end of the period amounts to EUR 120 million, remaining additionally fully available, the revolving credit facility of EUR 70 million. Let's now focus on the energy business in Slide 21. Energy volume sold was almost 10% higher than in the same period of 2018 due to a contribution of our new solar-thermal plant in Puertollano, acquired in December last year. As a result, total revenues grew by 19%, and our EBITDA increased by 28% up to EUR 42 million in the period. Following with our renewable energy business P&L in Slide 22. Depreciation was 60% higher, attaining EUR 21 million, mainly due to our new Puertollano CHP plant. Financial expenses increased up to EUR 12 million as a result of a higher debt balance related to the construction of our 2 new biomass plants in Huelva and Puertollano as well as the solar thermal plant negotiation. After minorities and taxes, our renewal energy business reported a net attributable profit of over EUR 4 million in the first 9 months of the year. In the next slide, #23, let's follow with the renewal energy business cash flow generation. After taking into consideration changes in working capital, maintenance CapEx, interest and taxes, normalized free cash flow amounted to over EUR 18 million. Also in this business, all this cash has been used to finance our expansion and sustainability investments, mainly linked to the construction of our 2 new plants, which will start their operations in January 2020, contributing to our EBITDA thereon. Let me conclude this review on Slide 24 with our energy business debt situation. The net debt position for the energy business increased to EUR 246 million at the end of September, driving our financial leverage to a multiple of 4.3x EBITDA, including all the CapEx invested in our 2 new biomass power plants. Again, in this case, including the pro forma LTM EBITDA, the ratio significantly reduces to below 3x. Application of IFRS '16 in this business amounts to EUR 9 million, all related to land leases. Cash balance ended at EUR 87 million for the period. Let me please now return the lead of this presentation back to our Chairman for the closing remarks.

[Ignacio de Colmenares y Brunet, Vice]

Thanks, Alfredo. To conclude this presentation, I want to stress that our focus in the Pulp business is now on cost reduction. And obviously, the startup of Navia. In the third quarter, we have already reduced our cash cost by EUR 22 per tonne compared to the previous quarter, and we continue to work to achieve the cost target set in our strategic plan. The Board will consider our pulp strategic plan investments during the first quarter of 2020. A delay can be expected in order to keep a low net debt-to-EBITDA ratio and to allow us to concentrate all our efforts on cost reduction. Regarding the renewable energy business, we will start the 2 new biomass power plants shortly, which will increase EBITDA by nearly EUR 30 million in 2020. The other priority in this business is to develop our 2.1 gigawatts pipeline and to continue this development further. After 2 years of intensive CapEx, we are now fully focused on cost-cutting and pipeline development. Thank you very much, ladies and gentlemen. Now we are happy to answer any questions you may have.

[Operator]

[Operator Instruction] The first question comes from Enrique Zamacola from Link Securities.

[Enrique Zamacola;Link Securities;Analyst]

Hello, good afternoon. I would like to know, with the pipeline of more than 2 gigawatts. Would you consider incorporating a partner to develop it? And if so, would you use it to develop the renewables pipeline, or would you use part of the proceeds from the Pulp business? Thank you very much.

[Ignacio de Colmenares y Brunet, Vice]

Thank you, Enrique. Incorporating a minority partner in our energy business is an option that we are considering. We have not yet made a firm decision, but it is perfectly possible. Under current market conditions, this may well be an opportunity to crystallize the value of this business. This option would allow us not only to finance the renewable pipeline growth but also to strengthen the Pulp Business. Thank you.

[Operator]

The next question comes from Alvaro Lenze from Alantra Equities.

[Alvaro Lenze Julia, Research Analyst]

I have 3 questions, if I may. First, on cash costs, specifically on wood costs. They are still quite high at EUR 208 per tonne. When you compare the current pulp price in euros -- in euro terms with the euro price in during 2018, we are just doing -- in 2018, your average wood cost was of EUR 201 and it's still at EUR 208 even though the price of pulp is much lower now. And second question regarding CapEx. First of all, on the Pulp business, I was wondering whether you'd engage in the expansion project that the Board is expected to approve in Q1 next year? Because in the slide, you say that it will depend on not exceeding the leverage ceiling at average pulp prices, but I understand that the ceiling would not be reached at average pulp prices, but the leverage will be higher if we take into account the spot prices of the pulp. And lastly, regarding the CapEx for the Energy Business. If I recall correctly, you had EUR 100 million of budget for expansion CapEx for 2020. I was wondering if this was enough to develop the project by pipeline that you have announced today, at least the part that is related to the projects that already have network access.

[Ignacio de Colmenares y Brunet, Vice]

Alvaro, could you repeat the third question, please?

[Alvaro Lenze Julia, Research Analyst]

Yes. Regarding the CapEx plan for the energy business, the EUR 100 million budget you have for expansion CapEx, is this enough to fund the necessary investments for the pipeline of projects that you announced today, that already have access to the network, the 386 megawatts?

[Ignacio de Colmenares y Brunet, Vice]

Yes, thank you very much for your 3 questions. Yes. Regarding cash costs and wood costs. Well cash costs in the fourth quarter. You will see wood costs EUR 6 per tonne lower as fixed price reductions during the last 3 months are not yet be reflected in the cash cost because of the stocks. And because the prices have been going down, down and down and take this one off to reflect that on the price of the wood. You have time in order to implement these fixed reduction on the wood, and you have to rotate your stocks, but we have already implemented on the market 3 reductions of EUR 1 each one. Which brings EUR 9 per tonne on the wood, and we will see that on the -- on our figures on the fourth quarter. Regarding your second question, I am not pretty sure I catch it well, but 90% of -- with 90% of probability, the Board will decide in the first quarter to delay a near by 1 year this big project in Navia. The CapEx for this project is around EUR 400 million, and due to the market conditions in the pulp business, if we start this project, our net debt EBITDA ratio will rocket up, and we don't want that. Regarding your -- and we want to concentrate on cost cutting. I think that after huge investments on the last 2 years, in pulp in Pontevedra and Navia, where now we have to start up Navia and we are starting up Navia on the -- in next week. And then we have to concentrate -- fully concentrate in cost reduction and in cash saving. And going to your question in Energy. Well the projects we have now with grid connection require around EUR 300 million of equity if we take both PV and biomass. And that's one of the main reasons we are deciding to sell a minority stake on the Energy division in order to accelerate this growth. I hope I have answered your questions.

[Alvaro Lenze Julia, Research Analyst]

Yes, that's very helpful.

[Operator]

The next question comes from Jaime Escribano from Banco Santander. Please go ahead.

[Jaime Escribano, Equity Analyst]

So following your answer, when you mean selling a minority stake. Could this be an IPO or the division or more a private investor, this would be one question. The second question would be regarding the CapEx 2020, you said probably it will be delayed. But regarding to the fluff investment, which, if I'm not wrong, was EUR 30 million. Is this already approved? Or would that be already -- also delayed, just to make it clear. Then regarding cash costs. Q4, you are doing the ramp-up of Navia, how should we think about the cash cost in Q4 compared to Q3? Sorry, because there are many -- it's more questions. Then I would like to know about your outlook on the pulp prices in Europe? Do you think $700 is already a floor? Or do you still see further declines in Q4? Finally, regarding guidance, 2019. I don't know if you can give us, if not a guidance in EBITDA, but maybe what could be the volume of sales that you expect in pulp for the whole year, to have some idea?

[Ignacio de Colmenares y Brunet, Vice]

You asked the guidance in volume impact for 2020 or 2019?

[Jaime Escribano, Equity Analyst]

2019. Yes, I mean, guidance in EBITDA, if you want, but if you don't provide that, maybe at least some color on some of your KPIs so that we can do some numbers.

[Ignacio de Colmenares y Brunet, Vice]

Well, I will try to answer your question by order and not to forget any one. Regarding the possible sale of a minority stake of our energy division, we are thinking on a private investor, not on an IPO. We think the company is still too small to do an IPO. Regarding fluff, most probably it will be also delayed. In this business, I think that we have to be very flexible. And sometimes, the market doesn't understand that, but we have to be very flexible. When you have money, and the market is good, you have to take profit of that and you have to invest and to grow. And when the market is tough, well you have to concentrate on cost and cash savings. And most probably, we will delay both projects. It's only EUR 30 million to EUR 40 million, but EUR 30 million to EUR 40 million may be a lot of money. And today -- well, I think that stocks are going down. I think that the overstock is not 2 million tonnes, it's 1 million tonnes because I think that, as I mentioned before, 1 million tonnes, we used to be before on the hands of the paper producers today, they are on the hands of the pulp producers. Stocks are going down, almost 50% of the 60 million tonnes of market pulp have cash cost higher than the actual price of today, but nevertheless, they don't have visibility of when prices are going to go up, then we have to be extremely prudent. Regarding cash cost, cash cost on the fourth quarter is going to be a bit higher than the third quarter due to the fact that Navia has been stopped for 1 month. And on the ramp-up of Navia, we expect a low month of production in November. And that's why we think that the cash cost on the fourth quarter due to this non-recurring effect is going to be a bit higher than in the third quarter. While prices in Europe are today at 700, and we will do our best efforts to stay there. And regarding the volume guidance for this year. We think that pulp sales should be close to 970,000 tonnes, and our full year average cash cost should be around EUR 388, assuming EUR 385 per tonne on the fourth quarter due to this fact that Navia has been stopped during 30 days in October. And we guess we are only going to produce 40,000 tonnes in November in Navia. Thank you, Jaime.

[Operator]

Thank you. The next question comes from Pedro Echeguren from Bankinter. Please go ahead.

[Pedro Echeguren, Equity Analyst]

I would like to focus on your biomass business. I was wondering if you could give us some color on what you are considering in the current pipeline in terms of technology mix, locations and returns expected? That would be my first question, and the second is whether you are still expecting an EBITDA in the biomass activity of EUR 65 million to EUR 70 million for 2019?

[Ignacio de Colmenares y Brunet, Vice]

Could you repeat the third question, please?

[Pedro Echeguren, Equity Analyst]

The second question is whether you are still expecting an EBITDA of EUR 65 million to EUR 70 million in the biomass business in 2019? Thank you.

[Ignacio de Colmenares y Brunet, Vice]

Yes. Regarding the last question, no, no, we expect an EBITDA in the range of EUR 57 million. We -- as you know, we have -- it took us longer in spring to revamp Huelva 41 megawatt biomass power plant in Huelva, and that has had this year nonrecurrent effect of EUR 3 million. And we still have extra costs on the biomass processing in the south of Spain this year of EUR 5 million. We think that that will be sooner or later, sold but this year it has been EUR 5 million, and something will be less next year, but it is taking us more time than what we thought. That's why we see more EUR 57 million than what you mentioned before. If I understood well, you are asking about our pipeline in biomass, locations, megawatts, is that right?

[Pedro Echeguren, Equity Analyst]

Well locations, megawatts, if you're thinking about other technologies, I mean, on the presentation part, you did mention for the PV, and also, what types of expected returns, as you're looking at? I mean, what would be your hurdle rate?

[Ignacio de Colmenares y Brunet, Vice]

Yes. Well, in order to keep growing in the renewable energy business platform, we have currently, as I mentioned before, a pipeline of over 2,100 megawatts, of which 386 megawatts already have access to grid, 386 megawatts. Firstly, 200 megawatts of PV projects have already access to the grid and with high irrigation locations secured. They are almost ready to build. The environmental authorizations are advancing, and they will be completed on the coming quarters. The estimated CapEx for this technology for PV is around EUR 0.5 million per megawatt. And if you remember, the required equity return for this technology set out in our strategic plan is 7.9%, which could be more than achievable even with our conservative price scenarios of EUR 43 per megawatt on the long term, plus plant. That's the main difference with other competitors. You have [ policy curves, banks curves ] thinking on prices of 50, 55 and 60, we don't see that. We see low prices on the energy on the future. And even with this price of EUR 43 megawatt hour flat, we see 7.9% return on equity. We will continue to develop these projects into the second half of 2020 or the first half of 2021. By then, there could be more visibility about possible payer bid auctions or a more developed PPA market with solid counter-parties that could allow us to mitigate market risk and to ensure an attractive equity return. Secondly, regarding the 81 megawatts of new biomass projects, the Spanish government, in order to comply with the European Union renewable targets for 2030, as you know, has already published the [indiscernible], the goals of 200 megawatt on new biomass capacity by 2025 and another 600 megawatt by 2030. We are the leaders in this technology in Spain and given our wide experience and our technical and logistics advantages, we are the best positioned to lead these investments. We already have 2 projects with access to the grid and location secured, and we are advancing within the environmental authorization. Both are in Andalucía, one in Almería and the other one in Córdoba. And the one in Córdoba, we have 2 possibilities with all the permits, one near the Guadalquivir River and the other one, doing what we have done in Puertollano, substituting a thermal power plant with coal by biomass. The estimated CapEx for biomass would be around EUR 2 million per megawatt. As you know, the government has announced specific auctions for the technology that should allow these projects to cover the operating costs, ensuring the return set out in our strategic plan of 9.4%. We believe these auctions will take place the second half of 2020 or first half of 2021. Thirdly, the 25 megawatts of solar-thermal hybridization depends on the 2030 Spanish renewable plan, which includes 2.5 gigawatts of new solar-thermal capacity by 2025 and another 2.5 gigawatts by 2030. This is on top of the 800 megawatts of new biomass capacity in the same period. We see an enormous potential in hybridizing existing solar thermal plants with biomass boilers to increase the utilization rate. This would turn them into a fully manageable renewable technology with a low investment. We are developing one project to hybridize our Puertollano solar-thermal plant. The estimated CapEx for this technology would be around EUR 1.6 million per megawatt. The required equity return for this technology set out in our strategic plan is 8.4%. On top of this, we have an MOU with the owner of 3 existing solar-thermal plants in Spain to develop another 75 megawatts of hybridization with biomass. And there are other owners of solar thermal plants interested in our hybridization proposal. Finally, as I said during the conference call at the beginning. We are also developing another 1.6 gigawatts in PV projects. We have already requested the access to the grid with all the necessary guarantees in place, and we are now working on securing locations in high irrigation areas for at least 600 megawatts. The average size of these plants would be around 100 megawatts. Thank you, Pedro.

[Operator]

The next question comes from Bruno Bessa from CaixaBank BPI.

[Bruno Filipe Bessa, Analyst]

Yes, some questions from my side. And the first one regarding volumes, according to my estimates, your guidance in terms of volumes for 2019 implies broadly we've seen the same level of volumes sold in Q4 when compared to Q3. And my question is if you could provide more visibility on this, considering that you have the shutdown of Navia during October for the expansion of capacity in the mill. This will be my first question. My second question regarding cash costs for 2019 -- sorry, for 2020. You have been gradually increasing the guidance of cash costs for this year, started in EUR 380, then EUR 385, now EUR 388. And -- but you have been consecutively maintaining our guidance of EUR 372, if I'm not mistaken, for the next year. And this is a relevant decline in terms of cash costs if you could provide more visibility on the drivers for this decline? I think it will be good, and also regarding the pulp demand -- and there have been some players referring that demand, particularly in China, has been increasing in June, July and August. I would like to have your view regarding the evolution of underlying demand in the industry going forward? And if we could see this recovery in demand as a real underlying recovery in the demand or if this might be seen as a response of Chinese distributors, opportunistically, to Suzano's strategy of reducing significantly the price of pulp sold during the second half of the year. Last question, if I may, if you could give us an update on your CapEx expectations for 2022, it will also be appreciated.

[Ignacio de Colmenares y Brunet, Vice]

Yes. Thank you, Bruno. Well, regarding our sales volume for fourth quarter, if we don't have anything we don't forecast in Navia than with October fully stopped in Navia and only 40,000 tonnes of production in Navia in November, we are going to be very close in terms of sales volume to the third quarter. We expect instead of 266,000, 262,000. Regarding cash costs for 2020? Well, we stay on our strategic plan, and we think today, we have some visibility, and after this EUR 22 per tonne reduction in the third quarter, where we are reducing now in the fourth quarter. You have to understand that what we have done on the third quarter, we did that alone. We contacted Boston Consulting Group in July, then we've been working with them in August and September. And then with their support and with what we are doing, today, we are fully sure that we will be in EUR 372 in next year. Regarding Pulp demand and China, well my vision is that, as I said on the conference call, today, 50% of production have higher cost than the price then it means that it cannot continue many months like that. Demand -- real demand in China is increasing, paper, yes? I think that yesterday, [indiscernible] had a conference call with investors, and well, they are a bit optimistic about demand, real demand, then I think that sooner or later prices will stop going down and will go up again. And regarding CapEx for 2020. Regarding CapEx for 2020, well, we are trying to close any CapEx. We are trying to reduce any figure. We have today a carryover of -- impact of EUR 140 million. We are trying to delay some things and to postpone some things. We are working hard with the teams now to try to reduce this figure. But the fact is today, we have a carryover EUR 140 million. And on top of that, you have the normal recurring CapEx in the pulp mills.

[Operator]

The next question comes from Luis de Toledo from BBVA.

[Luis de Toledo, Chief Analyst of Oil and Materials]

Most of my questions have been already asked. Maybe an update on Pontevedra, and why if you could explain us the rationale behind your -- the unification of the claims. If you think that will make your case stronger or just for simplification issues. And when -- I mean, you're expecting the first resolution over the next months. I don't know if you expect the resolution before the end of the first part of the year if you could provide some update on that lines?

[Ignacio de Colmenares y Brunet, Vice]

Thank you for your question, Luis. You know that in 2016, where we get the new concession for 60 years. The city of Pontevedra and 2 NGOs went to the court. Then on the first 2 cases, who are already ready to [Foreign Language] -- how do you say that in English? Ready to ruling. The state has been supporting the 60 years. It's only on the third one when the state changes mind. And then as the 3 court cases are the same, the strategy to unify them because they are actually the same is to make more sense in our position. Well, the evidence phase finished in June. Normally, we should have received a notification from the court for the conclusions by July, August, and we are almost in November, and we haven't yet received anything, then we think it's going to take a bit longer than what we expected. Today, we are forecasting something on the first quarter of 2020. Thank you very much.

[Operator]

Thank you, ladies and gentlemen. [Operator Instruction]A question from João Pinto from JB Capital Markets.

[João Filipe Pinto, Associate of Equities Research Portugal]

Just a quick question from my side. Given the recent correction of pulp prices in Europe versus China. Can we expect the average selling discounts to narrow in the Q4? Or they should keep stable at 34%?

[Ignacio de Colmenares y Brunet, Vice]

No, I think they are going to be quite stable. We have to export overseas. Because the European market with such huge stocks, the customers are asking low volumes. And we believe, for this quarter, for fourth quarter, the discounts are going to remain 32%, unfortunately.

[João Filipe Pinto, Associate of Equities Research Portugal]

That's 52% or 34%?

[Ignacio de Colmenares y Brunet, Vice]

32%. 3,2.

[João Filipe Pinto, Associate of Equities Research Portugal]

Thank you.

[Ignacio de Colmenares y Brunet, Vice]

Thank you very much.

[Operator]

Thank you.

[Ignacio de Colmenares y Brunet, Vice]

If there are no more questions. To conclude this conference call, let me remind you our priorities after 2 years of intensive CapEx, on Navia, Huelva and Puertollano startups imminently. Cost-cutting and developing our pipeline to grow our renewable energy business platform. Thank you very much.

[Alfredo Avello De La Peña, Chief Financial & Corporate Development Officer]

Thank you.