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Ence Energia y Celulosa SA
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Good afternoon, ladies and gentlemen. Welcome to the ENCE Fourth Quarter 2020 Results Presentation. I now hand over to Mr. Ignacio de Colmenares, Executive Chairman; and Alfredo Avello, CFO. Gentlemen, please go ahead.
Good afternoon, ladies and gentlemen. Thank you for joining ENCE's fourth quarter 2020 results conference call. Our CFO, Alfredo Avello, and our Head of IR, Alberto Valdes, are also connected. After the presentation, we will be pleased to answer any questions you may have. Let's start in Slide #3, with the main highlights of our presentation. Pulp prices are rapidly recovering after one year at minimum levels driven by strong demand growth in China and elsewhere. European hardwood pulp prices have been rising in recent months and will continue to rise. Our 2020 results show an operating improvement in both businesses following the strategic plan investments made in 2019 and despite the difficulties caused by the pandemic. Firstly, we have further reduced our cash cost during the fourth quarter, down to EUR 367 per tonne. Moreover, our pulp sales improved by 12% year-on-year with a better commercial mix. Secondly, our Renewable Energy sales increased by 36% year-on-year following the commissioning of the 2 new biomass plants in first quarter '20. Despite this operational improvement, financial results were affected by low prices of pulp and electricity, with an EBITDA of EUR 14 million in the Pulp Business and $60 million in the Renewable Energy Business. This regulated business is adding stability to the group. In December, we completed the sale of a minority stake in Ence Energía and the sale of our CSP plant. The implicit valuation of ENCE's Renewable Energy business exceeded EUR 1 billion. These deals reinforced our balance sheet with EUR 380 million in December, reducing the group's net debt down to EUR 178 million. I'm proud to tell you that our ESG practices were recognized by the independent agencies, MSCI and Sustainalytics. They upgraded our ESG rating, ranking ENCE now amongst the leaders in sustainability in our industry. Our ENCE's activities from our forestry and biomass operations to pulp production and the generation of renewable energy were declared essential at the start of the pandemic. Our prompt reaction to the threat presented by COVID-19, together with the regular updating and rigorous application of our protocols to prevent the spread of the virus is keeping our staff safe. We have continued to operate even during the most recent outbreaks of the virus in the country. As of today, I can confirm that there have been no outbreaks in any of our facilities. 2021 will be another year of operational improvement. Our priorities remain the health and safety of our staff, the continuity of our operations and the reduction of costs. We are finalizing all the permits required to develop our Renewable Energy pipeline. And once we have overcome the uncertainties of the pandemic, we will resume the investments proposed in our strategic plan for the Pulp Business. Moving now to Slide 4. We show the rapid pulp price recovery now underway. Pulp demand in the second half of the year was stronger than initially expected. Year-on-year demand growth in 2020 reached 3%, equivalent to 1.9 million tonnes, fostered by robust growth from tissue and the recovery of pulp inventories in the paper industry, which has offset the drop in demand for printing and writing papers as a result of the COVID lockdowns. China represents close to 40% of the global pulp market and is growing again at almost double digits now that the pandemic there has been almost overcome. Net hardwood pulp prices in China have already recovered more than 30% since the end of 2020 and are already at a range of $620 to $730 per tonne net. These price increases are already being passed through the European market, where gross hardwood pulp prices have only recovered 15% in December, up to $780 per tonne gross in February. They will continue to increase. Note that this gross price in Europe is equivalent to a net price of just $514 per tonne in China, using an average discount of around 34%. The equivalent gross price in Europe to the current net price of $620 to $730 per tonne in China is $940 to $1,106 per tonne gross. Therefore, I see room for further price increases in Europe in the coming months, favored by strong demand and the high price gap with softwood and China. New price increases have been announced for March in China and today to some customers in Europe. In the following Slide #5, we summarize our views on pulp supply and demand. We expect the demand for tissue and hygiene products, packaging and specialties to remain strong in 2021, while demand weakness for printing and writing is failing as economic activity recovers. Market conditions should tighten in the coming months without any new capacity additions until the end of the year. In the longer terms, pulp demand should outgrow supply. Urban population growth and improving living standards in emerging countries, together with increasing plastic substitution, will continue to support pulp demand growth. On the supply side, there are only 2 major paper-grade pulp projects now underway, Arauco in Chile and the UPM project in Uruguay. Bracell's stream mill in Brazil is expected to be more biased towards dissolving pulp. There are no other greenfield projects under construction, and as lead times for new projects are close to 4 years, no further new capacity should come on stream before 2025. Even in 2022 and 2023, when Arauco and UPM will increase capacity, the expected growth in demand should exceed the growth in capacity. You can see from the chart that the supply-demand balance will tighten each year. As you can see in Slide #6, we have recovered a strong operating improvement in 2020, following Navia's capacity expansion in the fourth quarter of 2019. Our pulp production increased by 10% year-on-year, up to a new maximum of over 1 million tonnes, and we further reduced our cash cost during the fourth quarter down to EUR 367 per tonne, beating our target of an annual average of EUR 375 per tonne in 2020. Our pulp sales improved 12% year-on-year with a better commercial mix as you can see in the following slide, #7. Almost all of these sales went to the European market were ENCE has significant logistical and service advantages. Moreover, almost 60% went to the growing tissue market. Our differentiated products, which are more sustainable and are better adapted to replace plastic and softwood pulp, continued to advance and accounted for 9% of our pulp sales in 2020. Slide #8 looks at our Renewable Energy business. Renewable Energy sales increased by 36% year-on-year in 2020, and EBITDA grew by 15%, up to EUR 60 million, following the commissioning of 2 new biomass power plants during the first quarter. These offset difficulties caused by the pandemic and lower electricity prices. This regulated business is adding stability to the group. The next slide, #9, illustrates our Renewable Energy pipeline, we should be ready for building by the end of 2021. We recently obtained a grid connection permit for another PV project in the South of Spain with a capacity of 100 megawatt. Turning to Slide 10. I would like to summarize the deals we closed in December, reinforcing our balance sheet and crystallizing the value of our Renewable Energy business. Firstly, we sold our Puertollano CSP plant for EUR 82 million, plus EUR 75 million of net debt assumed by the buyer. Secondly, we sold a 49% stake in our Renewable business to the Ancala Partner infrastructure fund for almost EUR 357 million and keeping control of the business with the remaining 51% stake. Of this total, EUR 223 million were collected at the closure of the transaction. The collection of the remaining EUR 134 million depends on the successful development of our 140-megawatt biomass pipeline and the price obtained in the biomass auctions with the following milestones. Firstly, the call for biomass auctions for a capacity of up to 140 megawatts. Secondly, the capacity allocated to us and the price obtained the auctions. Thirdly, the price obtained in the auctions combined with the final CapEx for these plants. And fourthly, cash distributed by the business during the next 8 years and its valuation at the end of that period. I will now invite Alfredo to review the financial figures in more detail.
Thank you, Ignacio. As you can see in the Slide #11, these transactions, just explained by our Chairman, have reinforced our balance sheet by EUR 380 million in December, reducing the group's net debt down to EUR 178 million and ending with a cash in balance of over EUR 540 million. Free cash flow before growth CapEx and the effect of the regulatory collar attained EUR 84 million. Carryover payments from growth CapEx coming from 2019 amounted to EUR 81 million, matching the set free cash flow figure, and the effect of the regulatory collar was positive by EUR 36 million in 2020. We still have payments pending from these investments totaling EUR 75 million that will be paid in 2021. Of this, EUR 60 million are linked to our Pulp business and EUR 15 million to the Energy business. While in the case of our Energy business, these CapEx payments will be evenly spread out along the year, almost 50% of the growth CapEx payments related to our Pulp business will be paid out in the first quarter. Slide 12 analyzes more closely our net debt position in each business. Net debt in the Pulp business decreased down to EUR 43 million, and it is worth saying that it is all related to IFRS 16. Cash in balance reached EUR 457 million at the end of the period. On top of this figure, we have our EUR 70 million revolving facility fully undrawn and, therefore, available as of December 2020. Regarding our Renewable Energy business, net debt decreased down to EUR 135 million at the end of the year, with a cash in balance figure of EUR 84 million. Both businesses enjoy from ample liquidity, long-term maturities and in the case of pulp from covenant facilities. Turning to Slide 13. Our Pulp business EBITDA reached EUR 14 million in 2020, dropped down by pulp prices at the minimum of the 10-year average, partially offset by a 12% increase in pulp sales and a 6% reduction in cash cost. On the other hand, our regulated Renewable Energy business increased its EBITDA by 15% up to EUR 60 million following the commission of our 2 new business -- biomass plants in the first quarter last year, offsetting the decline in electricity prices and the difficulties caused by the pandemic. The group ended with a net income of minus EUR 27 million. Please note that this figure includes the EUR 33 million capital gain from the sale of the CSP, but does not include the capital gain obtained from the sale of a minority interest in our Renewable Energy business. Since we continue consolidating 100% of the business in our accounts, this last capital gain is registered as equity in the consolidated balance sheet. Also note that both capital gains are tax exempted. Turning to Slide 14. Let me update you on our current hedging programs aimed to mitigate the volatility in both the Pulp and the Energy businesses. Regarding FX, our policy is to hedge 50% of our U.S. dollar exposure during the following 12 months. This program had a negative impact of EUR 9 million in 2020 compared to a positive one of EUR 30 million in the previous year. The current FX hedging program ensures an average cap of $ 1.20 and an average floor of $ 1.13 for over 40% of our dollar exposure for 2021. Additionally, ENCE decided last year to secure better pulp and electricity prices for year '21 than those we had in 2020. So far, we have secured an average price of $773 per tonne for 24% of our expected pulp sales in 2021. This compares with an average price of $680 in 2020. We have also fixed an average price of EUR 43 megawatt hour for 1/3 of our expected Renewal Energy sales for 2021. This compares with an average electricity price in Spain of EUR 34 megawatt hour in 2020. Let me please now return the lead of the presentation back to our Chairman for the final slide.
Thank you, Alfredo. Regarding Pontevedra's biomill concession in Slide 15, we are still expecting a first ruling by the National Court in the next few months. Remember that it will be the first step in a legal case that could last for another 4 years, including appeals to higher courts. The next slide, #16, reviews our pending diversification projects in the Pulp business. Firstly, the adaptation of the Navia biomill for the manufacture of absorbent hygiene products. Secondly, also in Navia, the phased construction of a new swing line. The processing of the environmental permits and the engineering works for both projects are progressing well. We want to be a model in the development of the bioeconomy in Spain, and we have presented projects to participate in the European Union recovery fund. The Board will decide on the timing of these 2 projects in due course once we have overcome the uncertainties of the pandemia. In the following slide, #17, we can see some of the measures we took against the coronavirus, which have been effective and have prevented the spread of the virus in our workplace, allowing us to continue our operations. Our protocols have different degrees of safety measures according to the rates of infection in the different regions. Due to the uncertainties, we also took measures in the second quarter of last year to increase our liquidity, which has been further reinforced by the transactions made in our Renewable Energy business at the end of the year. Moving now to Slide #18. I would like to mention the highlights of our sustainability performance in 2020. Companies that care for the environment, for the staff and for the communities and companies with a strong corporate governance are more efficient, more flexible and more competitive. ENCE is already at the forefront in sustainable forestry, the circular economy, social commitment and gender equality. Our best practices have been recognized by the independent agencies, MSCI and Sustainalytics, who upgraded our ESG rating. They now rank ENCE amongst the leaders in sustainability in our industry. We have also been included in the FTSE4Good Index. In addition to all the measures we implemented to protect the health of our staff during 2020, I would like to highlight. Firstly, we have set a new target to reduce CO2 emissions in the Pulp business by 25% in 2020, and we are preparing for different climate change scenarios following the TCFD recommendations. Secondly, the successful development of differentiated and more sustainable and profitable products, which already account for almost 10% of our pulp sales. Thirdly, we have been pioneers with the publication of an environmental product declaration for our pulp, which places us at the forefront of the sustainability in our industry. And fourthly, the continuous reduction of other impact and water consumption at our biomills year after year. To conclude this presentation, I would like to emphasize the following key messages. Pulp prices are now rapidly recovering. Strong demand and the lack of new capacity should support further price increases in the coming months. We have reinforced our balance sheet with the sale of a minority stake in the Renewables business and the CSP plant, having 0 net financial debt in the Pulp business. The operating improvements achieved in 2020 should continue in 2021 with a 3% growth in pulp sales, a 2% reduction in cash costs, a 9% growth in Renewable Energy sales, despite the deconsolidation of the CSP plant. Our priorities remain the health and safety of our staff, the continuity of our operations and the reduction of costs. We are working to secure all the permits required to develop our Renewable Energy pipeline, and we will resume the investments foreseen in our strategic plan for the Pulp business once we have overcome the uncertainties of this pandemic. We want to be a model in the development of the bioeconomy in Spain, enhancing and diversifying our growth in both renewable energy and biomaterials. We have the balance sheet, the talent and the experience to grow in this new economy. Thank you. We will be pleased to hear any questions you may have.
[Operator Instructions] The first question comes from João Pinto from JB Capital.
And starting with pulp prices, the momentum is very supportive, with Europe still having to catch up with China. Two questions regarding this topic. The first one, in China, do you see significant room for further price increases in the short term?
Well, we just knew 1 hour ago that Suzano has announced a further increase till $720 net in China, which is more or less the same price that Arauco announced yesterday. Then -- well, March is $100 more. What can happen later on? I have no idea. I think demand is quite strong there because the final demand of papers is strong. The pandemic is -- has overcome in China, and the activity, the -- as you know, the GDP is growing at double digit. And -- well, and you have to take into account that it's difficult what I'm going to say now, but what is the normal price, what is the -- the average price of the pulp in the cycle? Well, the problem to answer this question is that from an inquisitive point of view is that 15 years ago, we had 6% discounts. Today, we have in Europe 34% discounts. Then -- well, with the discount of today in Europe, 34%, the net price we had in Europe on the last 15 years marks a gross price above $900. What means that, while, in strong moments of recovery, the prices will be above this level of price. Then, yes, I see that maybe in China, prices still increase a bit. But I'm more concerned about the gap between China and Europe, and what I see is that this gap is going to be lower than today. Therefore, prices in Europe will continue to grow. Prices in China till now have already grown by 30% and only by 15% in Europe. And I see a lot of potential in the European market. Suzano has just announced a few minutes ago a new price in Europe of -- sorry, of $910, which is an increase of $90 from March. Then -- well, and this price of $720 net in Europe, if you divide by 0.6 -- you divide by 0.66, well, you get $1,090, would mean that there is plenty of room to continue increasing prices in Europe. Thank you, João.
Very clear. Secondly, also on pulp prices. Regarding the new capacity coming online next year, do you see any risks that the momentum in pulp prices could weaken in the second part of 2021? I mean, this new capacity could already pressure prices or discounts already this year or this is highly unlikely.
Well, it's very difficult to have a vision of that. By fundamentals, the market will grow close to 2 million tonnes this year. In final demand, in true demand, on top of that, we have now the recovery of staff for the supply chain. And next year, we see, again, 1.9 million tonnes of increase. As we explained on the paper, more than 50% of the market is tissue. A bit more than 25% is specialties and packaging, and those 2 markets are growing strongly. And -- well, even if printing and writing paper stays stable and doesn't recover, the huge drop suffered last year, well, it's 1.9 million tonnes of increase next year. Then from fundamentals, I see it's room for these new capacities, both Arauco at the beginning of next year and UPM at the beginning of 2023. Well, but the prices are not only a question of fundamentals, also expectations, then I can't give you a firm answer.
Okay. Very clear. My third question regarding the expansion capacity plan in Navia. Is there any pulp price targets that you would feel comfortable with to initiate the projects?
No, no, no. I think that we are more concerned about the global growth of the GDP worldwide, and we are more concerned about the end of the pandemia. And our vision today is that we have to still be prudent, even if demand is growing and even if GDP in certain areas of the world is growing. Well, it is true that we may be vaccines in Europe, the States, Canada, Korea, Japan, China, Australia by the end of this year, but it will take at least a big part of 2022 to vaccine other countries. And the poorest countries of the world won't be vaccine till 2023,would mean that we have the risk of new kind of virus coming here. Then -- we want to have a strong visibility that the pandemia is over before taking any new decision of investment. We are working on the permits of fluff. The fluff is a small investment, is below EUR 50 millions. We already have all the permits. And regarding the dissolving pulp stream mill, well, we are continuing working on the permits. We are at the final stage. I think that in 3 to 6 months, we will have all the permits. But we would like to face this project. One thing we lost in our strategic plan approved in 2018 for 2019-2023 is that we were growing and we were diversifying in pulp step-by-step, meaning that we were not committing a huge investment and then having the risk of something like last year for the company. We were going step by step. Well, with the problem of Pontevedra, we decided that to concentrate the investments in Navia. And well, when you concentrate the investments, we have a larger swing mill in Navia, and -- but it is a larger investment, and we don't like that too much. Then we are working, trying to face these investments in order to don't commit let's say, EUR 400 million at once. And we have to wait till we have more visibility about the true end of the pandemia. And we have -- we need an engineering solution to face the investments and to don't commit at once EUR 400 million. Thank you.
Very clear. My final question on Pontevedra, do you have any feedback from the court why it is taking so long to have a first ruling?
No, unfortunately, not. No, no. We just know that we are on the queue, but I don't have further information, unfortunately.
The next question comes from Alvaro Lenze from Alantra Equities.
I wanted to know your views on the renewable actions -- auctions and how the competitive landscape looks for the biomass technology, and also whether you believe that you could still achieve your targeted equity returns on photovoltaic technology at the prices that we have seen in the last auction.
Yes. Well, I would like to start looking back to the history of what we have done at ENCE, and I think it's important because we have been able to set up a business of EUR 1 billion value in 8 years without any failures, which means that we've been growing slowly step by step. We haven't had any accident. We didn't open a biomass biomill where there were not enough biomass. We didn't bought any electricity company with problems. Then we've been growing step-by-step very prudently, and it is a solid business and with a low leverage. You know that we have a lot of renewable energy companies with 80% of leverage on the project, with 8 to 9x EBITDA on the balance sheet net debt, and we have below 4x. And we've been growing slowly. And we want to continue to do such. We strongly believe that we can obtain this IRR. We are looking for around 8% in PV. Well, some 30% of the megawatt on the last auctions were just below this 8%. It's a question of how you do the numbers. We were bidding at 29.99, which means that we were very, very close to have some megawatts, but we haven't. And we were bidding at this price because it's the price with our model to obtain 8%. Today, we have PPAs at 32, 34, then we don't see any difficulties in obtaining this 8%. And we are pretty sure that on the medium term, the technology will continue reducing its cost and will continue increasing its efficiency. That is why we are very happy with this 240 megawatts where we have connection to the grid authorized -- fully authorized. And we have the land secured, and we are doing all the permits. And we are very happy with this new 100-megawatt on top of that we got last month from Red Eléctrica. And regarding biomass, well, we think that it will be some auctions by the end of -- on the second half of this year, probably. And we are not in a hurry. And we have, as you know, 3 very good projects, very solid projects, where we are doing all the engineering, and we are working on all the permits. They have -- they are almost finished. We have secured in the 3 projects both the grid connection and the land. And -- well, we don't have the financial capacity to do the 3 projects at once, then, well, we have many years to do those projects, and we will do these projects. And we will obtain in biomass, for sure, the IRR we are looking for in our strategic plan, yes.
Okay. And regarding the pulp investments, I know that in the past, you've mentioned that investment plans are subject to your leverage. Now leverage calculations in the Pulp business are difficult to make due to you not having...
No, they are very easy. We have no debt. It's very easy.
So I wanted to know whether this implies that these investments will be made in 2021 or maybe 2022.
No, no. As I was replying before to your colleague, we have to be extremely prudent. Well, I think that what you have learned in 2008 and we have learned last year is that anything that you think that can never arrive arrives. Then, well, we need to be absolutely sure that the COVID is out of the world, and it will take at least a couple of years. And we have -- we need to have a vision of the demand and balance -- sorry, the demand and supply balance for the next few years. And today, we only have a vision that the market is booming now, and the market will be probably very good and very strong in 2021, 2022 and 2023, but -- well, we need a longer vision. And also we need to know what happens with Pontevedra. Then I think that for the time being, we are not going to invest in pulp in growing or in diversifying. We are working -- as I said before, we are working on the permits. We are working on the engineering. We are working in trying to face in 2 or 3 times this swing line in Navia. And for 2021 and probably 2022, we will continue doing that. Thank you.
Okay. Perfect. And last question, if I may. Regarding your dividend policy, I understand that 2020 was loss making, but whether you would maintain your usual dividend policy going into 2021 if pulp prices allow for positive net profit.
Yes, yes. We will continue with this policy of 50%. Yes, absolutely.
The next question comes from Laurent Saglio from Zadig Asset Management.
Can you hear me?
Very well. Thank you, Laurent.
Yes. There is one question I want to ask you. On the presentation, the condition for the earn-out of EUR 134 million, I want to understand. The conditions you fix are the minimum in order to get the EUR 134 million and if you get more because, obviously, you're displaying the capacity which you're looking at, which is well above the 140 megawatts you're talking about. What's happened with this earn-out? Can it go up? So basically, what I'm asking you, is it maximum, you get EUR 134 million or you could get more or you could get less? And what's the calculation of this range?
No, no. The maximum is EUR 134 million, and Alfredo Avello will give you all the details of how it can go below.
Yes. EUR 134 million is the maximum earn-out for the 49% that we sold, and this is divided into 4 installments. The first one is just the call of the biomass auctions by the government. Just that, nothing else, and this is up to EUR 8 million, as we were saying. The second one is the megawatts that we have allocated. We have 140 megawatts. If in the first auction we can get half of that, this is the part of this milestone that will be cash then. if this is this year, it will be this year. If this is spread out along 2 auctions, it will spread along 2 auctions. The third one -- well, of course, on the price obtained. The third one is the combination of the price obtained and the budget invested. If we meet the prices and the budgets that are in our plan, we will get all that cash. If the price is lower but the budget is lower that can compensate. And all these 3 milestones are fully linked to the pipeline to the 3 biomass plant projects. The fourth one is back in 2028, and this is just linked to the cash distributed along the 8 years and includes not only the pipeline, but also the full perimeter, the current perimeter. So as Ignacio was saying, yes, it's EUR 134 million, the maximum that we can get. We can get less, but we are ready to get it. And it depends a lot on the auctions and the result of them and the budget at the end.
Just to make sure. It could be linear on these 4 sets or it will be -- if you succeed in the first step, then you get the money.
Well, if I succeed -- well, the first step is just the call of the auctions.
And it's one source.
And is what? No, no. It's up to EUR 8 million. That's it. it's EUR 8 million -- up to EUR 8 million. The second one is up to EUR 42 million, basically EUR 14 million per plant. And the third one is up -- the third one is up to EUR 18 million. And the rest is on the fourth one.
Okay. So most is that -- in '28, basically.
You can say that, yes, it's almost 50-50. But yes, it could be more driven by the '28, which implies the full cash distribution.
It's all in the details in the annual report. All those details are very precisely explained in the annual report.
I didn't see them.
[Operator Instructions] The next question comes from Jaime Escribano from Banco Santander.
So a few questions from my side. The first one regarding the market outlook. I wanted to ask you, how do you see the implementation of prices when you speak with your clients? And how do you see the demand because the inventories as of January are the lowest over the last couple of years, which I guess is very good? So what is your feeling of -- how do you interpret these figures?
Well, Jaime, you know that -- let's say that the prices for March are going to be $910 gross in Europe. How that developed? $910 is what the industry is asking for the pulp. Then the spot business will be concluded at this price, for sure, I will explain you later on why. And the fix price who is published every week, the most probably by the end of March will be around $910. All the contracts we have ourselves and is a normal practice in the industry are linked to the fix of the previous months, which means that we have at least 4 weeks till the fix recognize the price announced, and we have one month more. That means that we will have this $910 announced for March. We will have them not in March, not in April, but in May. We have not at all any -- we have any difficulties in implementing such price increases by 3 reasons. The first reason is that the demand in Europe is strong. It's not booming like in China, but it's strong. Tissue has been strong all 2020. Specialties were weak at the beginning of the year. But on the second half of the year, the growth were there again. Packaging has been strong the full year. And printing and writing was with minus 30% at the end of the second quarter after the big lockdowns in spring, but has recovered to minus 11% at the end of the year, and it is stable. What means that the demand is there and the customers need the pulp because they are selling paper. On the other hand, we have the possibility today to sell at spot prices at the prices of China in any country in the Mediterranean or in the Middle East would mean that if by any reason a customer doesn't accept the new prices, it's very simple. We ship to Turkey or we ship to Egypt or we ship to Morocco. And thirdly, we have today the possibility to sell at this incredible spot price for February of $730 in China, any quantities we want. What means that the demand is solid. We have plenty of possibilities, and we have no difficulty at all in increasing prices. And there is a single -- there is no single customer today saying any problem to the new prices because they are also increasing paper prices. Thank you, Jaime.
Okay. And building on this, do you think that we could see even another price increase above $910? Or do you think $910 is already -- well, you almost answered before, but just to understand your feeling. So do you think we can go to $950 or $1,000 or it's not on the table right now?
As I was saying, we are not present in the Chinese market. Then -- well, I only know the fundamentals of the Chinese demand. But what I'm reading like you, then I cannot give you more information. I'm more concerned about what is happening in Europe because it's my main market. And we see that, well, it's plenty of room for further increases in Europe on the next 2 or 3 months. Then I don't care too much about what is happening in China, but -- and I don't have enough information to know if the prices in China will continue to go up or not. I have no idea.
Okay. That's fair. And a question regarding cash cost. We've seen a better than expected year of cash cost at EUR 367 per tonne in Q4. If we look at it, it's mainly due to transformation going down strongly, SG&A overhead. And my question would be how much room you have to further improve the cash cost by reducing the wood cost, which it seems is a little bit -- you have reduced it a little, but -- yes, that would be my question.
Yes. Well, we have a target, as you know, of having an average cash cost of this year 2021 of EUR 365, 3-6-5, with a pulp price of $680. What means that inside this EUR 365, we have the price of the wood as if the pulp was at $680. If the price of the pulp is at $900, we will have just -- because of the link between pulp and wood in our contracts, we will have EUR 6 more in cash costs, EUR 2 more per cubic meter of wood would mean EUR 6 more. But we see that we have further capacity of reducing the transformation cost. Transformation cost was EUR 109 in 2020, and we see an average for the full year of EUR 105. Logistical is going to be quite stable. And the structure, the overhead were 31.3. And we see an average of 25.5 in 2021. What means that what we have -- let's say, if the prices are in $900. And today, well, most of the analysts are seeing an average price in 2021 of $900, while we are going to have a cash cost of EUR 365 plus EUR 6 on top of that because of the linkage between wood and pulp. But we will continue reducing transformation cost, and we will continue reducing structural costs.
Okay. Very good. And my last question, if I may. Regarding -- just to clarify, the fluff project is not adding new capacity, right? It's just adapting the existing capacity in order to produce fluff and...
Absolutely, absolutely. It's a diversification project.
Okay, okay. And then my question would be, when you say that you have put on hold the investments until you see the COVID has passed and so on, are we talking about also the fluff project or the fluff project given that it's a smaller investment and it doesn't imply new capacity, is this something that you would think about doing it? Or also...
No for the time being. We are making no revision of those investments at the Board once per quarter. But for the time being, now, we are concentrated in reducing cash costs.
The next question comes from Laurent Saglio from Zadig Asset Management.
Yes. I just wanted to come back quickly to the paper. You said, historically, the discount in Europe was 6%. Now it's at 34%. What does it take for the discount to now back to 6%, just that I get it?
Sorry, Laurent, I don't understand your question. What I said is that 15 years ago, the discount was 6% not on the average. It was 6% in 2005, and it has been growing step-by-step till 34% on the last 15 years. And then we have to think not in gross price because we -- the most of the industry, we think in gross price. We have to think in net price, in net price. And the net price on the cycle -- on the average of the cycle has been -- let me take the calculator, has been EUR 600 -- sorry, $600 net, $600 net. That's the average price in Europe on the last 15 years. The net average price, $600.
I understand, but why the discount went from 6% to 34%? And what will take it for this trying to reverse that? I don't understand.
No. It's just a question of negotiation. Every year, when you negotiate the contract, in the years we're in November and December, when you negotiate the contract, the demand is very supportive. We keep the same discount of the previous year or we reduce the discount. And when we do have to negotiate and the demand is weak, the customer ask you for more discount and you give him more discount, but you increased the price at the beginning of the year as soon as you can. So you are right with the gross price.
So if we continue seeing what we're seeing, high increase in demand, the discount will now, that's what you're telling me for 2022.
No, no. I don't care too much about the discount because the gross price is arbitrated later. I think what is important is the net price, what happens with the net price. Then you have 2 forces, the force of the discount and the forces of the gross price. And what is important is the combination of both.
Can I ask you more directly on '21? With the cost price going down with EUR 100 more or less, you're talking about in terms of price increase, you should make in excess of EUR 100 million EBITDA in paper? Or did I get it wrong?
We don't give guidance on EBITDA. I can give you a guidance on volume. I can give you a guidance on cash costs, I have said. And you have to put the price yourself.
Okay. It's what I did, and I got to well in excess of EUR 100 million. No, having said so, it's the end of the first quarter, okay. [Foreign Language] Laurent.
The next question comes from Alvaro Lenze from Alantra Equities.
Just a quick follow-up on Jaime's question. Regarding your wood cash costs, I understand that wood prices are linked to pulp prices. But in any case, 2020 wood cost -- wood cash costs have been higher than they were, for example, in 2018 or in 2017 when prices were much higher. So other than the component of the pure price of wood per meter for tonne of wood, what are the other driving forces that have driven wood costs up, even in the context of falling pulp prices? And what should we expect going forward on this?
The price of wood, Alvaro, in 2020 was lower than in 2019. We should have been able to reduce further, but the price was a bit lower than in 2019.
Yes. But for example, it stood at EUR 204.5 per tonne in 2020 when it was EUR 201.4 in 2018.
Taking into account, the price of the wood has 3 components with 1/3 each one. The price of the standing wood, you are paying to the forest owner, and that's the portion of the price for goes up or down according to the price of the pulp. And then you have 1/3 which is transport and 1/3 which is harvesting costs, and those costs stay stable. That's why when you -- the price of the pulp goes up very, very much, you don't have EUR 20 more on the cubic meter of wood. But when the pulp goes down, you don't have EUR 10 less.
Yes. I understand. My question then would be if average prices -- average pulp prices in 2018 were at $1,037 per tonne, and during 2020, they have been at $680, how come your wood costs this year have been EUR 204, while they were EUR 201 in 2018? Shouldn't they be much lower this year than in 2018 with pulp prices now at the bottom, when in 2018, they were at their highest?
Well, the -- I have, in front of mind, the price of the wood in euro per cubic meter, which is the price we buy and what we pay. It was EUR 67.2 in 2018. It was up to EUR 69.3 in 2019. And it was EUR 67.1 in 2020. And as I said before, it should have gone further down, but it has been a bit down -- a bit lower than in 2019. What you have seen is that, well, the price of the wood is very difficult to make strong reductions because the owners don't sell. And on top of that, the price of the wood is in euros per cubic meter, and the fix is in dollars, and we translate that to euros when we fix the price. Then the wood -- the forest owners are paid for the wood according to the fix price net in euros.
Ladies and gentlemen, there are no further questions in the conference call. I give back the floor to Mr. Ignacio de Colmenares and Mr. Alfredo Avello.
Well, thank you very much for your time, and we are in contact. You know that any questions you may have, you just call us, and we'll organize a quick meeting, and we give any answer. Thank you. Bye-bye.
Thank you.