Empresas Copec SA
SGO:COPEC
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Good afternoon, everyone, and welcome to Empresas Copec's Third Quarter 2020 Results Conference Call. Today's presentation and the 3Q '20 earnings release are available on the company's website at www.empresascopec.cl, and also on our Investor Relations website, investor.empresascopec.cl.
Before we begin, I would like to remind you that this presentation may include market outlooks and forward-looking statements, which are based on the beliefs and assumptions of Empresas Copec's management and on information currently available to the company.
They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur in the future.
Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Empresas Copec and could cause results to differ materially from those expressed in such forward-looking statements.
This presentation contains certain performance measures that have been adjusted with respect to IFRS definitions, such as EBITDA.
Please note, this event is being recorded. I would now like to turn the conference over to Mr. Rodrigo Huidobro, Chief Financial Officer of Empresas Copec. Please go ahead, sir.
Thank you very much. Thanks, everyone, for joining in today. We're going to take a look at the results for the third quarter 2020 for Empresas Copec. You should all have access to the presentation.
I'm turning now to Page 3. Just to review briefly the agenda for today where I'm going to have a look at consolidated results. Then we are going to go into each business division. That's going to be followed by highlights of the quarter, and then we're going to move into the Q&A that you might have. We are doing a slight change here with respect to previous versions. Since we're doing the webcast, we're going to be taking Q&A through the webcast in written form. So please feel free to send us your written questions towards the end of the presentation.
I'm joined today by people from our Investor Relations department, led by Mr. Cristián Palacios; and also from people -- by people from Arauco, led by Mr. Gianfranco Truffello. They will be all helping us out in the final section of the presentation for the Q&A.
I'm now moving to Page 4 in order to start the presentation, where we are showing the highlights of the quarter. This was a quarter that was basically characterized by a strong recovery in EBITDA with respect to the last quarter. And this was explained by a recovery in fuel volumes and also a very strong performance of the wood products in Arauco.
Regarding fuels, we are seeing higher volumes, which is linked very closely to increased mobility and economic activity in relation to the evolution of the pandemic in the markets in which we operate. Volumes were up 9% quarter-on-quarter in Chile, 41% in Terpel and 19% in Mapco. So very strong recovery for all the geographies in which we take part.
This recovery has continued during the fourth quarter. So now we are seeing volumes in gas stations, which are very close to the pre pandemic levels. So very strong recovery in general linked as I said before to restrictions being progressively lifted in the main geographies in which we take -- in which we may do operations.
In the case of the LPG business, it has shown to be very resilient. And it has actually shown a larger EBITDA than in 2019 for the corresponding quarter, when measured in local currency or any -- additional functional currency is the local currency here, of course, when translating to dollars at a higher exchange rate, it might be lower than last year, but in the currency it is higher than last year.
In the case of Arauco, what is to highlight here is, the very strong performance of the wood division, basically, on a strong demand coming from the home remodeling and new construction segment.
We are seeing panels and sawn timber increasing 40% and 20%, respectively, and continuing to be quite strong in what is so far in the fourth quarter of this year. We have also seen increased margins due to higher prices in certain products and also strong operational efficiencies that we have been able to achieve.
In the case of pulp, and we will dig deeper into that in -- throughout the presentation, we have seen a stable EBITDA in the pulp division.
Regarding our main projects, we have continued to carry on forward throughout the pandemic. In the case of MAPA, we have achieved a progress as of September, of 63%. We have reestimated our start-up date and are now expecting it for early fourth quarter 2021, some more detail on that to come.
In the case of our mining project, Mina Justa, we are now recording a 92% advancement as of September, and we continue to estimate the start for the first quarter 2021.
Moving on to Page 5. We are now placing the results in a historical context. You can see that we recorded an EBITDA of $468 million, which is significantly up 48.6% on the previous quarter, and slightly down, 4.3% down on the corresponding quarter last year, $468 million. In terms of net income, we've reached a figure of $98 million, which is higher both with respect to the immediately preceding quarter, where we recorded a loss. And also with respect to the third quarter last year where we had an income of $22 million.
Moving on to Page 6. We can see the main variations of EBITDA when comparing it to the third quarter last year. So we recorded a 4.3% decrease, and the main variations are explained on the positive side by Arauco and that is driven by the very strong performance in its wood division.
On the negative side, it is explained by the fuels division, which is, of course, affected by the pandemic, which still means decreased volumes with respect to a normal scenario and also affected by the translation of its results to dollars at a higher exchange rate.
In terms of the composition of EBITDA, which is shown to the right-hand side of the graph, you can see that as usual, Arauco, Copec and Abastible make up the bulk of our EBITDA generation.
When doing the same analysis for net income on Page 7, you can see that we reached the figure of $98 million, which is up on the $22 million that we recorded last year. That is basically explained by a lower nonoperational loss, more detail on that when we go further along the presentation.
The operational result was lower in Copec because of the -- again, the diminished volumes because of COVID-19. And that was partially offset by Arauco, which recorded a strong result in its wood division. Once again, the composition in terms of composition, you can see that the 3 main subsidiaries, Arauco, Copec and Abastible make up the bulk of the net income.
Moving on to Page 8, where we are showing the numbers for the income statement. We can see that in terms of nonoperating income we recorded, a very strong difference, positive difference with respect to last year, and that is explained by favorable exchange differences, mainly in Arauco, and that is the bulk of the difference. Let me just remind you that, it is very usual for our subsidiary companies to hold different assets in local currencies, accounts receivables, taxes, receivables, cash and so on and so forth and those assets are, of course, subject to the ups and downs of the exchange rate. So in this particular quarter, we faced a scenario where dollar went down in general with respect to local currencies, and that generated a positive exchange rate difference as opposed to what happened in the third quarter last year.
That is complemented by high results in associates, which essentially comes from our Sonae panel joint venture company that we have in Europe. So essentially, Sonae driving the profits of associates. Together with that, we are seeing decreased operating income, which is explained basically by fuels, Copec Chile entered a lockdown due to the effect of the pandemic and liquid fuel volumes.
Together with that, as we mentioned before, the depreciation of the local currency, with respect to the third quarter last year, impacted the results, when translated into dollars.
In the case of Arauco, we are seeing a higher operating income because of higher margins related to its Wood division. In the case of Abastible, we have seen an increase in operating results when measured in its local functional currency. But of course, that is affected by the higher exchange rate with respect to the last quarter -- to the third quarter last year. Together with all that, we are seeing slightly lower taxes as well during this third quarter.
Moving on to Page 9. A brief word on our financial and leverage ratios. We've improved in profitability, we are up to 3.8% from 0.9%. In operating margin, we are up to 10.3% from the second quarter, 9.6% that we recorded in terms of EBITDA margin, and slightly up as well in return on capital employed.
In terms of leverage, we are quite stable in what regards to interest rate coverage, 4.3 and also stable in net debt-to-EBITDA at 4.6. You can see the evolution of net debt-to-EBITDA down there in the historical graph. This has been gradually going up from a low of 2x that we recorded by the end of 2018, it has been gradually going up because, first of all, the strong CapEx phase in which we entered, basically, MAPA and Mina Justa being our 2 largest projects and at the same time, we have seen a decrease in EBITDA stemming first from lower pulp prices and followed by the effects of the pandemic. So throughout this period, we have seen this increase in our net financial debt-to-EBITDA ratio, which has now stabilized with respect to the immediately preceding quarter.
In terms of maturities, we are quite comfortable with the maturities. We have an interesting amount of cash now on the balance sheet and a well-balanced debt schedule for the coming years.
Now we move on to Page 12, where we take a deeper look at Arauco, our forestry division. We are seeing an increase of $51 million in operating income and an increase of $47 million in nonoperating income, and an increase of $41 million in the EBITDA with respect to the third quarter of 2019.
We have seen a favorable operating income, which stems basically from the wood product division. That is associated to higher volumes in sawn timber, but also to operational efficiencies. So we have achieved lower costs as well. But it's all partially offset by lower pulp volumes and prices when compared to the third quarter 2019.
In terms of nonoperating income, as we already mentioned, favorable exchange rate differences compared to a loss on this concept last year and higher other income as well, which is related to revaluation of biological assets, accounting of forests, plus improved profits from associates related basically to Sonae, our panel joint venture in Europe, as we mentioned.
Moving on to Page 13. Some more details on pulp. We have seen an EBITDA of $99 million in the pulp division compared to $96 million in the second quarter, so very stable with respect to the second quarter. Of course, it is down with respect to the third quarter 2019. We have seen volumes and prices go down quite importantly with respect to last year, but quite stable with respect to the second quarter this year. All of that is offset to a certain degree by drops of the unit costs for basically all kinds of fibers. In the case of year-on-year, we have seen drops of anywhere between 2% and 5%, depending on the type of fiber. In the case of quarter-on-quarter comparison, we have seen drops of between 0.7% and 3.4%, depending on the type of fiber. There's also some more details on our schedule for maintenance stoppages, both for the preceding quarters and also for the coming quarters, in case you need that detail.
On Page 14, some comments on the evolution of the pulp markets. During the quarter we saw the quarter begin with lower demand, which is usual because of seasonality effects in the summer, in the Northern hemisphere. However, when -- as the quarter made progress, we began to see a decrease in supply of market pulp, which is good and which we had to a certain extent anticipated. As the pandemic -- the restrictions related to pandemic were gradually lifted, we saw demand for other fibers gradually increase and that turned into integrated paper or dissolving pulp producers switching back to their original fibers rather than selling paper grade pulp in the markets.
So that meant a decrease in supply, which lends some more strength to the level of prices during this quarter. However, and especially in hardwood, we continue to see strong supply and also high level of inventories. So that as cost prices to stay stable rather than recoup in relation to this increased demand.
In China, for example, we have seen a demand increased throughout the year, coming on to an 8% increase approximately for the year accumulated. However, prices have remained stable because of seasonality, but also because of supply and inventories.
In Europe, we have seen a gradual improvement as well. In paper and writing, in specialty papers, and this has allowed reopening some mills. So in general, some positive news, but with increases in prices held to a certain extent by strong supply and also inventories.
Some more comments on pulp. We have seen in some fibers, quite important price increases. In October, there was a $40 price increase in softwood. And together with that, we have reached a level of $680 per ton for dissolving pulp as well in November, coming from a very depressed level of $600 per ton. So a quick increase and very promising for this dissolving pulp.
In the months to come, we should continue to see gradual price increases, in general, for bleached grades as we see the demand continue to recover, and we continue to see potential for dissolving pulp as well. Of course, all of this contingent on the potential effects of event to new waves of COVID-19.
In the case of bleached pulp, we also see a positive scenario, given its strong usage in packaging, which has been very strong, and also in construction segments. That -- in Europe, we see general stability, no major price increases, no major pulp increases in production either.
In China, as we commented before, we've seen that prices, especially for hardwood are stable in spite of increase in demand because of inventories and supply.
In the graph down there, you can see the evolution of pulp prices, both in China and in Europe, stability in general in Europe, stability for hardwood. But interesting increase in prices for softwood, as we commented already, which has in a way, turned to an increase in the gap between the 2 fibers. Now standing at $150 gap in China, $168 in Europe.
Moving on to Page 16. Some comments on the wood segment, we have seen an EBITDA of $143 million for the third quarter of 2020 compared with $67 million in the same quarter and $62 million in the third quarter 2019. In the case of panels, we have seen a very interesting increase in volumes with respect to the preceding quarters, 40% increase in volumes, very interesting.
Same thing for sawn timber, where we have seen a 20% increase in volumes with respect to second quarter 2020. In the case of prices, and in the case of a comparison with last year, both volumes and prices seem to be quite stable. A very strong recovery with respect to the immediately preceding quarter. That has to do with what we will show as from Page 17.
First of all, the comments on North America, which is our main market with 50% of our total sales. This is basically driven by the housing starts that you can see down there. And after a very significant decrease during the first and second quarters related to the pandemic, the housing starts have recovered their long-term trend and gradually, making progress towards their historical figures and now standing at 1.4 million units per year.
The particleboard and MDF market has seen a very strong quarter for the third quarter. And it could be expected that market conditions could prevail and remain very active up to the first quarter of 2021. We are seeing strong activity and strong demand in remodeling and new construction segments. And together with that, some logistical and supply challenges for some competitors. So all of that brings about a scenario, which has been and could continue to be very favorable for Arauco. Of course, all of these comments, once again, are subject to the potential impact of COVID contagions.
In the case of remanufactured products, they also have been very active, not only in this market, the North American market, but also in Latam and Oceania. They continue to experience high level of demand and consumption. There was also a reduced supply from China because of duties, which is also favorable for Arauco.
In the case of plywood, it has gradually been increasing. Prices are very good. We have seen strong increases in prices and some signs of stabilization, however, in recent weeks. So all in all, a very positive quarter for our main market, which is North America.
On Page 18, some more comments on panels and woods.
Brazil has gradually overcome several years of market being depressed and oversupplied, and we have seen a very strong activity and very interesting demand for panels. In this particular quarter, it continues to be very strong. And therefore, that's a significant and very positive change for the industry. We see volumes and prices that could remain stable at these very interesting levels for the following months, depending, of course, on how the pandemic evolves.
In the case of Chile, we have seen high demand, very strong, very strong activity in plywood and panels, once again related to home improvement and also construction. Same thing for sawn timber.
In Argentina, likewise, increases in demand and prices. In this case, we've seen that the price increases have compensated, have offset inflation and also devaluation.
Then moving on to our less important markets, Asia, Oceania and Europe and Middle East. Basically the same trends, improvements in demand for all products related to construction and home improvement and stability that we are seeing going forward. So all in all, a very interesting evolution for wood products and particularly strong quarter for this division.
I'm now changing to Page 20, where we are seeing some more details on our fuels division, starting with Copec. In Copec, we saw a drop in operating income because of lower volumes. So you can see the figures on the table there. So still a lower operating income and this stems from volumes that dropped 27% in Terpel, 21% in Chile and 7% in Mapco because of diminished consumption due to the pandemic.
However, once again, let me emphasize that we -- the recovery with respect to the immediately preceding quarter was very strong and we continue to see that recovery going on. So we expect to end the year if everything goes well at levels which are very similar to the pre pandemic levels.
Together with that, during the quarter, we had a negative effect of revaluation of inventories in Copec and Terpel. So it was still negative compared to a positive effect in the comparable quarter 2019, but it was less negative than the immediately preceding quarter. So in the second quarter 2020, we had a very strong negative effect of FIFO inventory effect. In this particular case, in the third quarter 2020, it was still negative, but much less negative than the last quarter.
All of this is partially offset by Mapco, which has been shown a very strong performance during this year related basically to improved margins. Together with all that, we saw a lower nonoperating result, it's decreased other income coming from gains in 2019 related to adjustments from the ExxonMobil acquisition in Terpel, basically. So those were one-off effects that happened in the third quarter of 2019, but not repeated this year. Together with that, we have some lower profit in associates, which is basically related to Sonacol being classified into the assets for sale line in the balance sheet.
Moving on to Page 21, some more detail on the operational factors that affected Copec during the quarter. We reached a market share of 59.1% accumulated as of July, which is the last official figure we have. This is in Chile, 59.1% as of July accumulated, and 59.2% in July. So strong in terms of market share.
In terms of volumes, we have seen when comparing with the third quarter last year. We are seeing industrial channel volumes going down 26% and gas station volumes still going down 17%. So significant drops when comparing with last year's, but again, significant increases when comparing with the second quarter this year. Volumes are returning to pre pandemic level gradually.
The margins, as always, in this business are quite stable. The effects that could cause some volatility in margins are basically potential FIFO effects and also some variations in the industrial margins. But other than that, this is quite a stable margin division. Very good positioning in gas stations, very good status of our network now in all geographies.
In the case of Mapco, we are seeing the same as in Chile and Colombia, we have seen volumes returning to normal levels gradually. We continue to focus in the plan that we set for this company when we bought it a couple of years ago, which was basically margin stabilization, operational efficiency, improvement of product mix, some CapEx also related to improvements in convenience stores and gas stations.
On Page 22, we can see some details of Terpel. In this case, just like in Chile, net income was affected by lower volumes and also a negative inventory effect. The decrease in this case was 27% in liquid fuels, and the breakdown of that is in the graph down there. So it's a 27.5%, explained basically by a 27.6% decrease in Colombia. And also explained by some significant decrease in some countries. Dominican Republic, for example, where sales are basically related to the aviation segment. So a very significant decrease of 56%, 56.9% in its volumes.
However, when we look at the comparison quarter-on-quarter, so with respect to the second quarter 2020, we are beginning to see very important improvements, 39.2% up in Colombia. In this case, more than 100% up in the Dominican Republic. And therefore, a total consolidated increase of 41.5% in Terpel. So results in the third quarter still affected by volume decrease, but definitely showing very interesting and strong signs of improvement.
On Page 23, we turn over to Abastible, our LPG division. Abastible is showing increases in net income and in EBITDA when measured in local currency, which is the functional currency of this division. In terms of operating income, we are seeing higher margins in Chile, in general, and we are seeing volumes in Colombia, which are growing very interestingly, 13% up.
In Ecuador, we're also growing at 2.6%. This -- that is offset to some extent by Chile and Peru where we see drops of 0.9% and 14% in Peru, which has been especially hit by the pandemic, Peru especially hit by effect of the pandemic.
In the case of nonoperating income, we see lower results in associates, once again, because of a reclassification of some assets, the assets that we have up for sale and also some higher expenses related to COVID-19. Lower taxes in general related to these volatile effects of the exchange rate that Abastible has on its taxes.
On Page 24, some more comments on the different countries for Abastible. In Chile, we've seen a slight decrease in volumes. The most affected segments continue to be small clients industrial and commercial. They -- the Residential segment has been much more stable than the Commercial and Industrial segment. In any case, Abastible has been able to increase market share in an accumulated level as of September in both its main channels.
In the case of Colombia, we have very good news.
We have seen an increased demand, which is basically, has been pushed by the company through a series of marketing initiatives, which has been highly successful, together with geographic expansions. Norgas, which is the name for the division of our company there, has grown more than the market in both the bulk and bottled segments.
In the case of Peru, minus 14%, once again, very affected by COVID. The most affected segment is the bulk segment, especially hotels, restaurants and shopping centers. In the case of the bottled segment, which is essentially residential, we have seen much less impacted. We continue to go ahead with a series of marketing initiatives there that have been highly effective. And therefore, in the long term, we are very optimistic about this market.
In the case of Ecuador, this is our smallest nation in terms of EBITDA generation. Slight increased 2.6% when comparing to the quarter last year. The decrease comes basically from -- there's a decrease in the bulk segment, but more than offset by the bottled segment for this 2.6% increase overall in volumes.
On Page 25, an increase in Sonacol, we are showing a lower net income, which basically stems from a drop in volumes related, of course, from lower demand due to the pandemic. This is a very stable division and usually is in line with the growth in the volumes transported by the pipelines of Sonacol. In this particular case, we've seen drops because of diminished demand due to COVID-19.
Moving on to Page 27. A brief word, there's not anything significant here to highlight. So a very brief word -- just in our other companies here, in the case of our fishing division, Igemar, basically a nonoperating factor, which explains the better results, which is higher or more favorable exchange rate differences.
In the case of Alxar, which is a mining division, still shows a loss related to the construction of the Mina Justa project. In the case of Corpesca, basically tax factors driving results, some better results and exchange rate factors in Caleta Vítor. Laguna Blanca has ceased operations. This is our coal mining activity in the South of Chile. It has ceased operations. So it has registered a loss, though that loss is less than last year where we had one-off effect related to inventory re estimations. So still a loss but better result than last year.
In the case of Metrogas, AGESA very stable results with respect to the third quarter, and this is related to the volumes they sell, basically, natural gas.
We are now moving on to the third section of the presentation on those, highlights of the quarter.
and let me just remind you that, this time we are taking the Q&A -- questions through the platform. So if you can be so kind as to start submitting your questions through the platforms.
Having said that, let me move on to Page 29, where we are updating on the MAPA projects. So there's some detail here on the project status. As of September 2020, we had a 63.2% progress. We have the main equipment and parts to complete the project on site. Everything received, and the process continues. The assembly and construction process continues normally. We have progressively implemented more and more safety measures related to COVID. So recently, for example, 5 test centers were installed on site, very strong capacity of 1,000 tests per day and very quick delivery of results as well.
To date, we have more than 50,000 tests having been executed with a positivity rate, which is much less than the national average. The government has issued guidelines authorizing projects -- construction projects to go ahead, even if quarantines were to be established. This is subject, of course, to procedures and sanitary standards that are in place in the case of MAPA since March 2020 -- many cases.
In coordination with contractors and subcontractors, and given all this, we have reestimated the measures that we have been able to go ahead with these measures and generated protocols and given all that, we have reestimated the start-ups for the beginning of fourth quarter 2021. So this is the new expected date. Just like Arauco announced last week, we are reestimating the date of start of operations for the beginning of fourth quarter 2021. At which point, the Line 1 will be permanently shut down, which is what is authorized in the environmental permit, and the new line will start operations. So those are the news related to MAPA.
In the case of Mina Justa, construction goes on normally. As of September, the project is showing more than 92% progress. In this case, we had quite a long interruption in the works, but we were able to assume them, and they are now going on normally. And we expect to complete construction by the first quarter 2021.
In this particular case, for this project, as you well know, but just as a reminder, this is a project where we own 40% stake. Our controlling partner is Minsur, a Peruvian company. This is a project that is located in Ica, south of Lima and where we're expecting a production of up to 150,000 tons per year for the first use of operation with an average of 115,000 tons in the 16 years of life of mine. The total investment that we have estimated for this project is around $1.6 billion.
Some more detail on liquid fuels volumes, on page -- on the following page, 32. As we mentioned during the presentation, as restrictions due to the pandemic are gradually, yet progressively lifted, we have seen a very strong recovery in the liquid fuels volumes. We have the detail here, company by company.
At Terpel, we saw volumes dropping at 28% rates, which was less than the 46% decrease that the company showed in the second quarter, and that implies a 41% increase quarter-on-quarter. So once again, very strong increase.
In the case of Copec, Chile, the volume dropped in the third quarter by 21%, much less than the 26% decrease that we saw in the second quarter, and that represents a 9% increase quarter-on-quarter.
In the case of Mapco, in the third quarter, the volume was down 7%, which is, of course, less than the 23% that we showed in the second quarter of 2020. And that, in turn, implies an increase of 19.5% quarter-on-quarter. As the fourth quarter has progressed, we can see that volumes have continued to gradually normalize. And therefore, at this point in time, we are seeing levels that are very close to the normal levels that we saw prior to the outbreak of the pandemic. So good news in volumes in terms of normalization of liquid fuels.
Moving on to the next page, which is Page 33. Just as a reminder, we had announced that we would be making a capital contribution for Arauco, our forestry subsidiary, for a total of up to $700 million, of which $250 million will be completed this year 2020. That has been done already. So in September 2020, we completed the capital contribution of $250 million for Arauco that we had committed before. And that is in accordance with what was approved by an extraordinary shareholders meeting of Arauco that was held in May.
Next year, depending on the needs of Arauco, we could go up to the total $700 million that we have announced. Of course, the aim of this capital increase is to strengthen up the financial situation on the balance sheet of Arauco, which is going through a strong CapEx period and also has seen a decrease in EBITDA because of commercial wars and low prices of pulp, the pandemic and is also going through a very strong CapEx phase.
In case of the sale of assets, just as a reminder, because there's no significant news to communicate and to inform here. There's nothing specific at this point. But just to remind you, we are going ahead with 2 processes of asset sales, which are Sonacol and Gasmar, and evaluating a third, which is Metrogas plus AGESA, our natural gas distribution companies.
All of these companies basically fit the same risk profile, long term, stable cash flows and therefore, maybe a lot of interest for specialized investors and actually may be worth more in the hands of specialized investors. At this point in time, we have no significant news to inform, just to tell you that Gasmar is the most advanced process. It is well into the commercial phase. The beginning of the commercial phase was announced a couple of months ago through an essential fact by Gasco, which is our partner in Gasmar. So Gasmar is already well into the commercial phase.
In the case of the other processes, we have been going through several stages, previous to the commercial phase, such as in one case, vendor due diligence, offtake contracts, in another case, information flow, protocols and so and so forth We continue to expect a great deal of interest for these assets. That is all we can inform at this time in relation to the sale of assets.
Moving on to Page 35. Just a comment on an interesting international loan that we closed during this quarter. $360 million syndicated loan, a 3-year bullet structure. This was a -- the format was a club deal integrated by international banks. This was led by Scotiabank and also involving Credit Suisse, MUFG, SMBC and Mizuho. This definitely helps us to boost the company's liquidity using the profits among other users for financing the capital contribution to Arauco.
And on Page 36, and just to end up with a good news regarding sustainability, we just learned a couple of days ago that we have been confirmed as a member of the Dow Jones Sustainability Index both for Chile and for MILA, which is the Andean index. In the case of Chile, for the fifth consecutive time, in the case of Mila, for the third consecutive time. Very good scores in the economic dimension, environmental dimension and social dimensions with some categories in which we were particularly strong that are listed there. This is a very good use for the company because it is a recognition of the fact that the company has shown a very strong commitment as part of the essence of the company during many, many years, but in particular, in terms of formalizing and communicating these practices, over the last years as well. So a strong commitment with practices related to sustainability.
With that, we are basically reaching the end of what we have prepared for you. Let me remind you to please, submit your questions to the platform.
And we will have Cristián Palacios, who you all well know, announce the questions for both for myself and for Gianfranco. Thank you all. And Cristián, please go ahead.
Okay. Thanks for Rodrigo. We have couple of questions from Carlos De Alba at Morgan Stanley.
The first one being, CapEx expectations for 2020 and 2021, followed by how much upside do you see margins at Mapco? And when do you expect to get there?
Perfect. Thank you, Cristián. CapEx, yes, we are probably -- we would probably end pretty much in line with the figures we have previously announced in the case of the CapEx for 2020. This figure has been progressively reduced as companies have focused in essential CapEx and also in projects that had previously started and have gradually postponed non-essential Capex.
That means that from the initial figure we announced, which was around $2.4 billion to $2.6 billion, we have decreased that figure to the current $2 billion approximately that we're expecting for this year. So approximately $2 billion for the whole of 2020. We have, as I said, going ahead with several efforts in the case of every company in order to prioritize and focus in the essential CapEx and in the processes and projects that had already started.
In the case of 2021, and this is -- above figure, this is not official and a very preliminary estimate, which you see that we basically should have the usual maintenance CapEx for all divisions, plus what is left of the MAPA Project and what is left of the Mina Justa project.
With all that, the very preliminary figure that we can estimate is somewhere around $1.5 billion to $1.6 billion. So that should be the CapEx for 2021. We will be revising the figures and letting you know of a better estimate as we reach the end of the year.
In the case of Mapco, the question is on margins of Mapco. Mapco has been gradually improving its competitive position. We have done quite a lot in terms of the product mix, in terms of improving convenience stores. Improving points of sales. So we have gone ahead pretty significantly in the plan we outlined in order to improve performance when we first acquired the company back in 2016.
Performance has been outstanding and very, very attractive. But Mapco is also subject to a very volatile margin for fuels. It is a very competitive market, and the margin for fuels, they're quite a lot. In this particular year, we have seen increased margins for fuels. That is probably a scenario that will not be stable going forward in time.
So what we should expect is to see, probably, volumes growing further, we should see margins stabilizing somewhere around the historical levels. During this year, they have been above basically above their historical levels. We should also see a trend of improving margins, but also some volatility in fuels margins around this long-term trend. So we still have very good expectations to improve the performance, the operational performance of Mapco. We should still see volume growing and market share improving. The long-term trends of margins, both in fuels and in convenience stores, should be upward. But this is definitely a year that has been outstanding and probably nonrecurring in terms of a very, very good commercial margins. So we should expect some normalization going forward.
Okay. We have a question from Sebastian Luparia at Fundamenta.
The question is, where do you see net debt-to-EBITDA peaking? What are the discussions with rating agencies? And if you should expect another current dividend payout or how the -- even the policy is going to be going forward?
Okay. Thank you very much. That's a more -- very relevant issue at this point in time. So you have seen in our net debt-to-EBITDA indicators, we have gradually been going up. And this relates to the CapEx phase, the expansion phase that we are facing and also the EBITDA has decreased because of pulp prices and also because of the pandemic. With all that, we have seen net debt-to-EBITDA go up from 2% at the end of 2018, gradually going up to 4.6%, which is what we recorded in the third quarter 2020.
Going forward, we will have 2 effects. Most probably, we will see EBITDA gradually recovering because we will have a low base of comparison and of course, this depends on the evolution of COVID. But the trends we see so far is that, results for the following quarters should be better than what we saw last year. So given that this is a 12-month running EBITDA, we could see an improvement in this rolling EBITDA. But we will continue to see outlays of cash and therefore, increases in net debt because of what is left of MAPA and Mina Justa.
So the exact levels that we will reach are not very easy to predict. We could go up a bit. So we could see this indicator go up a bit, still from the current levels, but we also should see EBITDA gradually improving. Rating agencies are totally informed of this. We have held a constant communication with them. We have seen them confirm our ratings and our projections and our outlook in the case of both of our agencies. They have valued quite a lot, all of the measures we've taken to strengthen our balance sheet.
As we said before, we have gone through very significant efforts of postponing non-essential investment and CapEx in all of our subsidiaries, we have gone through processes of optimizing costs as well in all of our divisions. We have got ahead with measures such as capping dividends from 40%, which has been historically there to 30%, we have redistributed capital among our subsidiary companies and therefore, going ahead with a capital increase in Arauco, as we mentioned.
But we have also announced the sale of assets that we should not only be very value generating, very interesting value-generating activities, but also help us to strengthen up the balance sheet when they materialize. And if they materialize, of course, but those are also initiatives and announcements that have been highly valued by our rating agencies. So the communication has been constant, and we are very comfortable in that regard.
Okay. We have questions regarding the potential asset sales. You gave some color in the presentation. I don't know, if you can or want to add something to that.
No. Well, these are all confidential processes. So there's not a lot we can disclose. But as I told you before, this asset sales are motivated by the fact that they are all very similar assets in terms of the risk return profile, very stable cash flows going forward. And therefore, assets that could be very attractive for specialized investors and the sale of those assets could be value-generating for Empresas Copec. And together with that, at this point in time, where we are going through a significant effort in terms of CapEx and we are also seeing a reduced EBITDA, these asset sales should help and contribute to strengthening up our balance sheet. That's basically all we can inform and as the processes reach their important milestones, of course, and as we can disclose those important milestones, we will be informing the markets.
Okay. We have the next question from Lucas Canteras at Goldman Sachs.
To continue with the non-forestry-related questions. We saw some increasing volumes, a sequential increase in volumes. If you can give some color on your expectations for 4Q in terms of volumes? And what do you expect for the full year in terms of volumes in the fuels division?
Yes. Well, this is an evolving scenario. And therefore, we cannot be very precise about how we will end the year. But as we said during the presentation, the evolution has been very favorable. We are now seeing levels that are very close to the pre pandemic levels. But this has been gradual. So most probably during the fourth quarter, we will still see a drop in volumes, most likely single digits and towards the end of the year, we have seen this normalization.
And as I said, at this point in time, we're reaching volumes which are very close to normal. With all that, I'm pretty sure that you can all make your estimations as to how we will end the year as a whole.
And the second question from Lucas Canteras. In the forestry business, Arauco posted a strong EBITDA coming from wood panels. And he knows that, at least in Brazil, most players are running at full -- at 100% capacity. The question basically is, how sustainable do you think this demand in Brazil and U.S. is? And if you see any risks of companies raising capacity?
We will turn it over to Gianfranco, right?
Okay. Gianfranco?
Yes. I'm here. You're listening well. Well, I mean, the rebound in demand in North America and Brazil and almost everywhere in panels and wood process has been very impressive. I think part of that is a lack of demand in the worst month of the pandemic, meaning May, April-May, where we have, in some places, 0 demand and production. So part of that capacity utilization that you are talking in Brazil that we're seeing is compensating for the lack of demand in those months. And the other part is, real increasing demand of people investing more in their homes and doing construction that was delayed. So I don't think we're going to stay 100% capacity for a long time.
But I hope that we will get to a level that is higher than we had before. And I don't think that, that would trigger a lot of investments because Brazil has suffered from overcapacity for a long time. So everyone that has invested in Brazil has suffered. And I think they're going to think it twice before committing to a new mill only looking at the demand numbers at this point. So I think we won't see any reactions of committing to new investment reason. We have to look more into 2021 to see how the demand evolves there.
Okay. We have a couple of questions from Isabella Vasconcelos, Bradesco BBI. The first one is the expected ramp-up of Mina Justa. And secondly, in forestry, what is your supply demand outlook for the pulp market in 2021?
Yes. Let me take the Mina Justa one. As we said during the presentation, we're expecting operations to start-up in the third quarter -- in the first quarter -- in the first quarter 2020. And the total expected production for the first years of operation should be around 150,000 tons. So for the first year, we, of course, will not be able to reach that full capacity, but we should be able to reach production of somewhere around 100,000 tons. I think that's sort of bulk figure, very preliminary, and we'll be informing about that as we go forward in the project, but a very initial bulk figure should be around 100,000 tons for the first year of production for 2021.
Okay. Regarding supply and demand for 2021, it's always hard to predict supply and demand in pulp, especially, when your many months ahead. But at least in supply, we know that there is no new supply coming, and you have heard the news of MAPA delaying the start-up from the mid of 2021 to the close -- the beginning of the last quarter of 2021. So the adding of new volume to the market is going to be minimal. So on the supply side, I think we are covered, and it will all depend in the demand and increasing demand. And of course, that is depending on the evolution of COVID-19. If we have a vaccine in the beginning of the year, I think it looks promising in terms of GDP recuperation in the main economies.
At this point, China is growing more or less healthy at around 4.5%. So that -- which is the main market for pulp and in our case also, it looks good. But in the case of Europe, the thing is more complicated because of the second wave of contagious in -- of COVID-19. So at this point, the trend looks good. I think probably the average price for 2021 would be higher than 2020. But it's difficult to predict how will be the evolution on prices. I think the -- so summary, average prices will be better.
We are more optimistic about the solution for COVID-19. So that will mean better growth of the economies. Probably people going back to -- some sense to their offices, to schools, and that would mean demand for paper, printing and writing. Of course, online sales will continue, so that will bring more demand for containerboard. And no news of adding capacity in 2021, so that will have the balance and hopefully, have better prices for 2021.
Okay. Thanks, Gianfranco. Some questions are starting to repeat, so I'm going to receive. So we have 3 for -- regarding forestry division. First, coming from Camila Raddatz at Moneda Asset Management. She's asking about the reasons behind the drop in volumes during the third quarter this year.
Then we have our Rodrigo Carvallo at BTG Pactual, asking for a guidance regarding pulp volumes in 2021 and some guidance regarding the dissolving pulp sales in 2021. We can start with that.
Okay. Well, yes, you can observe a decrease in sales volume of pulp if you compare 1-year ago. If you compare to a quarter ago, it's not so significant. But that is, it's hard to remember why we sold so much a year ago. But the main message here is that, probably, quarter-over-quarter, you will see differences between one quarter and the other, probably a year ago, depending on the maintenance of the mills, the amount produced and also the ships, the vessels departing the port at the end of the month.
But on balance, at the end of the year, we more or less sell what we produce. So we don't move around the stocks so much in order to have an impact in the market. So our strategy has always been to sell what we produce. So you have minor differences quarter-over-quarter, by the end of the year, it is more or less the same.
In terms of guidance of volume, I think that it is the MAPA mill is delayed in the startup. The impact on volumes, on MAPA, will be not very significant. So at the end of the day, the total volume of the company sold in pulp, I mean, including dissolving pulp, will be more or less the same, let's say, 3.9 million tons more or less, according to capacity.
Of course, we will produce dissolving pulp. And in that case, I will think that we're going to be producing about 450,000 tons of dissolving pulp, has started selling, no not -- we've been selling this 450,000 tons. So that means that paper grade pulp will be lower in that amount for the year. So that is more or less the number. So similar -- total number of volume sales, of course, more dissolving pulp with a higher-margin than paper grade.
Thanks, Gianfranco. We have a couple of questions from Rodrigo Godoy, Citibank Chile. If you can comment something on water flow levels in the rivers nearby the operations at Licancel and Valdivia mills. And secondly, how much are the efficiency gains that you expect to reach in relation to assets portfolio restructuring implemented in the wood panel division in North America?
Okay. In terms of water flow levels, we don't have any problem right now. Of course, it's -- we are ending the winter season in the south of Chile. Starting summer, but right now, we don't have any problems in Valdivia, it is the furthest south mill that we have. So it rains a lot more in Valdivia. Licancel is the one that is more on the north of our territory. It's a small mill, and we have made some investment in order to prevent happening again in periods of low flow. So we have to see what happens during the summer that starts in December until March in south of Chile.
But right now, we are normal operating, and we hope that we don't have any interruptions in the production. In terms of efficiency gains, yes, we closed a couple of mills in the U.S., optimizing the portfolio of production in the U.S. and complementing with some exports from other markets like Brazil and in Chile, and we are very happy with the efficiency that we've got there. We reduced a lot of the SG&A expenses there. And of course, with a good market right now, we are getting good results.
We are over the budget that was considering more capacity. So we are better than we thought. But of course, we cannot know exactly what will be -- we would been, if we had all the mills at this level of demand. But we are very with the process that we made. I think it's more sustainable for the long-term to have bigger mills and more efficient and newer operating and focus on optimizing the use of them instead of having lower capacity and reach. So right now, very, very happy and very good results coming from North America.
And Gianfranco, in that same line, Paula Ortega from Quest Capital is asking the reasons behind such great increase in wood products EBITDA, and if that has to do with the grading part.
Well, the reason behind the good results in wood products is a mix of better pricing, better volume because since demand is higher, we have been able to run our mills at a higher capacity, almost 100% in some places that wasn't usual. And the other one -- the other thing is that, right now, it's probably the most important part is that we made a very good effort in reducing costs in sawmills and panel mills or automatizing some processes and of course, exchange rate helps in reducing labor cost.
So part of the increases in EBITDA comes from lower cost of production. But of course, if you produce more, you dilute more your fixed cost. But it's an effort in all places, reducing cost, better prices because we have been able to raise prices because of good demand and running our machines at a higher volume.
Thanks, Gianfranco. And we have two final questions. The first one coming from Cesar Perez at BTG Pactual. Rodrigo, when do you expect your first copper shipments from Mina Justa? And considering copper prices, this will be a relevant flow to Empresas Copec. Also, how much volume do you expect to sell in 2021?
Yes. We will be starting operations in the first quarter 2021, as we said before, the volume expected for 2021, as we already mentioned, very preliminary volume, but -- and this will be subject to revision. And we will be giving some more information up on this as the project progresses, is basically 100,000 tons for the year 2021. First estimate, very bulk, very initial figure.
We will be refining it as we move forward, but that's the initial estimate. Second quarter should be -- we should be starting shipments probably in the second quarter. So that's just to complete the question.
Thanks, Rodrigo. And a last one question here from [ Leonardo Nerateca ] at Bank of America. If you can give more details on what was the impact of inventory revaluation in 3Q? And what we should expect for next quarters? And secondly, what factors and timings will determine the next capital contributions to Arauco?
Inventory evaluation, you mean for fuels, right?
Yes, for fuels.
Yes. Yes. Very bulk figures as well, but we are coming from a quarter where the inventory revaluation was very strongly negative in the second quarter of 2020. At that point in time, as we told you in our last conference call, we had a total effect of more than $30 million negative for both Copec and Terpel.
Just to remind you that we had seen at the beginning of the year, around March, we saw a very strong decrease in the prices of oil. So that effect was most of it registered during the second quarter. And therefore, in that quarter, we saw an effect of approximately -- of more than $30 million in total. In this particular quarter, it was less than half of that. So still negative, but less than half of what we recorded in the second quarter. And compared once again with a positive effect that we recorded in the third quarter of 2019.
So in the comparison, one of the factors explaining the drop in results in the fuel segment is the fact that we recorded a positive effect for FIFO in 2019 and the negative effect of approximately the same magnitude in 2020. But as I told you, this effects have been gradually been less negative than before. So we are seeing a positive factor as well driving our results throughout the year, and we expect it to be even lower in the fourth quarter.
Thank you, Rodrigo...
And then regarding the capital contribution to Arauco we will -- we are closely monitoring the situation of Arauco. It's a 100% owned subsidiary. So it's very straightforward to go ahead with any capital increase that we require. It will depend basically on the evolution of Arauco's business lines, on the evolution of the investment related to MAPA and, of course, the projected credit metrics of Arauco. But we are in frequent communication with Gianfranco Truffello and we will be coordinating ourselves to set up a figure for an eventual new contribution that allows Arauco to meet its needs in terms of having a balance sheet, which is strong enough.
Okay. That's in terms of questions. If there might be something pending, please feel free to contact our Investor Relations team directly. And now I'll pass it over to the operator.
This concludes the question-and-answer section. At this time, I would like to turn the floor back to Mr. Rodrigo Huidobro, for any closing remarks.
Okay. Thank you, everyone, for attending today. And we expect to see you at some point, probably at the beginning of March next year to comment on the results for the full year 2020 and for the fourth quarter 2020 as well. Thank you very much. Bye.
Thank you. This concludes today's presentation. You may disconnect now, and have a nice day.