Empresas Copec SA
SGO:COPEC
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Good morning, everyone. Welcome to Empresas Copec's 4Q '19 Results Conference Call. Today's presentation and the 4Q '19 earnings release are available on the company's website at www.empresascopec.cl and also our Investor Relations website, investor.empresascopec.cl.
Before we begin, I'd like to remind you that the 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 at Empresas Copec and could also 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.
And I'll now turn the call over to Mr. Rodrigo Huidobro, Financial Chief Officer of Empresas Copec. Please go ahead, sir.
Yes. Hello, everyone. Thank you for joining us today in this session, where we will be taking a look at the results related to the 4Q '19. As usually, we are joined here today by people from our IR department, led by Mr. Cristián Palacios. And we're also joined by people from Arauco, led by Mr. Gianfranco Truffello, who will be helping us out in any specific questions related to forestry sector.
Well, let us go directly to Page 5, please, where we're starting out looking at the numbers in a historical context, as we usually do. We have ended up the quarter 4Q '19 with a total EBITDA of $397 million, which means a decrease of 29.7% on the corresponding quarter of the year before. So on 4Q '18, that means an increase of 18.9% on the immediately preceding quarter. As you -- as we will see further on, this essentially relates to weaker numbers in our forestry division, which in turn, are explained by -- essentially by lower pulp prices.
In relation to our net income, we have recorded a loss. This loss is explained entirely by nonrecurrent effects, which are basically impairment effects of which we will be giving out more details in a few minutes.
On Page 3 -- on Page 6, sorry, we are -- probably for the last time, we are giving out some detail on the effects of this new accounting rule called IFRS 16, which means essentially that all the leasing and rental contracts must be recorded as an asset and a liability and must be amortized over time. So this effect on our assets and our liabilities is for approximately $700 million each, as you've seen in the table down there, distributed among Arauco, Copec and Abastible basically.
In terms of impact on the net income and on EBITDA, you can see the alternative that we have in the lower part of the page, where we can see that we have increased expenses -- sorry, lower leasing expenses of $144 million. But on the other hand, we have higher financial expenses for $32 million and higher depreciation and amortization for $131 million. All in all, the impact on the net income before taxes is $19.2 million, and the impact of EBITDA is a gain of $144 million, essentially an accounting effect of $144 million in EBITDA. These are all rental agreements that have to do through the -- all of the subjects that are listed on that page: land, tankers, warehousing, buildings and so on.
Moving on to Page 7. We are seeing a greater view of the EBITDA and of the effects of the EBITDA over 4Q '18. As we always said, it basically decreased because of the forestry business with a weaker performance, essentially driven by lower pulp prices. In fuels, we have -- we actually have an increased EBITDA when measured in local currencies, which is in the functional currency of this division. But when we're turning it to -- when converting it to dollars, we, of course, have the effect of a higher retention rate, higher value of the dollar when compared to one of the local currencies in which our fuel divisions take part. So essentially, an exchange rate effect which explains this drop in the EBITDA of fuels, partially offset by positive effects because of a better financial performance and commercial performance and also because of the effects of IFRS 16. When you see the breakdown, you can see that Arauco, another fuel segment, as usual, represents most of the total EBITDA.
When we go to the next page and doing the same analysis, we are doing the same analysis for the net income. The net income, as we said, is a loss of $206 million, which basically relates to effects of impairments in different divisions. We have an impairment in Mina Invierno for $122 million. As you might know, Mina Invierno is our coal venture in the south of Chile. This mining operation has been paralyzed for a while following a ruling by a local court, which essentially prohibited the use of blastings, and that turns the mine nonviable. So in that scenario, we have revaluated the value of our assets, and we have come to the conclusion that we needed to go ahead with an impairment of $245 million at the subsidiary company level. So at the Mina Invierno level, the total impairment was $245 million. We own 50% of that stock. So the effect for Empresas Copec turns out to be $122 million. So $122 million related to the coal venture in Mina Invierno.
Together with that, we are showing an impairment effect in our mining division, our metal mining division, which is called Alxar, which has to do with some mining operations and projects located in Chile, which we're not operating at this time and for which Alxar has started a sales process. Given that sales process, we also went ahead with an impairment test to revaluate those assets and have found the need to go ahead with this $44 million impairment effect.
And finally, we are recording a $77 million effect at the Arauco level that has to do with 2 groups of assets. One is Line 1 of the Arauco complex. Just to remind you, we are going ahead with the MAPA project. When the MAPA project comes onstream, we will be closing operations at the Line 1 of Arauco. Line 1 is the oldest line of Arauco. That operation will be closed down by mid-2021 when MAPA comes onstream. And therefore, we are gradually recognizing an impairment of that line. So approximately $30 million of the $77 million of Arauco stem from that Line 1 impairment.
The rest has to do with some operations in the U.S., following the start-up of Grayling and the acquisition of some capacity and the building of some capacity in Chile and other parts and other countries where we operate. We have rethought the best way of sourcing our main destinations and markets in the U.S. and have come to the conclusion that we will be either lowering the production or closing down some facilities in the U.S. And for those facilities, we have gone ahead also with an impairment, which amounts to approximately $40 million. So that's the detail for the 3 sources of impairment that we're recording this quarter. And of course, they are quite relevant, and they explain the largest part of the loss that we recorded during this quarter.
On Page 9, we are going through the details of the income statement. You can see here that operating income goes down, essentially driven by lower results at Arauco, in turn, explained by a drop in pulp prices. In the case of Copec, it had a higher operating income, which basically results from a higher EBIT coming from the operations acquired from ExxonMobil in Colombia.
In terms of nonoperating income, we have higher other expenses related to impairments in Arauco and Alxar. We have our results from associates and joint ventures, which goes down because of the impairment we did at the Mina Invierno level. We have increased financial expenses, which are the result of a higher level of debt because of the projects we are carrying forward and also related to the effect of IFRS 16. And we also have lower taxes, of course, because of the lower tax paid.
On Page 10, a brief look at some of our important financial ratios. Of course, given our weaker operational performance, the operating margins, the EBITDA margins and also the returns have gone down during this quarter when compared to the preceding quarters. Our leverage on the other hand, our net financial debt-to-EBITDA has reached a level of 3.3 -- 3.4 and 3.3 when we net out the effect of IFRS 16. That metric has been on the rise. And as expected basically, we are going -- as you well know, we're going through a period of large CapEx and large investments basically because of the MAPA project. And at the same time, we've had our EBITDA hurt by the scenario of low pulp prices that we have seen for a while. That brings about the increase in the net financial debt-to-EBITDA metric to 3.4.
Regarding financial maturities -- debt maturities, we are seeing a well-balanced schedule for the coming years. And just to highlight that following Arauco's issuance by the end of last year, we had extended the average maturities. And we now hold significant cash in place for refinancing or for paying down this year's maturities.
Moving on to the forestry sector and some more detail on that. We're going to Page 13, please. In Arauco, we have net income decreasing, specifically lower operating income, because of a drop in results because of the lower pulp prices. Some more of that in a few minutes. And we also have lower results in the wood products division, which has been driven by decreases in sawn timber prices basically.
In relation to nonoperating income, it also goes down, and that basically relates to the impairments that we already mentioned, so the panel plants in North America and also Arauco Line 1. We also have increased financial expenses because of the higher level of debt that we have been accumulating in this period of strong CapEx and also because of the effects on financial expenses of the new accounting rule IFRS 16. That is all offset basically by higher other income, which relates to the revaluation of biological assets that we do on a yearly basis and then what basically is explained by a lower comparative base in the -- in 4Q '18.
Together with that, we have higher results in Sonae, which is our joint venture in panels in Europe, and also lower taxes. I mean this can be seen positive effect because of the pre -- of a lower tax base.
Some more detail on pulp is shown on Page 14. Our pulp EBITDA came down to $68 million compared to $286 million in 4Q '18 and compared to $148 million in 3Q '19. In terms of the year-on-year comparison, this is basically explained by lower prices but partially offset by sales volumes, which went up. In terms of costs, we have -- we had an increase in 2 of the fibers, but also to some extent by softwood costs, which are -- which have come down by a significant 15%.
In terms of the quarter-on-quarter comparison, we have a lower EBITDA because, again, our maturity prices and in this case, also lower volumes as well. In terms of costs, once again, we have somewhat higher costs for both unbleached softwood and bleached hardwood, offset to some extent by the drop in cost for softwood -- for bleached softwood, which decreased 5.7%. You can see the details of our scheduled maintenance stoppages that we have gone ahead with in the 4Q '19 and also the stoppages to be realized during the ongoing quarter.
Some more comments on Page 15 related to the pulp market. In the fourth quarter 2019, we saw the markets still affected at the beginning by the trade conflicts between China and the U.S. At some point in time, the Phase 1 of the trade agreement brought some optimism and lower uncertainty to the market. We had, at that point in time, Chinese papermakers producing with good margins, and therefore, increasing their demand for paper. Actually, China, as you can see at the table down there, China ended up the year with an 18% increase in its volumes essentially explained by the second part of the year. So after a very weak first part of the year, it had a significant demand during the second part. The world, as a whole, ended up with a 3.1% increase in pulp, which is pretty much in line with the average that we have seen over the last 10 years. Inventories have moved strongly towards the usual and historical levels. Actually, we are seeing the lowest by the end of the fourth quarter in 2019. We saw the lowest level in 14 months in terms of inventories.
Moving on to Page 16. These were in the outlook part. We have seen in the first 2 months of the year, good demand, much better than in the preceding months, especially China and Europe. This scenario was somewhat changed, however, by the effects of the coronavirus, which are, for the time being, as you all know, very uncertain. However, we can state that Arauco sales were not materially affected for the first 2 months and even for March and April, not material effect on sales in China because of the coronavirus. We are actually seeing some signs of things going back to normal in our main market, which is China. However, there is a question mark on Europe because of the situation that is beginning to unfold there during the expansion of the virus.
In terms of prices, we were able to go through with an increase of $20 for both fibers back in February. We had to decrease, however, in March, back to $475 for hardwood but we stuck to the $590 price level for softwood. This is essentially the uncertainty stemming from the effects of the virus that we had to bring prices back down in March. The gap, as you can see in the -- one of the graphs there, the gap between the 2 prices is now at $112 per ton.
Moving on to Page 17, where we are showing the wood products in depth. We see that EBITDA from this division came up to $73 million. And that is down from $92 million in 4Q '18 but up with respect to 3Q '19. The downward movement with respect to the fourth quarter in 2018, especially explained by sawn timber. In general, what we have seen in these markets is that during the year as a whole and also in the fourth quarter, the markets were hit as a trend. They were hit by trade wars and also larger imports in some of our main markets. You can see there that in terms of panels, we had an interesting increase in volume through the last quarter with respect to the last quarter and the year before. And in sawn timber, however, we saw a drop in prices and also a drop in volumes.
In terms of the outlook for this market, which we are detailing on Page 18 and onwards. For the North American market, which represents 58% of our sales, we're seeing some good news in terms of housing starts, which are up to 1.6 million units per year. The particle board and MDF markets are expected to remain stable. We're expecting seasonality to have a positive effect and also the housing starts numbers to have a positive effect as well. Some markets, and in particular, the MDF market affected by oversupply to some degree. Mexico has proven to be a good surprise. We're seeing a strong market, and we are positive about that market in the short term.
In remanufactured products, in general, trends are positive. We are seeing better housing markets. We are seeing seasonality, which brings up demand in this part of the year and also potential antidumping duties -- potential establishment of antidumping or ruling of antidumping duties against Brazilian and Chinese producers, which could eventually make Arauco's cost products more competitive in those markets. In plywood, good outlook for prices because of higher demand and low stocks. Of course, this is all subject to the effect that the coronavirus might potentially have, and this is all very uncertain at the time being.
In our second most important market, which is South and Central America, we have seen -- we saw Brazil with a good start in the first part of the year but definitely weaker in the second part of the year. The market scenario remains complex to a certain extent with some oversupply, but on the other hand some optimism because of potential economic recovery. We have seen devaluation of the local currency there, which on one hand, makes exporters more competitive, and that might affect our other markets, and on the other hand, decrease or have a negative effect on our margins when measured in dollars. Similar situation for Argentina, still some volatility there. We are seeing a good outlook in general for panels, not so much for sawn timber. Volatility in political terms, also in terms of exchange rates and that could affect our margins, again, when measured in U.S. dollars. In Chile, we had a first few months of good sales in general. We are still, of course, subject to the uncertainties that we have during the social situation in Chile. But so far, during the first month, we've seen good sales. Asia is basically affected by the uncertainty related to the coronavirus. However, we are seeing some signs of increased demand for lumber in some markets. And in Europe, some initial positive signals related to prices basically, but once again, subject to how the coronavirus unfolds. Same thing in the Middle East, signs of stability and in general, good signals, but in this particular area, of course, subject to the development of the virus and those of the oil market.
Moving on to the Fuels division, which we are detailing as from Page 21. We're taking a look here at Copec in consolidated terms, so it includes Copec, Terpel and Mapco essentially. You can see here that the EBITDA in local currency went up by 10%, which is a very good figure for the quarter. Accumulated is 80.4% for the year. So EBITDA measured in local currency is 8.4% up for the year as a whole. So all in all, a good year for our Fuels division when measured in local currencies.
In this particular quarter, we had a lower nonoperating result, as we have detailed there. This nonoperating result has to do basically with the decrease in other income because we have some one-off effects in 4Q '18 related: one, to the acquisition of ExxonMobil assets; and two, to the sale of some real estate assets, which was quite significant in that particular quarter.
We have a certain increase in other expenses with -- part of which is related to some repairs and some effect of the social crisis that took part in Chile essentially in the 4Q '19 and is still unfolding to some extent. We have some increased financial expenses related to the implementation of IFRS 16.
In terms of operating income, we had a drop in margins, which is essentially explained by high distribution costs and low industrial margins in Chile. To a great extent, this is offset and actually more than offset by a very good performance of Terpel. We'll come to that in a while, but Terpel basically increased volumes, increased unit margins and also had the effect of the contribution of the ExxonMobil assets, which is gradually going up, as we will see in a few pages. Mapco on this side. Mapco had a lower EBITDA than last quarter. The 4Q '18 here was a quarter that was especially -- where Mapco especially outperformed, and that had to do with some climatic conditions that were outstanding there in that precise minute. In terms of taxes, we have some higher taxes, which basically relate to this effect that we've commented in previous sessions of the movement of exchange rates on the recognition of the foreign investments that Copec has. That brings about a higher tax in this particular quarter.
On Page 22, we are taking a look at some operational figures for Copec. Market share is up, and we ended the year with a very attractive figure of 57.8%. During the year, we had a strong increase in the gas station channel and also quite improved in market share in industrial channel following some mining contracts that we -- where we did and that were awarded to Copec by the end of 2018. So that's the essential driver of the increase in market share. In this particular quarter, we had fuel volumes going up, all in all, by 0.8%. And that is -- when you break that down, you can see industrial channel going slightly down by 0.6%, offset -- and more than offset by gas stations where volumes went up by 2% approx. Regarding the outlook, we are seeing stable margins in general. As you well know, this is a market and industry where margins tend to be stable over time. But of course, we're subject always to some volatility sources, one of them being the potential FIFO effects, which had to do with the ups and downs of oil prices on our inventories. In this particular scenario, where we have lately seen a huge drop in oil prices, we should expect -- of course, depending on how that finally unfolds, but we should expect a hit on our margins, onetime, related to the effect that, that drop could have on our inventories from a FIFO effect. But in the medium term -- and as always, we should go back to the levels of margins that are normal and that are stable over time.
In Mapco, as we already commented, we have a lower EBITDA because of a very high base of comparison, the 2% in the 4Q '18, where we had some one-off effects related to climate conditions. However, Mapco is still growing very healthily with rates of approximately 2% in a market that is relatively flat. Mapco is now focusing its efforts in the several dimensions that have yielded good results so far, particularly stabilization of modules, which tend to be very volatile in that particular geographic area. We're looking at trying to stabilize it. Efficiency in operations, we're working towards improving the mix at convenience stores. Working on cost control and also optimization of networks. And we will be taking a particular focus in that dimension going forward, optimization of networks in terms of opening new gas stations and potentially closing down some other sales points with some less profit on them.
Terpel, Page 23, had a very good quarter with an increase of 55% on its EBITDA when measured in local Colombian pesos. That is explained by increases in margins, increases in volumes and also by the contribution of the ExxonMobil asset. As we have noted there, we are showing an increase of 4.4% in liquid volumes -- liquid fuels volumes. That is explained to a large extent by a very good performance of the gas station channel, 6% up. When you break that down country by country, as we can see in that graph on that page, you can see Colombia growing quite strongly. You can see Dominican Republic also growing quite strongly. And of course, Peru with a 95%, which includes the effect of the newly acquired -- or recently acquired assets of ExxonMobil.
Also regarding these ExxonMobil assets, we are seeing -- what we are showing there is the evolution of the EBITDA contribution from these assets. By the end of the quarter or by the fourth quarter of 2019, we have already reached an annualized EBITDA generation rate of approximately $50 million per year. So we are gradually making progress in overcoming all the logistic and commercial difficulties that we had to face in the setup of this new operation. You can see that the evolution there is very positive. And now we have come at an EBITDA generation rate of approximately $50 million per year when annualized, and that level should continue to be increased as we leverage with synergies and further optimizations that had to take place. In terms of nonoperating income. In general, we had favorable effects in 4Q '18 related to more than one adjustment that we had to make regarding the acquisition of the ExxonMobil assets and also some sales of gas station -- the sale of the gas station network that ExxonMobil previously owned in Colombia. So all of that boosted nonoperating results in the 4Q 2018.
On Page 24, we are giving out some detail in relation to Abastible. Abastible had lower operating income in general and slightly lower EBITDA, which relates basically with higher distribution costs, essentially, commercial fees and some consulting fees, many of them onetime, all of this offset by increased volumes in most markets. We had better operating results, however, in Colombia because of better volumes and also better margins. Ecuador has shown stability. In terms of nonoperating income, we have some other expenses here which increased -- which are increased because of consulting fees. We have better resources from associates related to the shares that Copec -- that Abastible has in Gasmar and also some one-off results that we had back in 4Q '18 related to Sonamar.
Operational figures in Abastible are shown on Page 25. We have seen increases in volumes basically in all our markets. Chile is up by 1.8%, Colombia up by a surprising 9%. In Peru, we are seeing a decrease in volumes, however, most of this is explained by the decrease in the bulk segment, which is a low-margin segment. And this is offset by volumes that are increased in both the bottled and the industrial channel, which are both high-margin segments. So in the high-margin segments, in general, we're making progress in Peru. Ecuador has proven to be quite stable and has shown a consistent growth in volumes. It is up by 4% in this case. The explanations for these movements in physical sales are listed down there.
In Chile, basically, the increase in volumes stems from the bulk channel and from the industrial channel. There are lots of new clients. Abastible has been rolling out a plan of energy-efficient solutions, and that has yielded very good results. So a very interesting growth in the industrial client segment. In the bottled channel, we have some geographical zones of Chile, which are making also good progress with some interesting levels of growth.
In Colombia, we are seeing an interesting growth in volumes. Bottled market grows and also a very significant contribution from bulk channel because of industrial clients as well. So pretty much the same story as in Chile with the offering of new energy-efficient solutions, which has boosted margins. Volumes also have gone up here significantly. A brief word related to synergy as well that we have gradually achieved in Colombia because of the merger of several companies that we have within Colombia. They're all now merged into one single company. And that, of course, allows for some optimization and some additional efficiencies.
In Peru, we have shown good progress in the most interesting channels, which are the bottled market and also the industrial channel. This is basically explained by a commercial strategy, which aims to increase distribution coverage and to optimize prices and to make a good use of dual brands essentially in these high-margin channels. And in Ecuador, we have continued to grow especially in the bulk segment because of new clients and also because of some substitution of diesel.
Sonacol is shown on Page 26. As always, very stable with volumes essentially flat and with EBITDA going on by -- going up by essentially 5%. In terms of our other companies here, we have seen a lower loss in our fishing division, Igemar. In our associated companies, the most interesting result here to highlight is Corpesca, which is our fishing division in the Northern Chile, which faced very tough conditions during this year as a whole and particularly in the fourth quarter, and we recorded a loss of $21 million. But that is totally offset by a gain that Caleta Vítor had. Just to remember, Corpesca was divided in the beginning of the year and gave way to 2 companies, Corpesca and Caleta Vítor. And Caleta Vítor basically owns several companies that are not strictly related to the fishing division, but they are related to the protein industry, and most of them are outside of Chile. In this particular case, the result is explained by the sale of the remaining interest that Caleta Vítor had in a company called Selecta. Still had a 10% remaining interest that was sold during this last quarter. And in Laguna Blanca, which is the parent company of Mina Invierno, as we commented already, we have gone ahead with a very significant impairment. That amounted to $245 million for the company as a whole and half of that goes to Empresas Copec. And that is related, as we said already, with the operations being paralyzed in the coal mining properties that it owns in the south of Chile. That would be it for the reason of the most important figures for this quarter. We are now moving on for -- to the main developments of the quarter, starting off with the different projects for Arauco. In the case of the dissolving mill -- dissolving pulp mill in Valdivia, we have finished the process of construction and of adapting new facilities in Valdivia. Total investment reached $195 million, and we are expected to start this up in April 2020. The mill that will be -- that will remain with the option to switch from dissolving pulp to paper grade back and forth. And actually, we expect to be doing that for most of this year as we gradually improve our position in terms of production and in commercial terms in this new market that we are beginning to tackle now, which is dissolving pulp.
In relation to MAPA, we are showing a progress of 39% as of February 2020. Everything in line with expected -- with what we had expected. We are seeing civil works with good progress and according to plan. We have seen the construction of some structures. Equipment has arrived on site such as the boilers, digesters, water tanks, evaporators and so on. And we're sticking to the estimated start-up date of the second quarter 2021, when the Line 1 of the Arauco complex will be shut down. And as we said, of course, that relates to the impairment that we are gradually recognizing from Line 1.
Moving on to Page 32. Some elements to have in mind considering the progress of Mina Justa. Mina Justa is the copper mine of which we own 40% in Peru. As of this time, the progress -- the total progress is more than 80%, a little more than 80%, totally in line with the plan. We have 5,000 -- more than 5,000 people taking part in this development. Total CapEx, just to remind you, is $1.6 billion. That is financed basically with a credit facility of up to $900 million, and the rest is equity contribution from the 2 shareholders, which are Minsur with 60% of the stocks and Copec through Alxar with 40% of the stocks. We will tell you that in which we aim to produce an average of 115,000 tons in 16 years and starting up around at the beginning of 2021.
On Page 33, we have announced through an essential fact that Copec and Abastible, which are the main shareholders of Sonacol, which is a pipeline company in Chile. Copec and Abastible, together with the other shareholders of Sonacol, have announced that they have given a mandate to Goldman Sachs to evaluate the potential sale of the total stock of Sonacol through a competitive bidding process. It is a process that should take around 14 months. And therefore, by the beginning of 2021, if everything goes as expected, we should be facing up with this potential sale of the assets and the stock of Sonacol. The total share we have of the company is 52.8% through both Copec and Abastible. And one of the immediate effects that this announcement has had in our financial statement is the fact that we have classified the assets related to Sonacol in the assets which are available for sale. So that's another line, a new line in the balance sheet, where we have included the assets and also the liabilities of Sonacol.
On Page 34, just to mention briefly, recognition that we received because of our corporate governance practices. This is one of the -- we think it is one of the serious studies and surveys that is garnering [indiscernible], which is done by the Santiago Stock Exchange and the consulting firm EY. It is a survey where more than 300 selected investors, analysts and agencies are consulted. And we were recognized as 1 of the top 3 companies in Chile, which is very rewarding because, over several years, we have done a lot of efforts in terms of bringing the best corporate governance practices to our company.
One other piece of news in volume sustainability is shown on Page 35. Arauco has announced that it will be certified as the first carbon-neutral company in the forestry industry. This will be certified by a third party, which will be measuring aspects related to the carbon footprint. This is basically an aim to reduce emissions by companies and suppliers. And as part of the commitment, Arauco is setting up a goal of gradually increasing all emissions in 10 years by 32%, starting from the base of 2017. So it's just in terms of news in terms of sustainability.
With that, we are finishing up what we had prepared for you this time. And I will be glad to open up the floor for potential questions that you might have.
[Operator Instructions] First question comes from George Staphos, Bank of America Securities.
A couple of questions to start. First of all, could you review again what you're seeing most recently on the ground in Europe and in China in terms of pulp demand and how that's framing your outlook into maybe second and third quarter?
Second question related to outlook. The results in total within the Fuels business were reasonably good. If you were in our position trying to model the various businesses, looking out to 2Q and 3Q, should we assume that most of the volume rates can continue at current rates? Or are there any considerations in terms of modeling that we should be aware of? And then remind us why the move to potentially sell Sonacol. That would be helpful.
Okay. Thanks, George. If that's okay with you, I will be handing it over to Gianfranco for the first question about pulp in China and Europe?
Yes.
Okay. Well, thanks for the question. I think it's hard to tell right now what's happening especially in Europe. But in China, we were looking at some normalization, some [ PDP ] happening there. And we are more positive in how they are containing the virus there. And so people are starting to come back to the factories and the offices. So this is a movement there.
We had very good -- I mean promising demand at the beginning of the quarter. Let's say, January and February, we were able to raise prices although volume was taken on that increase in prices. And then came the coronavirus in China. It halted like for a few weeks, but they end up, say, all of the [ significant year ]. And things are starting to move. We think that, that could be positive, but we still need to see what's going to happen for prices for April. And that's going to be negotiated probably in the coming week or 2 weeks. And that will be very important to see if the demand is enough for maintaining the prices or not, depending on each fiber. In our case, we were [indiscernible] for volumes for softwood for March and in April, so we are comfortable where it's sold. And hardwood, that's going to be different. I mean we need to sell a little bit of pulp because of the delay of dissolving pulp. Not too much, but we have some volume that we need to sell. And we'll see pulp prices move during the negotiation.
In Europe, the things where -- I mean we're in the middle of [ storm ] there. So it's difficult to assess what's going to happen with the prices. We sell only 15% there. So this part is so important for us, but anyway there's other competitors that sell more there, and that could start putting more pressure on volumes in the Asian market. So -- but it's hard to tell right now in Europe what's going to happen. I think the next week or couple of weeks could be important to see how demand for pulp is going on there.
Regarding your second question about fuels volumes and the outlook for them, just to remind you, we tend to think of these markets are very stable and mature markets, where volumes basically grow in line with GDP and where margins tend to be quite stable over time when measured in local currencies. Of course, in the current environment, there might be some factors that might affect all of those assumptions.
For one thing, in Chile, we are still going through a process of social instability, which so far -- where so far, we have been able to go ahead with our activities in a fairly normal way. But the way this will unfold might affect, to some extent, the growth of the country and in turn, the volumes that we see in our divisions. As a second thing, of course, we've already mentioned the coronavirus, which is affecting all of the economies in all of the markets and, of course, might or could eventually take a toll as well in the volumes related to Fuels divisions.
Probably some other factors that you might want to have in mind is that, of course, we already mentioned the potential effects of the oil dropping significantly in the last few days. If that remains at those levels, we could see an effect on our inventories, which is what we call the FIFO effect, which is a temporary effect, of course. And then moving forward, margins should resume to the normal levels. And we could even see some potential effects, limiting effects related to elasticity on -- regarding oil prices.
A couple of more things you might like to have in mind is that, as we mentioned before, the ExxonMobil EBITDA contribution. The assets that we acquired from ExxonMobil should be gradually moving up, as we have seen over this last year. So we're already at a generation of approximately $50 million per year that we have announced previously that we aim to reach levels of over $60 million and even $70 million in the medium term. And probably finally, as another factor that you might want to have in mind is the fact that some of our businesses in the Fuels divisions are fairly seasonal. And in particular, that affects Abastible, our LPG division in Chile where the winter months tend to be much stronger. And therefore, the second quarter and the third quarter of each year are much stronger than the first and the fourth. Those are sort of the elements that you should consider when modeling the outlook for the Fuels and LPG division of the companies related to Copec.
And then regarding your second question about Sonacol. As we mentioned during the conference already, we are starting up the process of evaluating a potential sale of Sonacol. It makes sense to look every now and then at the structure, the asset structure we have in our balance sheet. This is a company where we tend to be very conservative in terms of owning the different parts of the value chain. We own real estate. We own forestry, plantations, lands, importing terminals, pipelines and so on. And many of those pieces are assets that might be better off in terms of profitability in the hands of other types of investors. In the case -- in the particular case of Sonacol, this is an infrastructure asset where cash flows are very, very stable and growing in line with the growth in the general fuels industry in Chile. And that type of asset might be very attractive for other types of long-term infrastructure investors.
So in other way, it has to do with a step towards making our balance sheet a little bit more efficient in financial terms. And together with that, there is -- this is a good time to have some more liquidity for -- because of all the uncertainty that we are facing, the general uncertainty in the world market but also some specific uncertainties related to our own company going through a period of strong CapEx and at the time -- at the same time, seeing reduced EBITDA coming from its main division, which is the pulp division.
[Operator Instructions] Our next question comes from Thiago Lofiego of Bradesco.
Actually, this is Isabella here. I just have a quick question on the oil price collapse. You mentioned an impact on the FIFO effect. Is this going to be limited in the first quarter? Or could it be extended into the second or third quarters as well? I just wanted to make sure.
Yes. Thank you, Isabella. Most of it should be recorded in the second quarter. That's the estimation we have right now. We will be updating when we have the final figures, but most of it should be recorded in the second quarter of this year.
This concludes the question-and-answer section. At this time, I'd like to turn the floor back to Mr. Rodrigo Huidobro for any closing remarks. Please go ahead.
Okay. Thank you very much, everyone, for joining us today. We expect to get back to you at some time during May for taking a look at the results of the first quarter of 2020. Thank you very much.
Thank you. This concludes today's presentation. You may now disconnect your line at this time, and have a nice day.