• Q2 21A saw the fourth consecutive quarterly improvement in EBITDA: Turnover +29% y/y (+10% q/q) & EBITDA +55% y/y (+13% q/q). Higher production volumes for UWF Paper (+66% y/y & +12% q/q) and Pulp (+41% y/y & +13% q/q), while Tissue was down 3%. The EBITDA margin expanded by 355bps y/y (+68bps q/q) to 21.4%. Net debt/EBITDA declined to 2.22x and ROCE reached 12.1%.   
  • Strong UWF performance: H1 UWF sales volumes +17% y/y, while Q2 was up 58% y/y (+9% q/q). NVG registered a strong order book during H1, ending the month of June with a total order level of 55 days, comparing favourably with the 32 days of competitors, and 30 days achieved in the H1 20A. NVG’s paper stocks declined through the period, standing at 13 days of stock (vs. 29 days from its competitors).
  • Step change to reduce UWF exposure in favour of packaging (shopping bags, food packaging and kraftliner): NVG is launching packaging solutions for the food industry, safer, more hygienic, resistant and in line with the concept of sustainable shelf ready packaging. By FY 25/26E, they plan to be able to swing from UWF to packaging grades at its Setùbal mill, thus being able to produce 200-250ktpa of packaging. There might be room to convert more UWF machines.
  • UWF cost curve is under pressure: All time high pulp prices in Europe continue to weigh on paper producers. However, not only are the non-integrated European producers (30-35% of supply) under pressure, but all producers are experiencing cost inflation from higher costs related to chemicals, logistics and energy.
  • NVG is bullish on UWF supply/demand fundamentals: YTD, global UWF demand is up 4% vs. 0% for coated paper and -5% for mechanical paper. In Europe, UWF demand is up 6%, with 29% in Q2 vs. the US, where demand is up 0.3% YTD (Q1: -12% and Q2: +17%). China UWF demand is up 18%. Supply has tightened and will tighten further (North America: -1mt & Europe -0.9mt by Q1 22E). UWF imports into Europe have been constrained (-27%) due to high sea freight rates and stronger domestic demand. NVG expects European UWF prices to reach levels last seen in 2019. This implies an increase of 6% from spot prices. With Stora Enso’s Veitsiluoto mill closure (850ktpa) only to take place in Q3, coupled with an inventory wind down, this is likely to only benefit the European UWF market from Q1 22E.
  • Europe pulp prices to peak in Q3 and impact of new supply to impact CY 22E: YTD, hardwood demand has increased by 0.9% in Europe and 1.3% in China (global: -1.3%). Producers having operated at high op. rates YTD (93% for hardwood) despite longer maintenance stoppages (planned and unplanned), coupled with adverse weather conditions, and this has limited wood availability and pulp production. Producer hardwood inventory days is c.37 at the end of June vs. the historical average of 44 days. With Chinese stocks in ports increasing (1.9mt in May), this implies < 30 days of stock. Despite new capacity in Q3, the impact is expected to be gradual and not felt before CY 22E.
  • Positive outlook for the rest of 2021: NVG expects pulp prices in Europe to peak in Q3, but to remain above the historic average. Pulp supply is likely to still be impacted by logistic constraints. NVG expects UWF operating rates to reach 91% in H2 on the back of improving supply/demand balance. They also expect further UWF price increases to be realised.

Mondi vs. Navigator

  • Navigator: c.70% of revenue is from UWF.
  • Mondi: Mondi’s FY 20A UFP EBITDA margin was 17.9% and the segment contributed 19% to Group EBITDA.

Download Report