Good morning, and welcome to the Mercer International Fourth Quarter 2017 Earnings Conference Call. On the call today is David Gandossi, President and Chief Executive Officer of Mercer International; and David Ure, Senior Vice President, Finance, Chief Financial Officer and Secretary. I'll now hand the call over to David Ure. Please go ahead.

Good morning, everyone. I'll begin by taking a few minutes to speak about the financial highlights of the quarter, and then I'll pass the call to David to discuss the markets, our operational performance, strategic activities and our outlook into Q1. Please note that in this morning's conference call, we will make forward-looking statements. And according to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, I'd like to call your attention to the risks related to these statements, which are more fully described in our press release and in the company's filings with the Securities and Exchange Commission. In Q4, we achieved a quarterly EBITDA record, which was the result of near record production levels of pulp, energy and chemicals, combined with strong markets for all of our products. We achieved consolidated EBITDA of $89.1 million in Q4 compared to $64 million in Q3. When compared to Q3, our Q4 results are highlighted by higher pulp and lumber prices, lower major maintenance costs and positive foreign exchange movements, which were partially offset by slightly lower pulp sales volumes due to the traditional holiday shipping slowdown. In Q4, the average pulp list price was up almost $200 a tonne in China and almost $100 in Europe. Compared to Q3, higher pulp and lumber prices positively impacted EBITDA by almost $35 million. David will have more to say about the markets in a moment. In Q4, we had 3 days of scheduled major maintenance at our Stendal mill compared to 10 days at Rosenthal in Q3. In addition to the effects of the lost production volume, we incurred about $1.8 million of direct costs compared to $5.2 million in Q3. A majority of these direct costs can be capitalized by our IFRS reporting competitors. Breaking our Q4…

Thanks, Dave, and good morning, everyone. I would like to start my comments by noting how pleased I am with our Q4 operating performance. All our mills ran at near-record levels in Q4, and for the year, we produced record volumes of pulp, energy and chemicals. Our $89 million of EBITDA this quarter is a Mercer record, which is a very satisfying way to end a very successful year. Our Friesau sawmill also ran well this quarter, producing 104 million board feet, and we achieved almost $7 million of synergies in 2017. And as a result, I'm comfortable stating that the ramp-up of the sawmill is nearly complete. Our strong Q4 operating results include the 3 days of annual maintenance downtime at our Stendal mill. I'm happy to report that the shut was completed safely and the start-up ran smoothly. Looking ahead, in 2018, we are planning 43 days of annual pulp mill maintenance downtime compared to 35 days in 2017. The details of our shuts will be included in our 10-K. But in general terms, the increase is the result of Stendal being down 10 additional days due to its 18-month maintenance schedule. Recall we had 2 2-day shuts in 2017 versus 1 12-day shut and 1 2-day shut that we'll have this year. And in addition, Stendal shut will include a major overhaul of its original electrical turbine. This is a major project required about every 10 years and we'll keep the turbine off-line for about 70 days. The timing of our annual mill shuts will be a little unusual this year in that we will complete the major maintenance shuts for both and Stendal in Q2. This is sufficient from a maintenance execution perspective but more impactful on quarterly earnings than we typically report. As usual, we…

[Operator Instructions] Your first question comes from Hamir Patel from CIBC Capital Markets. Your line is open.

Hi, good morning. David, it seems like perhaps you guys were caught up in the grading issues that Random Lengths was reporting for some of the European importers earlier this year. Just curious if you could maybe speak to what happened there, what have you maybe done to prevent that occurring in the future and what is that pricing impact to realizations in Q1?

Yes. So I guess, what - maybe a little history on what's going on. So European producers shipping into the U.S. of - I mean, they've been shipping into the U.S. for a long time and maybe it's important to understand that the European log is typically a higher-quality, bigger type of log. And what European sawmillers do is they will quite often rip 2x8s into 2x4s and we call these splits. And when you do that, it's because of where the 2x4 sits in the log, that sometimes it's difficult to see the knots and these are spike knots, they're called. So spike knots have been in European splits for 20 years and nobody has really cared. But all of a sudden, I guess, in the latter half of 2017, some of our competitors got caught up in grading issues around spike knots. And so as we were moving our product into the U.S., obviously, there's a lot of random sampling that goes on and it was determined that we have similar product issues. So we've worked our way through that. What it means is if you’ve got packages that have splits in them, we typically will move those on to be re-graded in the U.S. and split between 2 and better and then the lower grades. So we're pretty well through everything that got caught up in that area for us, we didn't lose any money in the process, but we sacrificed some margin, moving some of the material that needed to be re-graded. So there's some financial impact, obviously, in the fourth quarter. There will continue to be some impact in the first quarter. But as you saw, our EBITDA in the fourth quarter, it's still pretty reasonable for ramping up and Q2 -- Q1 and Q2 will be the same. So I think the issue is more or less behind us.

Great. That's helpful. And just curious to get your thoughts on the Chinese restrictions on recovered paper. How much of the demand sort of pull that we've seen associated with that do you think has shown up on the hardwood side and how much on the softwood side?

That's a great question, but it's really tough to say. I think of it as -- it's incremental fiber demand somewhere in China. Mostly virgin hardwood, I would suggest, that's filling the hole, but there are some paper guys that are going to need some strength that they're not getting in their current furnish. So it's just somewhere in that spectrum of fiber, there's holes and papermakers will move other fiber into it where they have to. And it -- for NBSK, I don't think there's any product that's really a direct -- somebody's going to shift immediately from a recycled mixed office waste to an NBSK. But there's holes, and as I say, there's a bit of a psychological impact, papermakers panic a little bit and load up the warehouse with fiber because they see shortages. So I don't know, Hamir. I can't give you much of a better answer than that, I'm afraid.

That’s helpful. Thanks, David. That’s all I had.

Your next question comes from Sean Steuart with TD Securities. Your line is open.

Thanks. Good morning, guys. A couple of questions. First, on pulp markets, David, have you guys - are you on board with the Metsa March increase in Europe?

Yes. So we haven't announced, but our feeling is that -- and so for the listeners, that's a -- there's an $1,130 out there for March 1 in Europe. My feeling is that's going to be done. I also believe there is likely to be more on the heels of that. It's just so tight at the moment. It's -- customers are very nervous with their inventory levels. Any kind of supply disruptions from producers could cause significant pain because they don't have any reserve stocks and spot prices are higher than contract prices if you can get the volume. So it's just a really tight situation in Europe right now.

And how much of that is, I guess, closing historical pricing spreads with other regions? How much of it's currency? Maybe just a bit more context on the drivers in Europe.

Well, there's currency, obviously, as part of it, like when we went from $1,070 to $1,090, it felt like that -- really from a mill net perspective because of the movement of the dollar, it didn't really help us. I mean, these are still good prices but it's an increase that's really just compensating for the currency moves. The $1,130 will create higher margin, clearly. China has a better mill net for Europeans for sure by a significant margin. The issue though is that you can't -- we have to respect our long-term customers. So we -- it's typically a contract relationship in Europe and we have to support them. The new capacity that started up in Finland this year is all still going to China because they didn't have any contract arrangements in Europe and China is such a strong market for them that it just goes into China and gets consumed. And it hasn't really -- and those volumes have not been enough to really impact the Chinese psychology around fiber demand. I mean, they're all as concerned as Europeans, I would suggest, that there just -- at the paper level, there's just not a lot of spare supply. There's not a lot of unallocated pulp anywhere for those who may have supply disruptions. So, so far in the quarter, it's -- everything's firing on 8 cylinders. We've got to get through Chinese New Year and see what they do when they come back. But my feeling is that nobody's got enough inventory to materially weaken the market at this stage. It just -- I don't think anybody can really say I'm not taking an order right now. And so I'm pretty optimistic for the first quarter.

Just following on that, David, then. The weakness we're hearing about in Chinese resale markets for NBSK, do you just attribute that to Chinese New Year and expect they'll have to dive back into the market over the next few weeks?

Yes, I think that's what I'm saying. It's -- a lot of it depends on what the traders do and how stiff a hand they want to try to play. If the trader has completely stepped out of the market on the buy side, then that can present some weakness in the market, obviously. But a lot of those trading relationships are not speculative. They're required to buy for customers and like all the Russian pulp comes that way and others. So I just -- given how hard the paper guys are running and how good consumption of products are in China, I'd be surprised if they're able to muscle it down.

That’s great context. Thanks very much, guys.

Your next question comes from Andrew Shapiro with Lawndale Capital Management. Your line is open.

Hi, good morning. A few questions. First, regarding Friesau, what are any additional synergies do you now see from the acquisition? Or is the upside now just the operating leverage on increased capacity utilization?

Yes. We just continue to optimize, Andy. It's -- the chips come from Friesau directly down to Rosenthal. Rosenthal has bark surplus that it can push back up to Friesau. Friesau has got a big power boiler and a good energy contract, so we optimize there. And on the product side, we can ship lumber up to the North ports to load onto ships for the U.S. market and pick up logs at our port facilities in the North and bring them back down to Friesau and Rosenthal. So we have train traffic that's pretty well loaded in both directions, which is the kind of optimization we've been looking for. So I - we hit our synergy numbers really quickly in the first year of operation 2017. And we'll continue to - as we continue to increase the volumes and optimization programs, I think we'll continue to push those further.

So in essence, it is the capacity utilization and increased volume then, is the next...

Yes. I guess, that's a good way to summarize it.

Okay, yes. How much in NOLs exist that you have a full valuation allowance against now?

It's about $109 million - or close to US200 million.

Okay. And on the capital allocation side, I think you mentioned now that the debt level is down to just 2 turns on the EBITDA. With the maturities now kicked out well beyond all of that, can you give kind of, I guess, some insight? We know you have some decent CapEx plans in the horizon. You guys bumped the dividend, albeit minimally, but you bumped the dividend. Do any of the debt instruments bar a stock buyback? What are your thoughts as basically in another, call it, few quarters of this kind of price level, you're going to be building up a decent amount of cash relative to your 2x debt-to-EBITDA.

Yes. So I think that's -- a few questions in that, Andy, so I'll just kind of approach it from a capital allocation strategy perspective. What I've been saying for quite some time now is that, a, we've got what I would call a balanced approach to capital allocation. We're returning some cash to shareholders. We pushed out our debt maturities. We continue to look for opportunities to reduce debt, that's why we left $100 million behind of the 2022s to get us a lower call premium. So as -- and we also have articulated that Mercer is a platform for growth, that we are intending to grow and will do that either through internal high-return projects like our project at Friesau, $40 million. Remember, discretionary capital in Mercer is a 3-year payback or better, so that qualifies. At Celgar, the $20 million for the digester screens and the chip in-feed that will debottleneck that digester, it'll put us on a run rate following the April shut this year closer to 500,000 tonnes and we'll eliminate that bottleneck and allow us to have other high-return projects to continue to move the mill towards the 520,000 that I think is where it should be. We'll have more of those kind of things going on. And we're also looking for those opportunistic acquisitions like Friesau, where we can continue to create value. So that's our strategy. In the context of that, there's no plans at the moment for a share buyback. We have been pretty clear about that. So we'll just keep moving forward with this plan that we've got.

Okay. Thank you. Two additional quickies. Do you have any speculation at all as to what the -- are rumors as to what the cause of the NAFTA decision delays?

Yes. We've got some information, not really clear. They don't -- the tribunal doesn't really have an obligation to explain itself, but what I picked up from the brief correspondence we had with them is, one, there was an illness of one of the panel members, fairly significant illness that slowed things down for a while. And two, the global supply of arbiters is fairly limited compared to the number of trade actions that are going on in the world. And it's just -- these guys, I think, are too busy. It's backing up the system. So like I think there's 130 professional qualified arbitrators that can work on the cases of this scale. So it's somewhere between those 2 excuses, if you like. I think that...

But didn't we already go through arbitration?

Yes, yes. It was 3 years of panel work. And then all of the in-court time in Washington, D.C. happened in the summer of 2015. So we are way outside the normal 1-year expectation for a decision. Having said that, they must be getting close. So we'll see. I mean, we'll see, yes.

Okay. Yes, and I appreciate you. You guys are almost as much in the dark as we are. And lastly, what's -- can you -- I don't think it was in the script. What are your plans for investment presentations, non-deal road shows in the coming months?

Yes. We've got a couple of things coming up, Andy. We have the -- let's see, the last week of February, we're going to spend a couple of days in New York. So we've got a few banks that are going to be hosting us. Got a couple of days in New York at the end of February. We also will be spending 1 day in Minneapolis. Again, this is not a conference, just a quick road show. And then we'll also be spending a couple of days in Boston, probably in the first day or 1st week of April. So no conferences for the next quarter, but some pretty good road shows, we think.

Right. And in terms of feedback, David Gandossi, when you were CFO, and I've been an investor in one form of security or another in this company for many years, the knock or the reason for a low valuation multiple for Mercer relative to others, which were given a premium, was that we were -- the company was overleveraged and they were not considering the lower stated asset values because of the accounting policies needed when you get government grants to build the facilities which of course Mercer has the benefit off. Well even with that under valuation of the assets on our books, our debt now being down at 2 turns and all that, arguably, we're kind of one of the least levered in the industry now, are we not? And if that's the case, is that coming out in these kind of investor interactions and analyst interactions, that we have maybe a stronger balance sheet than others?

Yes. I think the -- I think the mood, I detect when I'm speaking with investors is that as Mercer matures and our assets are hitting their stride and demonstrating the reliability and the capability that Mercer is becoming a different company than it was 10 years ago, you'll also see the narrative around growth and our strategic plan more and more in discussion, investors interested and where we're going and how we think about it, and that creates some expectations. And so, typically trade pretty well compared to our peer group. Now it's -- some of the challenges in the stock, I think, relate around the bigger macro picture around pulp. It's got a history of there's been a periods of excess supply that extended for long periods of time to now a period of, wow, it's -- the growth on the planet is such that there's not enough fiber. And so that gets really -- people really excited and then they'll see 1 million tonnes of pulp coming. And based on everything they know from the rearview mirror. They take over -- maybe we're going to go back into where we were 10 years ago. Some of that gets baked into the stock sometimes and I think that's probably baked in the stock right now. But it's -- what's behind us isn't relevant anymore. It's what's in front of us that's -- it's just a massive growth of consumption of so many different things. So it's a long-winded way of saying that there's a number of drivers. I'm really proud of the asset profile of Mercer. Very unique history that allowed us to accumulate these high-quality assets with very little equity required. We did it with debt and we consider it to be safe debt because it was guaranteed by German governments. We receive more than $0.5 billion dollars in government grants to accumulate assets of this quality. So it sets us up really nicely for our growth strategy going forward. And that's we just got to get through this year and for people to see that these markets really are what we think they are.

Thanks a lot guys.

Your next question comes from John Pace with Stone Harbor Investment. Your line is open.

Hi, David. How are you doing?

Excellent.

Good. Just a couple of quick questions. Number one, on the $100 million stub of the '22 left outstanding, are you all just waiting until you get closer to the December call date so they weren't 3 7/8% [ph] call at this point?

Yes. I can't really guide what our specific strategy is there, John. That wouldn't be fair to the holders of them at this moment. So it's a -- they're just out there.

Okay. I mean, is it something when you do take them out, do you anticipate doing with cash or do you think you might wrap it up in another financing?

I think we would opportunistically pick them off at the appropriate time.

With cash? Okay. And then another question on the maintenance side just for this year. How do you think your direct maintenance cost will be this year compared to the $28 million you spent last year?

Yes. So there's going to be some more details around the shuts in the K that's going to be filed very soon. And so I just want to be careful I don't get out ahead of that disclosure. But there'll be information in there regarding the number of tonnes specifically, the days, in which period and any impact on energy generation as a result of the turbine outage and so on. So if there's any investors have questions once our disclosure is complete, we'll be happy to take calls.

Okay. Just in terms of magnitude though, should this -- if Stendal should not be in the same skills, what happened -- what you did at Celgar last year, is that correct?

That's right. Well, the -- what's unique is that Stendal and Celgar are both going to be in the second quarter. So Celgar will be a similar type of shut to the one that they had last year. Remember the one the year before was the one we had trouble on start-up but actually went quite well. Stendal will be a little bigger than normal. Its 12 days but it's got the turbine outage, so there's quite a bit of work we're going to get done during that shut.

Okay. Thank you very much. Nice quarter…

Again, to quantify it, you need to check the our disclosure in the K when everybody's got access to the same information, and then we can carry on.

Okay, great. I’ll be looking forward.

Yeah.

Your next question comes from Paul Quinn with RBC Capital Markets. Your line is open.

Yeah. Thanks very much. Morning, guys.

Good morning, Paul.

Just a couple of questions on cost. You mentioned fiber is up a little bit in Germany. Where are you at in the sort of the log railcar lease program in terms of where you want to get to? And I don't know, maybe baseball analogy and innings might work there. And then just on Celgar, I'm understanding low log decks in Pacific Northwest and BC. Any problems on fiber and up that mill in Q1 here?

Yes, okay. So Germany first. So we have 200 of our new Mercer-designed railcars running in Germany. To put our logistics in perspective, we run -- at any given day, there's about 800 railcars in the system that are -- 600 railcars in the system moving around. A pulp mill will also -- just this is an appreciation for these things, a pulp mill will receive up to 150 loads a day by truck. So these are big, big facilities, big volumes. Our intention is to move the majority of the 400 shorter-term leased equipment into modernized long-term leases. So from a dollar cost, like a rental cost point of view, it will have no incremental cost having new equipment, but we'll have that efficiency of the volume that you can carry on a railcar being 25%, 30%. It may be 40% in some cases, more volume than the older equipment. And we wanted to make sure that our first batch of 200, everything worked according to plan and we worked out any bugs on loading, unloading, weight on wheels, all that other kind of stuff. And starting in April this year, we're going to be ramping up a continuation of that program and we'll -- we've got approval for both 375 more cars to come over the next year, call it. We'll just be replacing the short-term rentals with these more optimized cars. So there's -- it's another optimization project that is probably somewhere around $3 million in annual savings, as well as it gives us that strategic capability to bring wood into the market from further east, which has the effect of lowering all of the wood cost in the local domestic markets. So I can't quantify that but it's a pretty significant driver of the cost of logs in Germany.

And then Celgar?

And in Canada, I don't see any problems keeping the pulp mill fibered up due to its maintenance shut later in the quarter. There's low inventory levels. We'll just up the price a little bit to bring more volume in and that volume's flowing. So we've got small log chippers running, both at the mill and at local landings. So I think we'll be fine.

Okay. And then if you could just switch over to chemical cost. I understand cost accept a lot, but what are you seeing in terms of cost inflation there?

Nothing significant for this year, Paul. I think it's all baked in right now. So I don't see any big shifts or fluctuations in that side of it.

Okay. Then if we could turn onto growth strategy for Mercer, I guess, maybe I'll start on the sawmill side. Is there any sawmills that are close to your existing pulp mills that could be candidates?

Well, right now, with peak lumber pricing and -- anybody that owns a sawmill right now has got a lot of swagger. So it's unlikely that -- we're just -- one thing we're not going to do is pay a huge price for a sawmill. We have growth aspirations but we're very disciplined. So we'll get incremental volumes out of Friesau. I mean, I can produce 100 million board feet of lumber out of Friesau with capital a lot cheaper than buying another sawmill. And there's -- as I think I discussed openly, we've got a full feasibility study for sawing capacity at Stendal. So the future, I believe, will be a multimillion cubic meter inflow of wood coming into Stendal. We'll be sawing some of that in the future and optimizing, merchandising the logs that come in and increasing capacity there, which will be a much higher return than buying a high-priced sawmill today. So those are 2 examples of growth possibilities. And then we're always -- like we're always hunting, but we're also disciplined. So we'll see. We do look for situations that are a little unusual or a little undervalued for whatever reason or maybe an order that's been short of capital or those kinds of situations. There are things like that, that we look at and I'm hopeful that we'll find something to bring on this year that will be exciting to everybody.

Okay. And then just on the pulp mill side, I guess, with the quarter around $90 million in EBITDA, I would suggest that you've got quite a bit of swagger at this point. Is that the same case for -- if you're looking at pulp mill assets and what those owners are expecting for the value?

Yes. So yes, the owners of the - what I would call the Tier 1 mills, like Mercer mills, I don't think you're going to see any of those for sale. There is Tier 2 and Tier 3 and we're definitely not into the Tier 3 side. Those have been Asian buyers of those assets and those are long-term vertical integration protection strategies. And there may be some transactable pulp mills in the coming years, but at the moment, you're right. I think the valuations would be challenging for us. We wouldn't see a way to create shareholder value by just getting bigger. So if not, we're really optimistic we'll find something on that front.

Okay. And then last question I had, just softwood pulp capacity adds that you see going forward. Can you outline some of those?

Yes. Well, the Aanekoski was started up last year. And so this year, you'll have the full year of Aanekoski compared to the partial year last year. So that's one. SCA is we'll be ramping up their expanded Östrand mill later this year, which will produce about 100,000 incremental tonnes in 2018. So it's not a big deal. And then the Belarus mill, the Svetlogorsky mill that's been sitting completed but idle for the last 2 years, I know they're still working on it to try to get it up. I don't know what the issue is. It's not a big mill. That's -- I think it's 350,000 to 400,000. Whether it comes on this year or not, I'm not sure. I don't think anybody really knows. It sounds like there's some fundamental equipment issues. I think it was Chinese-made equipment and maybe it's not working the way it was supposed to was the only way I can explain it. And that's kind of it, Paul. Nothing beyond that, that we can see other than every now and then, you hear people talking about potential projects, but Russia and things like that. But there's nothing on the books that's process at the moment beyond what I just described.

Great quarter. Thanks very much. Best of luck.

Thank you.

Your next question comes from Adam Zirkin with Knighthead. Your line is open.

Thank you very much and David and David congratulations on a great quarter here.

Thank you.

David, just one clarification question because most of what I have has been asked. Can you -- you speak a little bit about the direction of the fiber pressures that are happening here in the first quarter. Can you be a little more specific as to the order of magnitude? Are we up a small single-digit percent, a high single-digit percent on fiber? And just to be clear, I wasn't clear from the release, is that a sequential number or more a year-over-year number?

Yes. So the 11% in the press release, that's quarter -- that's prior year quarter to the quarter and that it's mostly FX, okay? So in local currencies, fiber has been really steady for the last 2 years and we've been pushing it down. What we're seeing -- what we've been describing here on the call is the seasonal impacts of tough harvesting conditions. In Germany, there's been storms which has resulted in like there's lots of fiber and there's going to be a lot of -- it's going to be cheaper fiber because it's got to move. But just at the moment, getting trucks into the forest when it's not freezing, like it's above 0, it gets challenging. So some of the inventory -- like the system in Germany, a lot of the inventory is stored on forest roads and it's just -- it's hard to get in to get it. So the pieces that you can get, you have to pay a little bit more for or you might have to put a little more logistics cost on it to get it. So this is low single-digit increases only is what I'm talking about. It's just directionally, it's not going down anymore, and it’s gone up a little bit. And this is similar...

Got it, got it. And that is -- sorry -- that's a low single-digit increase as compared to, let's say, first quarter as compared to the fourth quarter, give or take?

Yes.

Got it, okay. Sorry, and you were going to say?

No, that's right. And in Canada, it's kind of a similar thing. It's -- there's been -- like when winter conditions happen, there could be a couple or 3 days where the trucks can't move logs and sawmills get a little short, so they get a little panicky and they've got a little bit of higher price on trying to get more volume and that translates into slightly higher prices for us to buy the residuals. So just typical incremental stuff, not big.

Got it. I appreciate the direction. Thanks again.

You bet.

[Operator Instructions] Your next question comes from Dan Jacome with Sidoti & Company. Your line is open.

Can you guys hear me?

Dan, yes. Hear you now.

Oh, great. Good morning.

Morning.

Hey, just wanted to stay on this capacity, oncoming capacity, seem a little bit more. The 1 million tonnes, is that slated to come online from what you understand in 2018? Is that the idea?

Yes. The 1 million tonnes is -- so Aanekoski came on last year, Dan. And so in 2017, it had incremental tonnes of around 100,000 tonnes, call it, in the last -- mostly in the fourth quarter. And this year, just about 550,000 more tonnes for the whole year. And so that's like 45,000 tonnes a month or whatever it is, not a huge number in the grand scheme of things. When you think of a 300 million tonne paper market globally and Belarus is -- I mean, they haven't started yet. We don't know when they're going to start. So how much of that 350, 400 happens this year, we pick the number 250 maybe. So when you take Aanekoski and the Belarus mill and about 100 of the SCA Östrand mill, if it starts up on time in the third quarter, then you have the...

Okay. Assuming that is like 1/3 of that capacity expectation is maybe like a wildcard scenario, I mean, you guys are just being conservative, just kind of outlying it for us maybe. Is that kind of the idea?

Well, Belarus has been built and we know they're working on trying to start it, so I need to be fair and say I'm assuming they will. If they don't, that will be positive. But we should assume they will. I don't think it's a big deal.

Okay. It sounds like you guys think the market is so tight right now, and obviously, you're seeing it in the pricing, but just kind of reaffirm that, that you're saying it's -- the market is still tight, that's it's really not going to be too much of a problem on pricing. And the way -- and one metric I can look at that is the 30 days of global supply. Is there anything else? Or is that the best way for me to assess it? Just look at the 30 days of supply on the end.

I think the other piece of it that's evolved over time is with all the new hardwood capacity that's been coming online and still slated to come online, and then as paper producers knew about the Aanekoski and the Belarus mill coming on, I think for an extended period of time, all consumers have been assuming there's going to be lower pulp and price pulp in the future. And so nobody wants anything in the warehouse more than what they need because why did you buy that expensive pulp when it's going to be cheaper next month? And so everybody has been, what I call, just-in-time buying. So the pulp at the consumer level, at the paper producer level, whether it's Europe or China, is really low, dangerously low. And so that's the dynamic in the market that's changing what's happening. And some of the main pulp and paper analyst, if you read their narrative going forward, what they're going to tell you is what's in your rear view mirror is irrelevant. It's just our models don't mean anything anymore, the world is changing. There's something going on. And I think the economic expansion, it's the consumption and it's the maturing of all of these developing economies. And...

So you're seeing more of the buyers move to this just-in-time fashion, is that kind of the big picture?

The whole market's been that way. We're all sold out. We're just - we got - every discussion in London with customers is how much more they're going to have next year.

Okay. And then the other question. Everything's been…

Because we don’t have anymore…

Okay. I guess, a good problem to have. For the import ban on recovered paper, how long is that going to last? I mean, if you had to -- how long is it for this benefit? I mean, when does this kind of normalize?

Yes. I don't know. So one question that nobody has the answer to is, will China continue with the target waste percentage or not? I've been on record saying I think they will. I've spent enough time in China to realize how painful the pollution problem is, and I believe they're very serious about resolving that. So I think -- I mean, I've seen them do like this is not a thing that's difficult for China to do but just going to do the right thing. We've seen them shut down all kinds of industrial facilities that are highly polluting because they're just not going to tolerate it anymore. So my feeling is it's there to stay. There's other analysts who will tell you, well, no, they're going to have to. It's just too painful for the paper producers. They're going to have to soften up somehow. So in there, if it happens or will not happen, I don't know.

Right, I hear that. Remind us again, what is the percentage, that metric that they're looking for? I think I heard at a meeting the other day, I can't remember it.

0.5%. Yes. So the other piece of it, Dan, is when you get a disruption in fiber flows like this, what else happens? So what changes in where that fiber goes? Will it -- instead of going to China, will it move to other Southeast Asian paper producers? Will China collect more of its own fiber to -- in attempts to fill the void that those kind of longer-term adjustments will start to happen as well? So it's like you take your finger out of the water or in a pond and it fills in. So there will be that kind of activity as a result of this, I mean, it's hard to predict what that will be. But for the short and medium term, what it means is a big fiber deficit for any of those guys that have been purchasing that type of fiber for their products because it was the cheapest fiber available to them.

Got you. No, that's very helpful. And then I wanted to pick your brain, last question here. Like, do you have a view on other pulp grades, upgrades fluff pulp or dissolving pulp? Maybe your views from the last couple of years have changed. I'm just kind of curious about that and then maybe trying to tie it into potential acquisitions down the road. Just curious about what you think about that or is this just strictly you want to be a virgin pulp NBSK?

That's a big topic, Dan. I actually stay away from dissolving and fluff, if you don't mind. I'll be happy to take your call, if you want to call me.

I understand. Appreciate it. Good job.

Your next question comes from Joe Pratt with Stifel. Your line is open.

Question answered. Thank you very much.

Okay, Joe.

Your next question comes from Hamir Patel with CIBC Capital Markets. Your line is open.

Hi, David. I just wanted to follow up on European imports. Curious to get your thoughts on how much more volume the Europeans can ship into the U.S. this year. I mean, I think we sort of came in at around 1.2 billion for '17. It seemed like that almost double the year before. How much more room is there on that front? And then could you maybe comment on how pricing realizations with S-P-F in U.S. at $530 today? How does that compare with pricing within Europe?

Yes. Well, I guess -- I mean, I'll answer that by suggesting that -- I mean, the European lumber producers who come -- who have come before us are allocating a good chunk of what they can produce into the U.S. market today because that's the highest for mill net them, okay? So -- and it's -- you can only produce -- like you're limited on what you can produce based on the logs that you have and the product that you can produce from those logs. So you're making an analogy here, making spaghetti on some of it and go to the U.S. market, top the cream a bit and go to the Japanese market as J Grade. And then the rest has to -- you have to ask some KBH product. You have to have some lower quality stuff that you can ship to Middle East, North Africa or China. So I think the guys that can sell in the U.S. are selling in the U.S. today. Whether they incrementally can produce a little more, maybe, but there's also the long-term looking after your customer strategy, right? The U.S. has been volatile historically and Europeans got burned in a way by over-allocating to that market. So I think you're going to see a continued European push at sort of the current levels. I've indicated that we're allocating roughly 25% of our Friesau mill to service the U.S. market today. Some quarters, it might be a little higher than that, depending on conditions and logistics and so on. So I don't feel there's a wall of lumber coming at the U.S. from Europe. I think it is what it is with incremental changes.

And just given how strong the lumber market is, does that maybe encourage you to accelerate a potential greenfield at Stendal? And if and when you do go ahead with that kind of project, what's the construction time frame and sort of capital cost for a greenfield in Europe?

Yes, yes. We're working really hard on it. We do have a sense of urgency. We can see the synergies of having sawing capacity at Stendal. It's actually like there's a lot of reasons to do it despite how strong the U.S. market is today. I mean, they just have a lot of reasons. So we're pushing as hard as we can. But it'll take day 1.5 years to get through equipment orders and installation stuff, maybe 2 years. But there'll be exacting things happening at Friesau in the meantime and we'll talk more about the time frame when we get it established.

Great. And just maybe one final question for Dave Ure. Could you give us the shipments and production by mill in Q4?

Yes. So in thousands of tonnes, production, I'll go through the production volumes first. For Rosenthal, 91,800 tonnes; Stendal, 162,600; Celgar, 128,100. And sales volumes, again in thousands, for Rosenthal, 90,100; Stendal; 158,400; and Celgar, 118,900.

Okay, great. Thanks. That’s all I had. I’ll turn it over.

Your last question comes from Tom Bandurowski with Brown Advisory. Your line is open.

Hi. Thanks for squeezing me in. As far as the growth plans go, are you speaking with any of the rating agencies? Is there any sort of discussion on maintaining credit stats to get you up in quality? Or is that sort of longer-term thinking?

No. I think we have regular conversations with the rating agencies. And I think we've got a -- obviously, we've got a target to get ourselves popped up a notch or 2, and I think we're building a good foundation and a good basis to do that. But I wouldn't say we've got anything pending that we're lining up for a transaction. But I can tell you that we have regular conversations with them.

Great. Thanks.

Your next question comes from Joe Pratt with Stifel. Your line is open.

Hi, Dave. Just could you guys do the math for us on the fibers going into China and how the unsorted wastepaper band, what percentage of that imported fiber might have been removed from the market?

Yes. Well, the mixed office waste is somewhere around 5 million tonnes, typically, 5 million to 6 million tonnes and none of that's going in. And then there's been changes in the permanent allocations for old corrugated containers, OCC. And it's hard to know how much that's going to be for 2018, but that's a material number, I think, in terms of permitting some of that. And some of it's by quality of the OCC and some of it's by the size of the guy that's importing it because they know the smaller guys cheat a lot. So they don't give them permits just by virtue of who they are and what they are. So that's -- I don't know, Joe, if that helps, that order of magnitude.

Well, okay, sure. It's a material reduction in supply, one way or another. And what did the producers over there have to go out and buy to replace that lost supply?

Yes. Well, they'll be looking for fiber, suitable fiber, the cheapest replacement that they can find and some of that might be hardwood, some of it might be Russian pulp or radiata, those kind of products. It'll just -- it'll take...

But did it result in more -- did it result in -- did they replace the lost, unsorted recycled paper with NBSK?

Not with NBSK, Joe. That would be unusual. Then you're going from the bottom of the fiber spectrum to the top, NBSKs in the 300 million tonne paper market, NBSK is today 14.5 million tonnes. We're a high-quality niche pulp. So it doesn't impact us directly but it drives the floor of all these other pulps up.

Got it. Okay. That helps me understand the situation better. Thank you.

Hey, Joe. You bet.

There are no further questions coming up at this time. I'll turn the call back over to David Gandossi.

Okay. Thank you, Denise, and thank you all for joining our call. As always, Dave and I are happy to talk more at any time, so don't hesitate to reach out if you have further questions. Bye for now.

This concludes today's conference call. You may now disconnect.