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Suzano to look at opportunities in different regions, CEO says

Company made $15bn offer to buy IP, sources say; earnings fell 96% in Q1, to R$220m

05/10/2024

Walter Schalka — Foto: Ana Paula Paiva/Valor

Walter Schalka — Foto: Ana Paula Paiva/Valor

Just under two months before stepping down as CEO of Suzano, Walter Schalka said the pulp and paper company will maintain its long-term investment perspective and, consequently, growth. However, the executive declined to comment on the company’s interest in International Paper (IP), arguing that Suzano does not speak about specific operations.

“The company, in a rationalist manner, will look at organic and inorganic opportunities in different geographies,” he said. According to sources, Suzano made an informal offer to acquire the U.S.-based company, valued at $15 billion. However, one of the obstacles to a potential deal is a requirement made by Suzano—the end of the agreement involving the acquisition of DS Smith by IP.

Suzano released its first quarter results on Thursday (9), which brought the effects of the strong pulp depreciation in the first half of 2023. Net earnings fell 96%, to R$220 million, also pressured by the financial result. Net revenue totaled R$9.46 billion, a drop of 16%, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell 26%, to R$4.56 billion.

Pulp prices have been recovering since the middle of last year. According to Mr. Schalka, the market is more favorable than last year, with “robust” demand in the three main regions: Asia, Europe, and North America. Non-recurring events, such as strikes, logistical issues, and unexpected factory shutdowns, led to a better price moment, with a gradual increase.

“The average price realized in the first quarter has not yet captured all of the increases,” he said.

At the beginning of the year, pulp price in China was $617 per tonne, compared to $740 this month. Given this scenario, the expectation is that the average price realized in the second quarter will be higher than at the beginning of the year.

According to Mr. Schalka, pulp revenue in the first quarter also reflects a movement to replenish stocks, which in December were below safe levels and, if maintained at those levels, could put supply to customers at risk in the future.

The Cerrado Project, which involves the construction of a plant with a capacity to produce 2.55 million tonnes of pulp per year in Ribas do Rio Pardo, Mato Grosso do Sul, is on schedule and the forecast for starting operations by the end of June has been maintained. Suzano is investing R$22.2 billion in the project.

With the start of operations, the expectation is for a gradual reduction in financial leverage, which reached 3.5 times in March, within the cap set by the debt policy in investment cycles. According to Mr. Schalka, with a cash cost of pulp production of R$812 per tonne in the first three months of the year, which is 13% below a year earlier, Suzano should see a further drop in this item after the stabilization of the Cerrado Project.

Marcelo Bacci, chief financial, investor relations, and legal officer, says that Cerrado will bring a “quite significant” return at current pulp price levels. “The new projects will have a higher investment per tonne than those that are being carried out now, as wood, land, and industrial capex have become more expensive, and will have to be justified by higher pulp prices,” he pointed out.

*Por Stella Fontes — São Paulo

Source: Valor Inaternational

https://valorinternational.globo.com/
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Suzano to invest R$600m in new plant in Espírito Santo

Future unit will have capacity of 60,000 tonnes per year, increasing installed capacity by 35%

07/01/2022

Suzano, the largest producer of market pulp in the world, intends to invest R$600 million in a new tissue paper plant in Espírito Santo, increasing the installed capacity for this type of paper by 35%, to 230,000 tonnes. Today, it is 170,000 tonnes per year, which already places the owner of the Mimmo and Max Pure brands among the large local manufacturers.

The future plant, which will also convert toilet paper and paper towel, will be located in Aracruz and have a capacity of 60,000 tonnes per year, with an implementation period of two years. The execution of the project still depends on the approval of the board of directors and the signing of contracts with suppliers.

Suzano joined this market in 2018, initially focusing on the North and Northeast regions, where it is the leader with shares of 66% and 28%, respectively. After advancing into the Central-West and Southeast regions, it ended 2021 as the third largest player in this market, with a share of 11.2%.

The company has tissue production plants in Belém (Pará), Mucuri (Bahia) and Imperatriz (Maranhão), and converting units in Maracanaú (Ceará) and Cachoeiro de Itapemirim (Espírito Santo).

Suzano’s plan is to use remaining sales tax ICMS credits in the state to meet the new investment, which still depends on approval by the authorities. At the end of 2019, Suzano unveiled a first tissue project in Espírito Santo, with an investment of R$1 billion, also using ICMS credits accumulated due to its export activity in the state – Suzano has a pulp production unit in the city of Aracruz, which used to belong to Fibria.

In operation since the beginning of last year, the Cachoeiro de Itapemirim unit has the capacity to convert tissue paper into 30,000 tonnes of toilet paper per year, equivalent to 1 million rolls per day.

“Less than a year and a half later, we announced the plan to make another important investment in the state viable,” CEO Walter Schalka said in a note.

During the construction period, 300 jobs are expected to be generated. When operations start, about 200 employees will work at the unit.

According to the company, the potential investment is in line with the strategy “to advance in the links of the chain, always with competitive advantage, and to ensure the supply to the growing Brazilian market for sanitary products.”

*By Stella Fontes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Suzano buys forestry assets in four states

Suzano vai montar megafábrica no MS

Pulp and paper manufacturer Suzano announced Thursday the purchase of a package of forestry assets with a total area of 206,000 hectares, in four Brazilian states, for $667 million. Those assets originally belonged to Fibria, a merger between Aracruz and Votorantim, which was incorporated by Suzano in 2019.

The operation is strategic and ensures the world’s largest producer of eucalyptus pulp access to wood at lower costs, in addition to ownership of land in São Paulo, Mato Grosso do Sul, Bahia and Espírito Santo states, that could be of interest of other pulp producers or investors — and will serve the company’s own projects in the long term.

Almost all of the operations purchased had already been exploited since 2003, through forest partnership contracts signed by the former Fibria. That year, pressured by high indebtedness, Fibria sold 210,000 hectares of land and forests to Parkia Participações and secured wood purchasing contracts, inherited by Suzano.

In the evaluation of analyst Daniel Sasson, with Itaú BBA, the financial statement position of Suzano is comfortable and the company’s debt cost is lower than Fibria’s 7.5%, which was paying around $50 million per year to purchase wood.

In addition, Mr. Sasson says, Suzano has interest in the regions where these areas are and there is a defensive aspect to the operation: “206,000 hectares are enough for a competitor to install a new pulp mill in the country with a capacity of more than 2 million tonnes per year,” he wrote.

In a statement, Suzano said the operation aims to expand operational efficiency, “as well as improve the use and cost of forest base in strategic regions to its operations in the long term.”

“Suzano currently has a very competitive cost of debt and cash availability to acquire these assets and thus ensure greater operational efficiency and less dependence on third-party wood in the long term,” said the CEO Walter Schalka, in a statement.

The forestry assets were sold to Suzano by the investment fund Investimentos Florestais (FIP) and Arapar Participações. The payment will be made in two installments, the first paid in the closing of the operation and the second 12 months after the closing. The deal still depends on approval by the Cade, the antitrust regulator.

Source: Valor International

https://valorinternational.globo.com

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Suzano sees “tight” global pulp market

Leonardo Grimaldi — Foto: Anna Carolina Negri/Valor
Leonardo Grimaldi — Foto: Anna Carolina Negri/Valor

Pulp prices continue to rise on the international market, with all the adjustments announced for April already implemented, amid the worsening imbalance between supply and demand. And there are no signs of any change in the short term, said Leonardo Grimaldi, head of commercial pulp, people and management at Suzano. “The fundamentals are still quite solid, especially on the supply side,” the executive said.

Last week, according to Fastmarkets Foex, the net price of hardwood pulp rose $1.90 in the Chinese market, to $783.61 per tonne, close to historical levels. Since the beginning of the year, the appreciation exceeds 35%. At resale, eucalyptus pulp prices remain above import prices, at $807.04 per tonne, according to BTG Pactual.

Softwood pulp was traded at $976.69 per tonne in China, with a slight decrease of $0.50, Foex reported. With this, the spread between the two types of fiber was at $193 per tonne, above normalized levels, around $120 per tonne. “Challenging logistics is one of the main factors. There were already challenges in 2021 and the [recent] Covid-19 outbreak in China has worsened the situation,” Mr. Grimaldi said.

Difficulties in global supply chains, concentrated maintenance stoppages at South American mills in the first quarter, the delayed start-up of Arauco’s and UPM’s projects, and non-recurring events, including strikes, have limited the global supply of the raw material in 2022, fueling the recent rally. If, historically, unscheduled downtime in production lines has taken 700,000 tonnes of fiber per year out of the market, in 2022 the volume could exceed the 2 million tonnes per year that were not produced in 2020 and 2021.

Suzano, the world’s largest producer of eucalyptus pulp, adjusted prices by $50 to $100 per tonne as from this month in all markets – North America, Europe and Asia. According to Mr. Grimaldi, the company still does not have available volumes to offer in the spot market and saw the negotiations for April being accelerated due to the clients’ fear of not having the desired quantities of fiber. “We are focused on serving long-time customers,” he said. Despite this environment, there is still no discussion about new adjustments in May.

While supply remains limited, demand for pulp in North America and Europe remains strong. In the European market, with the prolonged strike that closed UPM’s pulp and paper mills in Finland, paper mills from other countries raised the operating rate in an attempt to occupy the market that was served by the Finns. The war in Ukraine and sanctions on Russia, in turn, affected Ilim’s supply of bleached pulp.

In China, the executive said, local contacts suggest that stocks of eucalyptus fiber at customers and traders are at “extremely low” levels. The focal point, however, is on the potential impact of Covid-19 on the Chinese economy further down the road and the war in Ukraine on the global economy.

In a recent report, Santander analysts Rafael Barcellos and Arthur Biscuola wrote that pulp markets are expected to remain tight in 2022, with an estimated shortfall of 400,000 tonnes of short fiber. The average price projected for this year was revised by the bank, to $630 per tonne from $570 per tonne.

“Demand remains strong in Europe and in China the feeling has improved since October, with paper prices following the recent pulp rally,” the analysts wrote. Bottlenecks in global logistics chains also contribute to keeping fiber prices at high levels and there is no expectation of normalization in the short term.

“We believe a prolonged cycle of rising prices for pulp as a likely outcome as we expect the market to remain firm into 2022,” they added.

Source: Valor International

https://valorinternational.globo.com

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Suzano targets new markets of $115bn

Walter Schalka — Foto: Claudio Belli/Valor
Walter Schalka — Foto: Claudio Belli/Valor

Suzano, the largest producer of eucalyptus pulp in the world, plans to enter new markets of $115 billion a year that are likely to grow in tandem with the decarbonization agenda. The company says its transformation project toward the bioeconomy remains firm and cited four fronts: textile, carbon, bio-oil and microfibrillated cellulose.

“We will continue delivering results in the short term. But we have to look to the future, to think on how we will operate to transform the company and the society”, said on Wednesday CEO Walter Schalka.

Some of the new businesses are in the process of becoming operational. The company has already submitted for certification 7,5 million tonnes of carbon equivalent — from a total of 30 million tonnes that can be exploited — and these credits will be traded on the voluntary market, said the director of New Business, Strategy, IT, Digital and Communication of Suzano, Christian Orglmeister.

In addition, the first textile fiber plant from microfibrillated cellulose in partnership with Finland’s Spinnova starts production at the end of the year — this market alone is estimated at $70 billion.

Some of these businesses are on the verge of becoming operational: the company may soon trade 7.5 million tonnes of carbon equivalent in the voluntary market, and the company’s first textile fiber mill in partnership with Finland’s Spinnova will start production at the end of the year.

Marcelo Bacci, Suzano’s chief financial, investor relations and legal officer, said that the reduction of the company’s disbursements to R$1,500 per tonne by 2027, considering investments and production costs, will increase free cash flow generation by R$2.3 billion a year. In 2021, these disbursements totaled R$1.669 per tonne.

The Cerrado project, which foresees the installation of a pulp mill with a production capacity of 2.55 million tonnes per year in Ribas do Rio Pardo (Mato Groso do Sul), will contribute to these gains, since it will have the lowest cash production cost in the world.

The new pulp plant under construction in the interior of São Paulo will bring greater energy efficiency and reduce the pulp cash cost by R$115 per tonne, which means an impact of R$12 per tonne on the company’s cash cost.

“The project will have high energy efficiency, allowing for a 64% growth in energy generation per tonne produced,” said Aires Galhardo, Suzano’s head of pulp operations.

The company currently generates 0.14 megawatt per tonne and will reach 0.23 MW per tonne when the project is operational, as it will generate 0.63 MW per tonne.

The global demand for hardwood pulp will continue to grow over the next few years, driven mainly by the tissue, packaging and specialty paper segments, said Leonardo Grimaldi, the company’s head of commercial pulp, people and management.

The company estimates that the global consumption of hardwood will organically increase by 4.7 million tonnes in the next five years, to 41.1 million tonnes in 2026.

But the prevailing assessment is that this increase can be higher considering two major trends: the replacement of other fibers for hardwood pulp and the migration of plastic to materials from renewable sources, potentially expanding the consumption of the raw material to 43.1 million tonnes in 2026.

On the supply side, considering the projects already unveiled, the expanding capacity including closures and conversions may reach 6.9 million tonnes in the period.

However, supply disruption has occurred more and more frequently and is expected to reduce the additional volume of fiber in the market in the coming years, the executive said. Historically, 700,000 tonnes produced in older mills leave the market each year. This volume reached 2 million tonnes in the 2020-2021 period, he added.

In this scenario, the operation rate of the global industry would be 91% in 2026, compared with 90% in 2021, Mr. Grimaldi said.

Suzano will continue to grow on the tissue paper market and this expansion can be organic, through investments on new projects, or via acquisition, Luís Bueno, the company’s head of consumer goods and corporative relations, said recently.

The executive recalled that there is much room for expanding the demand for tissue in Brazil, given the low per capita consumption index in relation to other markets. Last year, the company operated at 100% capacity in tissue.

Suzano entered this market in 2018 with an initial focus on the North and Northeast regions, where it is already the leader with 66% and 28% shares, respectively. After advancing into the Central-West and Southeast regions, it ended 2021 as the third largest player in this market, with a share of 11.2%.

Source: Valor International

https://valorinternational.globo.com

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