Walter Schalka: Hi, Rodolfo. Thank you for the question about Cerrado location. Unfortunately, to start with the bad news, we cannot share our strategy, because obviously it’s quite sensitive to our commercial positioning throughout the next month. However, I can clearly state that fundamentals are indeed quite supportive as we speak. And these unexpected events keep playing a significant role in S&D dynamics and I guess surprising all markets. We have a big weather-related event just now and we have to observe what will be happening on the next weeks and months as the year progresses. It is also important to say that one of the key avenues that we have been presenting to you during our Suzano Days or when we are together is our view on fiber transition, which we call fiber to fiber.
Last year, there were over 2.5 million tons of permanent closures in bleach chemical pulp. Of that, we see this year an impact of 1.7 million tons just because of the timing of the announcements. This year so far, with yesterday’s night announcement, we have reached the new 1 million tons of permanent closure in bleach chemical pulp. That poses a huge opportunity for us. We have been saying that hardwood has been gaining market share on fibers throughout time and this will only accelerate the speed and the presence and the relevance of hardwood and probably allocating Suzano and Cerrado in this space which is being left by these permanent closures as well.
Rodolfo Angele: Thank you very much.
Operator: Next question from Caio Ribeiro with Bank of America.
Caio Ribeiro: Good morning, everyone. Thanks for the opportunity here. So, my first question is on paper markets in Brazil where demand started off the year in a white week. As you mentioned, your release with printing and writing dropped 20% year-on-year in the first two months and paper wood also down around 6%. I just wanted to see, according to you, what’s driving this weakness and your expectations for the coming quarters. And then also on paper prices, whether this weakness in demand could translate into further weakness for prices. And then secondly on your pulp cash costs, I just wanted to see if you could share a bit more color on how you see them evolving in the coming quarters, what the drivers are there. And if you see room looking a little further ahead for your total operational expenditure guidance for 2027 to see price positive at this point. Thanks.
Fabio Oliveira: Hi, Caio. Good morning. It’s Fabio here. I’m going to take the first question on the paper side. Paper demand in Brazil, we need to separate here print and writing and packaging. For print and writing, the year has started slower than I expected. This is mainly due to some postponements in the books program from state and federal government. There’s a discussion in Brazil now on about the higher education curriculum and that’s driving also the postponement of some of the books program. But we understand that moving forward into the year, there’s a chance that the volumes for the books program is going to be even higher due to this curriculum change. It’s just a movement of demand throughout the year. So yes, the first quarter the demand was lower, mainly for uncoated wood free.
For cut size, the demand was resilient and we expect demand to improve throughout the year. Regarding paper prices, we did implement price increases for uncoated wood free and cut size in the first quarter. We announced around between 4% to 5% price increase and these price increases were fully implemented. And we expect these prices to keep until the end of the year. For packaging, the start of the year, as we mentioned, the demand shrunk 6% and that’s mainly due to lower economic activity in consumer spending. And we believe this is seasonality in the first quarter and that’s expected to change as we move forward. As a matter of fact, we start seeing changes at the end of the first quarter in March and in April. So, we are optimistic that it’s going to continue to grow as it has been growing for the last years.
So, it’s just a lower start of the year for different reasons here in print and writing packaging.
Aires Galhardo: Hi, Caio. I’m Aires speaking. We continue to see stability in the cash cost production for this year. Of course, after the first quarter and the next ones, we have [indiscernible] affect in certain quarters the mix and the average distance from the forest to the mill. But I believe that to impact a little single digit in the cash cost. And especially in the fourth quarter, in the first part of next year, after ramp up of Cerrado, we are — our cash cost for our best performance, especially because the impact of Cerrado and the growth of our new forest that we reduce our average from forest to the mills. Put in order with our target or our future 2027.
Operator: Next question from Marcio Farid with Goldman Sachs.
Marcio Farid: Morning, everyone. Thanks for the time. Leo, first question to you. Obviously, the pulp prices have been much stronger than expected for the past few months. There has been kind of an unusual situation where Europe is a lot stronger than China, right? And I think you and I have talked about this in the past. China paper margin seems to be on the weak side, but then China paper market is always oversupplied. So, it’s hard to expect margins to improve significantly from here. So, I think the question is, I mean, how do you treat these differences, regional differences from a profitability perspective? And obviously, it does feel like all the incentive is for you to sell as much as possible in Europe where margins and prices are at least or close to $100 per ton higher than China, right?
Or are we going to be seeing a more aggressive push for China pulp prices to catch up to Europe? And eventually we are back to one single global market where profitability is kind of imbalanced in the different regions. And if you can comment on why pulp futures in China have been so weak. I know it’s a hard one, but if you have any idea of what’s driving the domestic sentiment, it would be good. And then, Walter, a follow up to you on your early comments, please. I know you mentioned some quite successful acquisitions, right? You mentioned IBEMA, Kimberley Brazil, Fibria. I think all of those, they had one thing in common, which was they were all based in Brazil, right? So, I think the question here is the idea of internationalization. I mean, what’s the strategic rationale behind it?
Because I think Suzano was based on the foundation of having competitive and solid biological assets, right? And international companies, they either don’t have that forest base or there’s no close in terms of competitiveness to Brazil, right? So just trying to understand what will be your ability to generate value outside of Brazil, if not starting from the forest, right? Those are my questions. Thank you.
Leonardo Grimaldi: Okay, Marcio. This is Leo here. I’m going to tackle here the first part of your question or questions. Yeah, how do we do this selection between regions and what do we expect regarding prices? First of all, we follow individual market dynamics, being respectful to our customers, understanding their strategies, their current dynamics. Obviously, we want a healthy chain throughout all major markets. This situation in China, as we have spoken previously, is typical. When prices are moving up, there is generally a market share dispute between the smaller players who usually lose market shares as they have to buy from the traders or in current prices to market, while bigger customers who have inventories, who have different average prices in their inventories, use this financial and momentary strength to capture this market share.
So, all-in-all, we just see a movement of production from smaller to bigger customers. And since Suzano, as you know, supports mainly or usually these larger customers who buy directly from us, we are being benefited. And actually, as I mentioned, we are actually having even to cap the level of order entry and how we accept this push from Chinese and other customers as well. In regards to difference of prices between markets, as we have seen in several past cycles, obviously as a commodity, prices trend towards a convergence. So, we expect that prices will converge, will balance out. Obviously, they are not identical as cost to service. Europe under the European model and North American model is a bit higher than what we see today in China.
But obviously, they are going to tend towards a convergence. And with current S&D fundamentals, all indications would lead us to think that prices in Asia will have or still have a lot of space to catch up and to meet other regions and other prices as well. Last, but not least, on your question about futures in China, we cannot comment too much on what goes on this market. We understand it’s quite speculative. More than 50% of the trade is done by individuals who have daily trade and not quite related to the business, not a lot of open terms and positions in the market. But what I can say is with all the recent news that we have been reading and seeing and softwood and closures and closures and closures, my expectation is that the price gap tends to be bigger, should be bigger.
And what we see in forecast for the future is that this current price gap that we see inclusive in China today and makes no sense and has to and will be at a completely different level for future years.
Walter Schalka: Thank you, Marcio, for your question. I’d like to reinforce your point of searching for competitiveness. This is critical for us. We are not going to make any kind of transaction or potential M&A transaction that do not allow us to move on transformation of that asset that could create competitiveness. For us, differentiation is a critical issue for us. And we will always looking for differentiation on our strategy. When we start moving for the tissue business, many of you ask us, Walter, you are entering the business without branding, without any major brand and without distribution. How we are going to perform on that? And then we said at that time we have other potential competitiveness sources, but we will look for brand and distribution.
Right now, we have all of that. We will not buy assets and keep them on a status quo position. We will always transform the assets. And this is part of the analysis that we are doing all the time when we are going for a potential M&A transaction. And this is something very important to us. You are right when you mentioned about the lack of expertise on internationalization. And you are right about that. We need to be humbled about this position. This is something new for us. And we need to do it as well with the same track record that we had in Brazil. Then, as I mentioned to you, geographies is not a limitation. In the future, the company will go through internationalization. This is very important to mention to you. And we hope and we will work very hard to keep the same performance that we had on our track record of M&A transactions here in Brazil.
Marcio Farid: Thank you very much.
Operator: Next question from Alfonso Salazar with Scotiabank.
Alfonso Salazar: Hello.
Walter Schalka: Hello. Go ahead, Alfonso.
Alfonso Salazar: Thank you. So, a moment ago, you mentioned that Suzano is agnostic about organic or inorganic growth and also about geographies. The question that I have is, what about products? Are you agnostic also about growth in different products like pulp, tissue or other paper grades? And related to this question is, we know that there are at least two other large pulp mills being under analysis in Brazil. And then, to what extent this changed the view that good forestry land for a new pulp mill is scarce in Brazil? And what are the expectations in that regard, especially because we thought that, at least my impression is that, it’s going to be more challenging to build a new pulp mill in Brazil in the future.
Walter Schalka: Thank you, Alfonso. I’m going to start with the second question. Brazil will face opportunities for new plants for the future. But at this point of time now, we have wood scarcity that we have in Brazil. And as you know, we are not seeing any construction of new plants at this point of time. We are not going to see a new plant in Brazil in the next three years. It’s almost impossible to have that. Then, of course, everybody can build your land banking. They can start planting and they can have wood for the future. This is a possibility. But not on the short term. It’s very important to mention as well that new projects will require higher pulp prices. The CapEx cost per ton is going up. The wood cost is going up.
