Suzano SA Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Jonathan Brandt - HSBC - Analyst : Can you hear me okay?

Question: Jonathan Brandt - HSBC - Analyst : Perfect. Thank you. Congratulations on the results. It was a great quarter in terms of transformation and all the initiatives that you were able to achieve. I guess my first question is really sort of a debt capital allocation question. So Marcelo, now that Cerrado is bigger with the Ribas mill coming on, is there any change to your debt policy either in terms of leverage ratios, targeted gross debt, targeted net debt? I know you briefly mentioned it in your remarks. I'm hoping you can sort of expand on it and sort of what does that mean for capital allocation? CapEx looks like it will fall in 2025 pretty substantially depending on pulp prices. So I guess I'm just trying to figure out sort of what's next, right? You should be able to come down into your targeted leverage ratios pretty quickly depending on pulp prices. So should we see sort of increased dividends, maybe share buybacks? Are there other sort of initiatives that you're working on in terms of where some of this capital could be spent? I guess that's my first question. And then sort of my second question just briefly, you mentioned the pulp production, the 4% capacity reduction, I'm just wondering if we don't see a rebound in prices later this year or next year, is there any sort of other capacity that might be at risk of stopping?

Question: Leonardo Correa - BTG Pactual - Analyst : Hello, gentlemen. Can you hear me?

Question: Leonardo Correa - BTG Pactual - Analyst : Okay, perfect. Yeah. So a couple of questions on my side. The first one for Beto. Beto, in your initial remarks, I guess the message was super clear to us at least that you're trying to convey a message of deleveraging and you're also trying to convey a message that there's no big M&A transformational moves in the pipeline. So I just wanted to check with you, I mean if an understanding is right, that Suzano will continue to pursue these smaller bolt-on acquisitions like you did with Pactiv and Lenzing. And the game plan is to continue to obviously to assess market opportunities, but these will be, let's say in the $1 billion range at most. I mean I just wanted to understand exactly what you mean when you say no transformational moves because I guess the market is obviously concerned on bigger M&A at Suzano. So if you can quantify a bit what you mean with that, I think it would be very helpful for everyone. The second point on pulp cash costs, right? I mean I think it was super clear, the explanation, on why the numbers are a bit higher this quarter. And I guess with obviously with how you're ramping up and with I mean much lower pulp cash cost platform being consolidated in your overall cash cost numbers, these numbers would decline going forward. I just wanted to confirm, and Aires, as you mentioned something in the single digit range of reduction for the fourth quarter. How are you viewing this for 2025? I mean what is the potential for further cash cost reductions in pulp? I think that would be very helpful if you can add a bit clarity on that for 2025.

Question: Caio Ribeiro - Bank of America - Analyst : So my first question is on the wood chip market in Asia, right, where we note the availability of wood chips has been picking up particularly in China as a result of the downturn in the property market, there's also this forest to farmland policy. And while we note integrated paper supply additions are happening, wood chip import prices into China haven't really increased recently, which also suggests that domestic wood chip availability has increased, right? So I just wanted to get your views, if possible, right, on whether you perceive this to be a structural phenomenon for the industry, right, this increase in availability of wood chips in China. And what impacts the addition of this integrated capacity that we see year after year in China will have on the industry cost curve and the demand outlook? And then my second question is more on the softwood market and the implications there for hardwood. With some players, right, in the softwood market already attempting price hikes lately, do you perceive that we're at an inflection point for softwood, right, and what implications do you see for hardwood if that's the case? Is there room for hikes in the coming months for hardwood as well or do you see substitution into hardwood at the very least favoring a demand recovery for that fiber as well?

Question: Daniel Sasson - Itau BBA - Analyst : Most of my questions have been answered. Maybe just a follow up from a previous question. You mentioned, Leo, the -- this some integration movements in China and the potential new capacity additions coming from them. Can you please shed some light on potential market project in Asia? I know that there's a lack of visibility or transparency. Let's put it this way. But whatever you guys have or forecast, for instance, for OKI's expansion, I think that could help us to build our supply demand models. That could be great. We -- and piling up on the discussion regarding wood chips, we know that OKI 1 took maybe four or five years to fully ramp up. Do you think that despite the increased availability of wood chips because of the downturn in the housing property sector, as you mentioned, there is this chance that this project is going to be delayed or at least the ramp up is going to take much longer than what would be normal for a project like that?

Question: Daniel Sasson - Itau BBA - Analyst : Sorry, you mentioned 55% of the OKI line would be integrated. Is that right? And then maybe the second thing still on this front, the -- do you have an estimate on the production cash cost of the recent projects in China? For instance, Liangshan. Do you have an estimate on your current cost base right now?

Question: Marcio Farid - Goldman Sachs - Analyst : My first question maybe to Fabio. Fabio, thinking about the Pactiv recent acquired assets, my understanding is that profitability was not clear when you firstly acquired the assets and now that you have taken over, right, I think I mean the idea, I wanted to understand what are the initial findings so far in terms of how the news is operating in terms of obviously, it's potentially early days but what's the future of those assets, what's been Suzano doing in terms of improving the operations and eventually expand as well into the US? And your first assessment of the US markets, that would be great. And secondly, maybe going back to the decision to twist it all 4% of the volumes, I think I had a similar question in the second quarter. But my understanding is that, I mean, the cycles are becoming shorter, right? You're talking about six months up and six months down. And the 12-month decision feels like it's always going to be like, right? Prices were at the highs of $750 at the end of last year, you had -- you did not have the opportunity to raise production because you had earlier last year decided to cut the 4% and then prices fall again. And obviously, the decision was basically maintained. So at a 12-month decision feels like it's always going to be lagging, the -- a cycle that tends to be shorter and shorter by nature, right? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 2:00PM, SUZB3.SA - Q3 2024 Suzano SA Earnings Call So how should we think about that? I mean how do you reconcile the nature of the cycle with more longer-term decision, which seems to make a lot of sense from a strategic perspective as well.

Question: Rafael Barcellos - Bradesco BBI - Analyst : So about my first question, I wanted to go back to your capital allocation strategy, Beto, I know that you mentioned during the presentation that Suzano will not do any transformational movement, but I just wanted to discuss it in more detail. For example, so after the acquisition of -- the acquisitions of Lenzing and Pactiv, could you please give us more details on which type and size of the assets that you are now looking for? And REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 2:00PM, SUZB3.SA - Q3 2024 Suzano SA Earnings Call other than that, also given this lag of big M&A initiatives in the pipeline, I mean, I wanted to understand whether the company could bring a new dividend policy in the future. And then my second question is about your investment in Lenzing. I know that it's still quite recent to ask this type of question, but I -- but you are now probably following Lenzing closely. So could you please comment on your thoughts on how you could generate synergies with these assets in the future, of course, in a scenario that you acquired the control in the future and how do you see these assets inside Suzano's portfolio?

Question: Lucas Laghi - XP Investimentos - Analyst : Good morning, everyone. Congratulations on the results. I would like to go back with a follow up question on the integration trends in China. I mean Leo, you provided very good color on the local availability of -- in China of wood chips. But I would like to go back to the imported parts of wood, especially thinking of like low-cost supplier regions like Vietnam are already closing the peak levels that we saw in 2022 but when we look at the wood chip import prices, they're still significantly lower compared to the peak that we saw two years ago. So my question is, I mean, how do you see this availability of wood chips in this low-cost suppliers of wood to China? And if it's reasonable to think that the incremental volumes to feel this integration expansion in China in the coming months should come from high-cost suppliers of wood like Australia and other regions rather than a low-cost region as Vietnam. I mean is it reasonable to expect that Vietnam is reaching its limits to provide further wood chips to China and increase these expression trends that we are seeing from these verticalized players? That would be my question.