Fabio Oliveira: Marcio, good morning, Fabio here. Thanks for your question. Regarding paper markets, let’s start first with international markets. Last year, we saw a big correction of the excess that we saw also in 2022, excess of demand, excess of inventory build. And so in the second – especially in the second half of last year was very challenging for most mature markets Europe, North America, where oil demand was quite much lower than historical trend. You mentioned the 20% production in demand over the year. And at the same time, we saw capacity going up in China and the Chinese exporting more paper products, which put some challenges on the prices internationally. Since then, things start to improve in the end of the year with pulp price increases that end up affecting also paper prices in China.
We see paper prices in China increasing some announcements in end of last year, beginning of this year, which is supporting healthier paper prices in the international market. So, we also have seen some announcements in Europe and in North America lately in paperboard and also in print and writing, which is supporting better paper prices internationally that we saw mostly in the third quarter, and fourth quarter of last year. And that should continue. Leo mentioned here about the logistics issues in pulp – paper. Paper logistics is done by containers and containers are much more affected by the Red Sea crisis than Breakbulk. And we see an additional challenge for Asian players to export in the Eastern-Western trade. But we see that has not affected us in the Southern-Northern trade of exports.
So, we see favorable scenarios in the international markets. As we speak about domestic markets, it’s very stable. Prices in the domestic markets haven’t changed year-over-year. And we have announced price increases for uncoated wood free and also cut size starting early January this year in the domestic markets, which we are fully implementing and we should collect that. And we see that imports have stabilized, although at high level, but they haven’t stabilized, stopped growing, mainly because of the challenged scenario for logistics on the Chinese and also higher export prices that we are seeing from Asia. So overall, it’s a more optimistic scenario at the beginning of 2024 than we have seen the second part of 2023.
Marcio Farid: Thanks a lot Walter and Fabio. Great details.
Operator: Our next question comes from Mr. Batalha Vasconcelos from Bradesco BBI. Mr. Vasconcelos, the floor is yours. [Technical Difficulty] Our next question comes from Mr. Guilherme Rosito from Bank of America. Mr. Rosito, the floor is yours.
Guilherme Rosito: Hi. Good morning everyone. Can you guys hear me?
Walter Schalka: Yes.
Guilherme Rosito: Perfect. So, first, I would like to congratulate Walter and his journey at Suzano as well and wish you the best of luck on the borne. And so I have two questions from our side. First is on Cerrado, just to understand what is Cerrado’s breakeven volume? So, at which point should we start seeing the fixed costs being diluted and then we see the full benefits of the Cerrado costs? And then my second question, just considering the recent movements in land acquisition and current prices you guys are seeing. What do you understand to be the current incentive price for pulp? And if you could give any details on that would be great. Thank you.
Marcelo Bacci: Hi Guilherme, this is Marcelo speaking. As you know, Cerrado project is a very low-cost asset in terms of its production costs. And if you look at the guidance that we gave on production evolution for this year, where we are going to be producing growing volumes to the end of the year, we should be very fast approaching the level of breakeven. We are not disclosing the exact amount, or the level of the breakeven, but we will be above that still this year. In terms of the second question, of course, the incentive price of pulp for new projects has been growing over the years as a result of an increasing cost of CapEx plus the land cost plus the wood cost. So, there is a series of factors that are impacting the attractiveness of new projects.
The obvious projects have been more and more already executed, so it is growing. We are not ready at this point to tell you exactly what is the incentive price for a project. But for sure, this is a number that has been growing over the last years.
Guilherme Rosito: That’s perfect. Thanks a lot.
Operator: Our next question comes from Mr. Batalha Vasconcelos from Bradesco BBI. Mr. Vasconcelos, the floor is yours.
Batalha Vasconcelos: Oh, can you hear me?
Walter Schalka: Yes.
Batalha Vasconcelos: Okay. Good morning. Firstly, of course, I just wanted to congratulate Walter on all of his value creation and accomplishments over the years at Suzano. Walter, I must say that it was a pleasure to interact with you during these years. And my first question is really to Walter, and it’s a follow-up on the capital allocation. Walter, you give more color on what we could expect in terms of Suzano’s next growth cycle. But I just wanted to focus more on the cash return side. I mean what are your thoughts on the potential combination of growth initiatives and cash returns through dividends and buybacks going forward? I mean, with Cerrado, Suzano will be able to generate much more cash going forward. And I just wanted to understand whether the company could think about a new payout policy or be even more focused on cash returns after Cerrado?
And my second question is about pulp supply. We all know that Mato Grosso do Sul has potential for more projects, right? I mean – but I just wanted to understand, in your view, what are the main challenges for new projects or new players in the region? I mean if you could elaborate further on logistic challenges and of course, on the wood supply would be very helpful as well. Thanks again.
Walter Schalka: Thank you very much Batalha. I would like to thank as well Marcio and Guilerme for the awards. Thank you very much for that. Regarding the first question, I think it’s very important how we think, Batalha. I think it’s very important to define that we have a spread-over walk. There is the minimum requirement for every single new project. Of course, we are going not to become public this spread of the walk that is required and it’s not the same for different projects. When we are going for a retrofit project, we are requiring a smaller spread because the implementation risks are much lower on that. When we are entering a new market, we exceed, we increase the spread over WACC that is required to approve a new project.
If we do not have a very good pipeline of projects in terms of implementing, then we are going to see higher cash burn for our shareholders. But we are always checking as well how much is our share price comparing with our expected share price for the future. And this could be an opportunity as well. And this is the reason that we are right now before buyback program in the company because we believe that our shares is undervalued. And this is the reason that we open a new project, a new buyback program. In terms of pulp supply, first of all, I think it’s always feasible to have a new project in terms of implementation on the land side. We will take some time. We are not seeing available for us at this point of time in any part of Brazil and South America that could allow for the next project to come in place.
As you know, new projects will take higher CapEx, as Marcelo mentioned, higher wood cost and higher CapEx will require higher pulp prices and with higher interest costs as well. It’s very difficult to justify new projects at this point of time, when somebody will start a new construction, this is going to take at least 30 months to 32 months, then we are not seeing new projects coming to be commissioned on the next 3 years. Of course, we are seeing a lot of announcements in place. And this project perhaps will happen. But it’s very clear to us that we are going to see a period in the next years without further expansion of new capacity coming on stream. And then we believe that the price conditions are going to be much more enacting much more positive for the industry in the coming years.
Batalha Vasconcelos: Thanks a lot.
Operator: Our next question comes from Mr. Jens Spiess from Morgan Stanley. Mr. Spiess, the floor is yours.
Jens Spiess: Yes. Thank you. I would also like to congratulate Walter, of course, for your tenure as CEO and also second, the comments that it’s staying in the company that you helped shape over the past decade, so congrats on the past and the best of wishes in the future. I would like to ask, yes, most of my questions have been asked. Just one based on the Cerrado cost and cost progression. If I understood it correctly, I mean we should be obviously assuming costs maybe to go up a bit at the very beginning of the ramp-up, but very quickly then breakeven, maybe as soon as the fourth quarter, which would be quite impressive, in my view. And what sort of capacity utilization are you assuming to reach by year-end and particularly considering that you mentioned that most of the 700,000 tons will come at the end of this year. Thank you.
Aires Galhardo: As I was speaking, we gave a guide some months ago that after ramp-up, see how the project cash costs will be around BRL500 per ton. And when we achieve the first base in the – that’s there, average that you have in the product, 66 kilometers from the forest to the mill. This cash cost should decrease to around BRL400 per ton. Our guidance in production was that we delivered 2 million tons in the first year. We are very confident with the learning curve and the ramp-up of this project. That’s after six months, we have a planned short shutdown to adjust this equipment that will be close to the end of the year. That’s the reason that we are able to see these results in the cash costs only in the last quarter because we have a small interruption in the production.
But when we return, we preview to denominate the capacity of the plants and you bring all benefits of the cash cost of the project to consolidate. And we are not – that’s important to say that this big first six months will not impact the total cash cost performance of Suzano when we are given guys that we are in the same line and we have considered this impact in the beginning.
Leonardo Grimaldi: Jen, this is Leo here. You mentioned 700,000 tons, I just wouldn’t clarify that these are two different things, right. First of all, we have Aires and all his teams ramp up production figures and numbers. And the 700,000 tons that we have mentioned, that’s our sales plan for Cerrado 2024, which are different, right. We have a long cycle and lead time from Mato Grosso to Sun Sport. We will be operating these huge vessels, innovative vessels that are being built for Suzano, which are now 77,000 metric tons vessels, and having to load them and then we obviously have the lead time to market. So, that’s why based on Aires and his team’s expectations of production and ramp-up and our lead times to market and also system buildup in terms of inventory, we are planning for 700,000 tons of sales, and the bulk of this volume will reach markets by year-end 2024, just wanted to clarify that.
Jens Spiess: Okay. Yes, very clear. And how much inventories will you build out? Is it around 100,000 tons, or how much should we bake in?
Leonardo Grimaldi: We don’t disclose inventory numbers, but obviously, you guys know the cycle times from our mills to Sun Sport, and this is a minimum that we have to have in our systems in order to run these export operations and these new vessels, but we are not disclosing the inventory of buildup of Cerrado.
Jens Spiess: Understood. Okay. Thank you.
Operator: The Q&A session is over. We would like to hand the floor back to Mr. Walter Schalka for his final remarks.
Walter Schalka: I would like to thank all of you for joining us on this session. I would like as well to reinforce the point that we are looking for the future for a better Suzano. Suzano just completed a few weeks ago, our 100 anniversary, and we are very pleased with that, with a major celebration, and we are looking for the legacy that we can implement for the society in the coming years. I think this is a very important issue for us. We announced a very important program regarding sustainability and education with two major universities in the world. And we will continue to this process of thinking how we can impact the society. Right now, we are reaching 2 billion people every month with our products, but we believe that we can have even more alternatives to impact better the society for the future.
Thank you very much for your support on the last 11 years. I would like not to lose the opportunity to have a teasing and joke that I would hope that April will have a more successful journey in order to convince you that 7.5x multiple EBITDA is not the right time to make the valuation of Suzano. I was not able to do it in the last 11 years, but we would have this opportunity to do it in the coming years. Thank you very much guys. All the best and let’s keep in touch.
Operator: The Suzano S.A. fourth quarter of 2023 conference call is concluded. The Investor Relations department is available to answer any further questions you may have. Thank you, and have a good afternoon.
