Suzano S.A. (SUZ) Q2 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for holding and welcome to Suzano's Conference Call to discuss the results for the Second Quarter of 2021. We would like to inform you that all participants will be in a listen-only mode during the presentation of Mr. Walter Schalka, Chief Executive Officer; Marcelo Bacci, Financial and Investor Relations Executive Officer; Fabio Almeida, Paper and Packaging Executive Officer; Leonardo Grimaldi, Pulp Commercial Executive Officer; and Aires Galhardo, Pulp Operation Executive Officer. [Operator Instructions] Before proceeding, please be aware that any forward-looking statements are based on the beliefs and assumptions of Suzano's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events, and therefore, depends on circumstances that may or may not occur in the future. You should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Suzano and could cause results to differ materially from those expressed in such forward-looking statements. Now I'd like to turn the floor over to Mr. Walter Schalka. Please, Mr. Walter Schalka, you may proceed.

Good morning, everyone. It's a great pleasure to be with you here. Welcome to the session of the second quarter results 2021 of Suzano. With me here, we have all the executive committee and will be ready for Q&A session after our presentation. I would like to present to you all-time record quarter EBITDA and free cash flow of the company, despite shorter than expected price realization with very good volumes in pulp and paper and a solid operational performance what reinforce our competitiveness and resilience. I think it's very important to bring to the surface our very robust balance sheet. We have long-term and low cost of debt and high liquidity what is critical for the high intensive critical industry that we are in set. We continue to reduce our leverage reaching 3.3 times net debt over EBITDA and we will continue to pursue our target of three times - between two and three times that is in our financial policy what reinforce our financial discipline. It's very important as well to present to you that we have been pursuing five different avenues on our strategic view for the future, and we are very pleased to see developments in all of them. One of them is related with the expansion on our pulp relevance that is right now presented by Cerrado project. We are not going to share any additional information on this project with you today, since we are continuing to negotiate with different vendors at the different islands of the project. As we get all the agreements with the different islands, we are going to present to have the green light of our Board that hopefully is going to happen in the coming months. It's very important to mention as well our ESG developments. We had our ESG call during this quarter - during the second quarter, where we present our new targets on biodiversity, and as well our new Sustainability-Linked Bond related with water consumption and we have diversity and inclusion related with woman in the leadership. I'm very pleased to mention to you as well the IPO of spin over is one of the investment related with our innovability targets for the future, where we had - we have around 20% market ownership and the market cap of the company right now is over €500 million. Now I'm going to pass to Fabio Almeida, who is going to share with us about our paper developments on the last quarter.

Thanks. Walter, and good morning everyone. Let's look at the paper and packaging business unit results for the second quarter of 2021 on Slide 4. Despite the continuous challenge imposed by the second wave of COVID in Brazil in Latin America during the quarter, Suzano delivered a solid performance on a year-over-year basis and even when compared to pre-pandemic levels indicating demand recover in the domestic and international markets and better overall price. Logistics bottlenecks have restricted our export volumes during the quarter. In the domestic market, we delivered our best second quarter in terms of volumes in the last five years. Volume-wise, our Q2 total sales were 32% higher than Q2 of 2020, mainly because of weak basis of comparison in 2020, the harvest quarter due to pandemic restriction measures. Domestic sales represented 68% of our total sales in the quarter, totaling 182,000 tons, a 64% increase compared to the same quarter of 2020. When analyzing the quarter-over-quarter performance, the higher domestic volume was mainly due to better seasonality in the printer and writing papers consumption and a strong paperboard sales to address the growing demand of packaging goods. When we look at the international markets, demand has also recovered in the main markets we serve. Nevertheless our export volumes were negatively impacted by the well-known outbound logistics constraints in the quarter. In the first semester, our total revenues have already surpassed 2019 pre-pandemic levels by 11% due to a combination of higher price and resilient volumes. Our average net price during the quarter was 11% higher than our average price in same quarter of 2020 and 6% higher than Q1 2021. During the period, Suzano has successfully implemented the previous announced price increases for our product lines in markets we serve. With a combination of strong volumes, better regional location, higher price in operations ability, our EBITDA has reached for BRL416 million in the quarter, being 64% and 12% higher when compared to Q2 2020 and Q1 2021 respectively. Our EBITDA margin has reached over BRL1,564 per ton, a new record for the paper and packaging business. Looking ahead, our major short-term challenge reside in minimizing the pressure of inflation and overcoming the continuous logistics disruptions of maritime shipment imports. While improving operational efficiency, we are also strengthening our unique go-to-market strategy reaching even more customers with our e-commerce platform, which already accounts for 24% of our total revenue and 65% when taking to account middle and small sized customers. It is worth mentioning that we will also keep focus on our innovation pipeline. Sales of new products by Suzano grew six times when compared with the first semester of 2020 aligned with our strategy to enlarge our addressable market and offer more sustainable solutions to our customers and end users. I would like now to invite Leo to present the results for our pulp business unit.

We are not hearing you, Leo. I think, it would be better if you go for the next one and then we will come back to Leo.

I'm speaking here about cash costs. We are in the Slide 6. I'm on screen?

Yes, you are on screen.

Okay. Good morning, everyone. We are in the Slide 6. The second quarter '21 cash cost performance, both quarter-over-quarter and year-over-year was marked by the exogenous pressure of rising commodity price, mainly Brent affect inputs and wood costs, followed by issue in the packaging wires and energy impacting chlorine dioxide again, on input costs. Other factors that contribute to increase in the cash costs are related, for example, to the higher fixed costs in turn due to routine maintenance that takes place during scheduled downtimes and the lower volume of energy exports due to our reduced operational availability of turbo generators. In addition, in the second quarter, Suzano started to recognize the disbursements related to COVID-19 on the cash cost production and is no longer considered to be a nonrecurring nature previously allocated directly on the COGS. For the coming quarters, the company expects that the cash production costs external times should remain about flat over second quarter 1, up to a low single-digit increase. In the middle term management initiatives such as energy efficiency, a lower ever distance between forest to the mill and a reduction of third part wood will contribute to the mitigation of cost pressures and increase in operational efficiency, in line with the cash cost guidance for 2024 disclosure to the market. Now I pass the floor to Marcelo Bacci to continue the presentation.

Hi Aires, this is Leo here. You hear me now?

I do. Yes, I do.

Okay.

Please go ahead.

So maybe we can go back to Page 5. I'm sorry folks for my technical problems here. So moving back to Page 5. Just to give you guys our view on the results of the pulp business unit. They were very strong for the second quarter of 2021, supported by positive sales volumes and increasing prices at all regions. As you will note, our sales totaled 2.5 million tonnes in the second quarter, which is in line with previous quarters prior to the 2020 and 2019 nonrecurring periods. Pulp consumption has exceeded our expectations across all paper grades in Europe, but in China, whole quarter intake was reduced during the end of May and in June as paper and board producers have taken production downtimes to adjust for a weaker seasonal months, notably June and July. Our inventories closed the quarter below optimum operational levels, and this is still ongoing, as we speak, as we have been taking - and we have been taking actions to guarantee that this supply chain to our customers is unaffected. Our average export prices for the quarter have reached $636 per ton, which is a 20% increase when compared to the first Q '21. Some specific and nonrecurring factors have affected us during the quarter and have limited us from delivering even higher quarterly prices, as I would like to highlight as follows: We have a different customer and geographical mix due mainly to a lower order intake from our captive customers in China during the second half of Q2. And when we combine this with specific [indiscernible] delays to Asia from the end of the first quarter to the beginning of the second quarter, this affected our planned invoicing and also our price realization. And I would like here to emphasize that we do not expect these factors to repeat themselves during the next quarters. Looking to our EBITDA performance, the BRL5.5 billion in the quarter represents an all-time record for the pulp business with a 65% EBITDA margin. Now looking forward, we are already sensing pickup in order intake in China, especially after the recent price corrections, and we expect the demand recovery for paper and board in all major markets as of the end of August or early September increasing, therefore, the consumption and demand for pulp. On the supply side, we expect that logistic constraints will continue throughout next quarter, which, coupled with the concentration of several maintenance downtimes with the upside risk of the often unexpected downtimes and here, just to point out, RISI's recent forecast account for almost 800,000 tons of unexpected downtime to occur during the second semester. This all reinforce all the supply challenges that we see despite gradual expected ramp-up of new capacity for what the respective volumes should only arrive to the major markets on the end of the fourth quarter. We also see pulp stocks quite balanced in China, even posting a 6% reduction in July when compared to June according to RISI paper reports. And in Europe, according to AeoPulp pulp inventories at ports have fallen 13% in July when compared to June, which is the lowest level since early 2018. With that said, now I'm going to skip eyes, and now I'm going to move on to Bacci so that he'll talk a little bit about our financial position.

Thank you, Leo. Let's move on to Page 7, where we see that during Q2, we invested significantly on our deleveraging path. Net debt reduced to $11.4 billion, a $1 billion reduction in the last 12 months. Our leverage ratio is now at 3.3x, down from 8 last quarter, coming from 4.7 one year ago which is a significant advancement. And now we are approaching the levels determined by our financial policy. We sit on a very comfortable liquidity position on the right-hand side of the page, with $3 billion of liquidity, which covers our maturities up to 2024. 90% of our debt matures on or after 2023. Last quarter, we issued very successfully one more sustainability-linked bond at a very attractive rate, using the proceeds to liquidate short-term maturities, as you can see also on the right-hand side of the page. With that, we reached 87 months average tenure on our total debt. Moving to Page 8. We see that Q2 was a quarter of a very sharp appreciation of the Brazilian real. Our hedging portfolio responded to that, delivering a marked-to-market gain that will offset lower potential revenues in the future. Of course, this is not a cash gain. It's mostly a mark-to-market gain. It has the same relevance that the losses that we posted in the past have. It has to be seen over time according to the business cycle that we have. Our dollar-denominated debt also posted FX gains, following our strategy of carrying only dollar-denominated debt, both directly or through derivatives. In the same manner, this will offset potential lower revenues and the real continues to be appreciated. Of course, it was at 5 at the end of the quarter, we are now at 5.24, the situation is different. We continue to have a robust cash flow hedge portfolio that protects us from potential further BRL appreciation. Our average portfolio sits now at 5.21, call it 6, which is a significant advancement as well in relation to the position we had last quarter. Moving to Page 9. Our financial discipline is also evidenced on our CapEx program. We disbursed on the quarter, BRL1.3 billion, the same amount as Q1 and confirm our guidance of BRL6.2 billion for the full year, already considering BRL1 billion related to the Cerrado project. With that, I turn back to Walter. Thank you.

I think it's very clear that we have been pursuing our strategic initiatives and follow the five different avenues of value creation in the organization. One very important is our resiliency in terms of structural competitiveness. We have been working on this, and we'll continue to reduce our cash cost. This is part of our DNA, not only cash cost, but expenses as well. This is how we are going to looking forward the future of the company and increase our robust and very solid operational performance. It's very important that we have some short-term impact on our cash costs, and we will mitigate that with some management initiatives that is quite important on the short-term results. We will continue to have our financial discipline. Leverage, it's a very important and a key metric for us, and we will keep working on this, not with liability management programs, but with our hedging portfolio as well. This is the way that we can - increasing our cash conversion from our operational results. As I mentioned in the beginning, we will continue with our initiative on the Cerrado project. That is very important as well and I would like to reinforce our biodiversity, our innovability positioning that will continue to create value to our shareholders and all the stakeholders for the future. We recognize our major impact in the society that we can operate as an agent of this process, not only on the social, but on the environmental side as well. And we will continue to do advocacy in order to mitigate the situation that we have been presented now - was presented by IPCC in the last few days, the importance of reduction on greenhouse emission right now. We cannot procrastinate that for the future. It's our responsibility as a society and as a company to bring that and to be very clear and vocal on this process of mitigating the impact of greenhouse emissions on the climate change for the future. Now we can go to our Q&A session. All the executive committee will be ready for your questions.

[Operator Instructions] Mr. George Staphos would like to make a question.

Thanks for taking my question. Congratulations on the progress and thanks for the details on the call. I had three questions. I'll ask them in sequence. Leo, you had mentioned a couple of things that had led to lower price realizations than you would have otherwise reported in the export market, both the reduction in orders I guess from your - I think you said captive customers in China and also delays in invoicing. Is there a way to quantify for us, holding everything else equal, had those factors not been at work what your realizations would have otherwise looked like in 2Q? Second question, can you comment on the ongoing or what had been ongoing issues in the tissue market in China between the large and small has that been alleviated and are orders now flowing again from your vantage point? And then lastly, and I'll turn it over, you mentioned cash cost being flat up from 2Q, yet certainly in the second quarter, we saw the impact that everyone is facing in terms of input costs escalation, why do you think you'll be able to keep it flat to slightly up, what specific initiatives do you have in place to lower costs? Thank you, and good luck in the quarter.

Okay. Thanks, George. Thank you for your question. We unfortunately cannot quantify the exact effect of each one of these factors, as this will kind of disclose our commercial strategy, and this is not beneficial for us. But again, it was really focused on these two effects, the fact that we didn't have a positive order intake in May and in June. In China, where prices were peaking, as you know, together with the fact that we had rollover of invoicing from the first quarter to the second quarter to specific Asian customers as well. So these were the main factors that contributed for this below expected prices, which we really can confirm and guarantee that to our expectations, they will not repeat themselves on the further and future quarters. Regarding your question on tissue, I'm going to try to go through all the points that you asked me. First of all, we see order intake recovering, not only in tissue, but in all segments in China as of July when the price correction happened, not only in the pulp prices, but also in the prices for paper and board throughout the chain in China. So we see that the market is moving again. We see intermediary stocks especially in the tissue chain reduced with actions that were taken in previous months in terms of productions curtailment, which obviously generated the smaller order intake that we have had consequently in May and June. So that the structure are low as well or getting lower to historic levels. And we see also now that the mid and small producers or size producers of tissue, mainly in the region are also now returning to purchases and now recovering their production. So we see that the correction that happened in July, again, paper prices and pulp prices and the reduction of intermediary stocks is making all the chain rotate again and move, which is quite positive, we see a lot of positive perspectives in that sense.

Thanks for your question. In terms of cash cost. I mentioned in our last section that we expected increase in our cash costs around 7%. We come with 9%, but we believe that the following quarters we will remain about flat in this second quarter up to a single digit, probably 1% or 2%. And what kind of actions that we have to predict is that probably we will reduce our costs with COVID-19 protocol with the vaccination moving for here in Brazil, probably in the coming quarters. We reduced a lot of costs that we have with these protocols in our facilities. We have increased our availability in the turbo generators in order to produce a higher earnings surplus and the remain that we expect our operating stability. All of our consumption in chemicals and other inputs are under control, and I don't see any risk to impact for this reason, the cash cost.

Mr. Leonardo Correa would like to make a question.

So I'm going to still insist on the price realization of the quarter, which was I think, the probably the main - I understand some of the limitations that you have on disclosure, but just to help us out a little bit more, so we don't get the numbers wrong next quarter. In terms of the carryovers happening in the quarter, right, in the second quarter with a very strong rally in pulp prices and some regional differences in prices, the lag effect, right. On the other hand, a very big drop also happened, right, over the past months. So if you can just understand how we should think about the evolution of prices in the third quarter, right, because there clearly is a lagged effect from the second with the carryover, and at the same time, there is the drop in pulp prices. So should we expect a higher price level vis-a-vis the theoretical number in the third quarter? Is the argument of the tax, does it make sense for you? Would that be the ideal way to model the prices? So if you can help us out with that would be great. I'm also curious to hear, like I mean the pulp industry has been over the past years been trying to reduce discounts mainly in Europe on the pulp pricings. How have you been observing this - the evolution of price discounts in the markets? That would be very helpful as well. Thank you very much.

Okay. Leo, thanks for your question. This is Leo here, I'm going to answer both of them regarding price realization again and your question and related to carryover. Since our order intake was lower in May and June, our supply chain to Asia is back on track and established. So we are very tight catch up with the price movements in that market, meaning that we see little lags or almost no lags in terms of price dynamics going on and what we are actually invoicing to that market. So the lag effect shouldn't occur so much, at least in our case for future months due to the specific happening for Suzano in the second quarter of the year. Regarding - sorry, can you please repeat your second question, Leo?

Yes, sure. It's on the discounts, right? The pulp pricing discounts. Yes, we do have discounts.

Yes, we have seen in the past discounts increasing through time. I think that this year, what we are talking to our customers and their main concern is actually the fluctuation and the volatility of the pricing. As you know, the contracts or the discussions related to 2022 contracts have still not started. And again, we see in sense that the biggest concern is from what we get from our customers is how we can collaborate with them to have a pricing structure or pricing model that will in the long run, benefit a lower volatility model. So still not clear for us what will happen next year, but this is the main tone of all the conversations that we're having with the main customers or the captive customers of Suzano.

Mr. Thiago Lofiego would like to make a question.

So two questions here. Back to the market conditions in China, Grimaldi, if you could just give us a little bit more color, so do you feel like the market is stabilizing now after the recent price correction? So are you seeing improved demand after the sharp drop in pulp prices? And also if you could give us some color on the paper market in China as well. So do you see paper prices starting to rise at this point and how is the inventory situation, the pulp inventory situation with the papermakers in China at this point? And within the same China question, also, is there any update on the COVID situation in China? We saw that one of the ports in China closed recently. So are you hearing anything different or any concerns on that front? And then my second question on paper demand in Brazil. And going into the third quarter and going into the second half of this year, could you give us an update on how demand is faring for cardboard and also for print and writing grades? And if you see additional room for price initiatives in the domestic market?

Okay. Thanks, Thiago. So I'm going to start with the pulp side of your questions. Firstly, related to market conditions. Kind of talked a little bit about that in my speech. So I'm going to try to add information on top of what I have already mentioned, right? We really expect that demand will recover as of end of August and beginning of September, not only in China, but in most markets in the world, paper and packaging demand, which will consequently also make pulp demand increase during this period or as of this period. On top of that, what I can say is that we see some benefits and additional factors which can help demand as of the end of August, early September, which are, first of all, we are seeing a lot of economies recovering, some of them to pre-pandemic levels, and that should boost even further this historical trend of increasing demand as of end of August, early September. Second, there is still a big price spread between softwood and hardwood in some markets, reaching almost $200, and that's benefiting the substitution of softwood by hardwood, helping us in this case. And third, due to a low availability of recycled fibers, especially sorted office products, which are very much used in away-from-home tissue, we are seeing and sensing some nontraditional customers also looking for virgin fiber as alternatives or opportunities to keep their machines running at this time. So all this should help the demand on the coming quarter. In terms of supply, we still see a very challenging scenario regarding logistics. We don't think that that will be solved in the near term. That will still be a challenge for the global industry, not only for Suzano or the South American producers. I think global trade is all impacted by that. We also see customers now getting also concern and having challenges of their own because they sense that there will be a demand recovery as of end of August, early September, and they want to make sure that they have raw material position correctly so that they can speed up their machines and their production. So this is very important as well. And last but not least, repeating the upside risk that we have of the unexpected downtimes, RISI just presented brand new fresh information during the RISI Latin America Conference two days ago, and they expect due to their statistically - statistics and modeling, 700,000 to 800,000 tonnes of unexpected downtime still to happen this year. So in our sense, when we add up all these factors, we see the fundamentals as positive starting in a few days from now. Paper prices in China, as U.S., have increased in the beginning of the year tremendously, more than 30%, then they have reduced 30% in May, June, compressing a lot of margin of producers and maybe one of the catalysts for the reduction of the pulp prices in July in China. And now we see some starting of recovery. We see pickup not only in demand, but also in pricing. There are announcements that are approximately of CNY 200 for August, and we believe this is a start-up of a positive pricing trend that can happen and that will occur as markets develop and as demand returns to previous levels as of end of August. Your last - your question on pulp inventories, we see pulp inventories in China controlled, and our customers also controlled. Actually, there was a decline last month in the pulp inventories in China, as I mentioned, 6% decline, so very much stable in the last 5, 6, 7 months. And here, it's important to consider that there will be a lot of new nonintegrated paper capacity starting this year. The reports show that there will be 1.4 million tonnes of additional nonintegrated paper and board machines in China alone in the second semester of this year. So obviously, all these producers will have to get prepared for their upcoming machines and capacities, and that will help the overall dynamics of the market as well. Last but not least, your question on COVID. Up to now, we haven't seen any development or effect of the recent wave on pulp or paper consumption on the restraining of some regional traveling in China. That's our sense for the time being. I'll now pass it over to Fabio, so that he can help with the paper questions.

Thank you, Thiago, for your question. Regarding paper demand for the second half of the year, as you know, historically, we have a stronger second half of the year in Brazil for print and writing demand because of the government purchases for the national book program. And we should expect this year to be the same. And in this year also we have the opening of the schools with in-person students attending to schools and also the opening of the offices what should happen - should help also the demand for paper. So we have these two factors that should help us with the demand in the domestic market. As of paperboard, we had a very strong first half of the year. We do expect the second half to be as good as the first one. The market is going to be very tight. There's a very strong demand on the back of more sustainable - to demand more sustainable products, e-commerce, and we don't expect anything to change in the second half of the year. Regarding your questions about prices moving forward, are we going to be continuously monitoring the market for any other opportunities that may arise? As of this moment, we believe that we have very good prices for the time being.

Just a very quick follow-up here on prices. Is there a positive carryover in the third quarter versus the second quarter because of the prices in the end of the second quarter might have been higher than the average of the second quarter?

You're asking about prices - paper prices, correct?

Yes. Correct.

Yes. We have implemented…

Right, in the end of the third quarter, yes.

I'm sorry, Thiago, can you repeat?

No, no, the question is about the realized paper prices in the third quarter. Is there a positive carryover effect coming from the second quarter?

No, for paper, we have already implemented most of our price increases that we have announced. So we should not expect any carryover.

Mr. Daniel Sasson would like to make a question.

My first question is on your own inventory. You mentioned that they are still below normalized levels, which could be rather good news given that you're basically selling everything you produce. But below normalized levels, does that mean that you will proactively aim at restoring inventories back up to more normalized levels? Or not really, the idea is that you're going to continue to sell everything you produce? And my second question, can you comment a bit about how do you see the supply and demand dynamics over the next quarters? I think you mentioned in a previous question. But just to make sure what do you expect with the start of new projects in the industry or when do you expect those new clients to effectively impact supply in the market?

Daniel, thanks for your question. This is Leonardo here. Starting with inventories. Obviously, we cannot give guidance for future inventories for Suzano. But I can tell you a little bit more of what went on. As you know, Q4 stocks and inventories for us were our lowest historic numbers and ever since that, our stocks have been very low, below this optimum operational levels. They were such in the end of Q1. They continue in the end of Q2, and they actually continue as we speak. So again, our challenge at this moment is to keep the machine running, obviously without impacting our customers. So we're doing all actions possible to ensure that supply chain is unaffected in that sense. On the supply and demand, I'm going to try to recap that quickly, not to be that much repetitive. So we see a positive demand for the next quarter or for this quarter, right, starting in a few weeks from now and the end of August. This is traditionally the beginning of a high peak season in terms of paperboard seasonality, which consequently will move pulp volumes further. This is to be boosted in our view by the recovery of economies throughout the globe, also by softwood substitution by hardwood and also with all the opportunities that we see of virgin fibers in general substituting recycled grades and recycled fibers due to their lack of availability. And one example of that is sorted office projects and away-from-home tissue. They were very much used in that sense and due to the lack of sorted office products, paper - recycled paper, we see a push for bigger interest from those kind of producers in virgin fiber. In terms of supply, quickly reinforcing, we still see logistics constraints to be occurring throughout the next quarter with no solution in the short-term break bulk, containers, ports congestion, several COVID cases impacting full vessels crew and getting the vessel stuck for at least 14 days at the port. So this is kind of ongoing. Our customers are reporting this challenges of how to build up the raw material inventories to support the better demand that will happen few weeks from now and also the unexpected probable downtimes, as I mentioned, supported by RISI estimates. Regarding new projects, the information that we have regarding the dates or their start-up dates are the same that you have. We have the official information, but we understand that as any project, there will be a ramp-up period. And if we add to that ramp-up period in volume, the logistics constraints which we talked about and this volume should arrive to the markets in - not before Q4 this year. So this is how we see the plan and the fundamentals for the Q3 '21.

Mr. Carlos De Alba would like to make a question.

A couple of questions. One is on the geographical distribution of your pulp sales. How do you see that going forward vis-a-vis the second quarter or the first quarter? Would you say that the Chinese and the Asian market would gain a greater proportion of your shipments, it would be great if you can give us some color there. And then on the production - pulp production, and I understand you don't give guidance, but just more in general, do you expect to potentially - or are you prepared to take downtime - market-related downtime in order to cement the trends that you highlighted, you see unfolding in the coming months or would you just stick to the regular scheduled maintenance times that you have published on your release?

Okay. Carlos, this is Leo here. I'm going to take your first question related to geographical mix. As you know, we are not disclosing our geographical mix on a quarterly basis as this is quite sensitive to our commercial strategy. But what I can say is that we don't expect much difference from past year and these immediate effects that we had in the second quarter should kind of normalize for future quarters. It's not something to be understood as recurrent in our case. I will pass now to Walter so that he can answer your second question.

Thank you, Carlos, for your question. Just to mention to you that we are not forecasting any market-related downtimes. We are going to keep our production at normal stage. We do have certain specific normal downtimes on our plants related with our maintenance. There is usual - annual usual downtimes that we are going to keep at the same pace that we had before, and we are not expecting any changes on the total volumes for the year 2021.

Mr. Rafael Barcellos would like to make a question.

My first question is really a follow-up on prices. I mean, do you believe that the new capacity that we arrive in the end of this year already affecting the pulp price negotiation? And how do you see supplier segment at the moment? And my second question is related to Spinnova. Suzano has currently almost 20% of Spinnova. So could you elaborate on how should we think about this? I mean, in terms of strategic positioning in the market, how do you see Spinnova adding value to Suzano and how should we think about this going forward?

Rafael, this is Leonardo here. I want to take your first question on pulp and on pulp pricing. I don't believe that what happened - that the correction that we saw in July is anyhow related to any new capacity that will start in few weeks or a few months from now. And this were related to the fundamentals that were present at the time, which were not supportive, and therefore, this correction happened in China. And as you know, conditions and markets are still very supportive in Europe and North America, and prices are unchanged at the previous levels at €1,140 in Europe and $1,380 in North America. So this is very specific to China and to Asia due to the fact I mentioned before in one of my questions of reducing paper pricing and therefore, compressing margins and all that the channel had to readjust so that order intake would be back again into normal pace and sales as well. Market sentiment at this time, I don't think that it's being affected by, again, the news on the start-up of this new incoming capacity because I think it is to the knowledge of everyone that with the - when you add up regular ramp-up in a project like this one plus the logistic constraints that we have today and the probability of the volumes actually only arriving at the upmost end of the Q4 or even in the beginning of next year, it's very likely to happen. So I don't think that's affecting the market at this time.

Rafael, this is Marcelo speaking. I'm going to take your second question on Spinnova. Spinnova has a very promising technology when it comes to the use of pulp to produce textile. It is a startup in the sense that the production and sales so far is very low, but the market has understood that the technology is very promising in a way that it allow the company to go public at a very attractive valuation. Suzano holds today about - after the IPO 19% of the company, and we are a firm believer on the future of this technology. We also have exclusive rights to use that technology in a JV that we have and that we're putting together with Spinnova in which we're going to start producing the final products, and this will come to the market in the coming years. And what we can expect in the future is that as the technology develops, Suzano will incorporate this technology into our strategy when it comes to textiles.

Mr. Caio Ribeiro would like to make a question.

Thank you for taking my question. So the first one is on the significant price spread between regions that exist today for pulp prices. I just wanted to see if you could comment on how you think that will evolve in the coming quarters. Europe seems to have been in the past months a relative pocket of strength from a demand perspective. Do you think that that could hold prices above China for longer? Or do you see this gap closing in the coming quarters, right, and prices in Europe coming under pressure as more pulp volumes are reallocated from China to that region? And then secondly, on the supply additions in the market, looking a little bit more longer term, it seems that a lot of the incoming potential projects in China look like there will be integrated mills and the focus seems to be on lowering the dependency of imported pulp. I just wanted to see how you see this potentially changing the demand growth perspectives for pulp going forward, if at all? Thank you.

Okay, Caio. This is Leo here. First, talking about price spreads among regions. We cannot comment on future pricing. But again, going back to the fundamentals, it all depends what will happen and how the fundamentals will play out during the next weeks or months, right? We are very optimistic on that, and that should support - firm a strong market in the second half of Q3 and coming into Q4. And again, we have to wait and see how that will play out and how that will evolve. And you are correct, today, there is a positive price difference in Europe and North America when compared to Asia, the same way that in the first half of the year, it was the opposite way around. And usually these prices lag between one market and the other. And related to your question on incoming projects, obviously we follow very closely all the announcements and the announcements are huge in terms of volume and not only the nonintegrated announcements as I have been pointing before in my questions in the Q&A, but also the integrated projects that you have mentioned. Most of them are being incentivized by the government for some regions or for some geographical regions in China. And what we sense is that probably the paper or the board part of these projects will be executed as there is a positive expectation of demand increase going on in China and in Asia. However, in the pulp side, we are very much more conservative in that sense and question about the capability that these projects will occur due to two main reasons: first is good availability in Southeast Asia, which is a big restriction to future growth in the pulp industry, if you add up all the pulp announcements. Obviously, there is not enough wood to cover for a huge part of this announcement. And second is because even if they are executed, the cost of these pulp mills will be on the upper side of the cash cost curve, and it doesn't make sense in that direction, right? So we see much more perspectives in the paper and board machines are part of the projects going on and being executed and less positive perspectives on the pulp side for the BCTMP part of those mills happening.

[Operator Instructions]

Understand, I think we are getting close to the end of this session. I would like to have my final speech here. I would like to thank you very much for everyone to be join us on this session. I would like just to bring to you the long-term perspective. I think several questions during this discussion was related with the short-term impact on price and price realization, supply and demand and things related with price in the coming quarters. Our firm belief is that the company is well-prepared for the future. We are one of the lowest cost producer in the world, and we will be getting even better for the future. I'm sure about that. We will continue our expansion on our pulp production with new projects coming on stream and this Cerrado is one very good example of that, a very extremely competitive project for the future. We still believe that our verticalization initiatives on paper, on consumer goods and on fluff market is performing extremely well, showing our competitiveness on each of these markets. We will continue on our bio new projects, bio-products that is coming from the tree. That is part of our purpose, renewing life coming from trees. We will continue and this, we are very well-positioned for the future. Spinnova is just a matter of example of things that we are doing on different markets, on different areas, creating new avenues and enlarge our addressable market for the future. And carbon will become more relevant for the future and we believe that after COP26, this will become even more relevant. We are delivering this quarter the highest and record EBITDA and record free cash flow on our history. And we are very positive for the future that we will continue to create value for our shareholders. This is our firm belief, and we are very connected with that, very connected on continue to deliver value creation to our shareholders. Thank you very much, and hope everyone would be vaccinated. This is very important to the society. Everyone would be protecting each other. That is critical for all of us. Thank you to all, and have a good time.

Thank you. Suzano second quarter results conference call is finished. Have a nice day.