Suzano S.A. (SUZ) Q1 2024 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 first quarter of 2024. We would like to inform that all participants will be in a listen-only mode during the presentation that will be addressed by the CEO, Mr. Walter Schalka and other executive officers. This call will be presented in English with simultaneous translation to Portuguese. [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, depend 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'll turn the conference over to Mr. Walter Schalka. Please, you may begin your presentation.

Good morning, everyone. It's a great pleasure to have you to be part of the first quarter results, 2024, of Suzano. I would like just to mention to you that we have almost everyone from the C level with us today and will be available for a Q&A session after our presentation. It's a great pleasure to announce the results of the first quarter. Once again, we had a very good operational performance with volumes and pulp side with 2.4 million tons. We have been improving volumes on the paper side as well and on the consumer goods. We had BRL 4.6 billion on EBITDA on this quarter. And it's -- and I would like to just to mention to you and we reenforce the point that we are continually looking forward our competitiveness. It's very important to mention our operational cash cost that was BRL 812 per ton, a very good performance and very close to the performance of the fourth quarter last year. Just to reinforce our positioning on our robust balance sheet with $6.3 billion in cash plus revolving position. With a net debt, there is $11.9 billion. and we are reaching the peak of our leverage with 3.5x net debt over EBITDA. We are going to present Cerrado. Aires is going to present in a few minutes to you. And we have been approaching the end of Cerrado with less disbursement on the future. Now I'm going to pass to Fabio that is going to talk a little bit about packaging and paper market.

Thank you, Walter. Good morning, everyone. Please, let's turn to the next page on the presentation. In the first quarter of 2024, we have faced different market conditions in our domestic and international markets. Outside Brazil, we have seen demand starting to rebound if inventory replenishment buildup after the strong destocking process through most of 2023, high on the domestic market, demand started the year lower than expected. Demand for print and white papers in Brazil shrunk 20% in the 2 first months of 2024, when compared to the same period of the previous year. With the impact of the postponement of federal and state botnets book programs and customers' inventory adjustments led by slower economic activity at the beginning of the year, apart from the [ red ], expect the structural reduction in coated paper demand for the promotional segment. Regarding paperboard, demand in Brazil has been impacted by a slowdown in consumer spending, which, coupled with previous inventory adjustments, resulted in a 6% demand reduction in the 2 first months of 2024 compared to the same period of 2023 according to IBA's available data. Suzano total volumes in Q1 were 3% higher than Q1 2023, driven by higher export volumes. Compared to the last quarter, our total sales reduced 20% due to the usual sales seasonality between such quarters. The average net price during the quarter was flattish quarter-over-quarter. We have delivered higher prices quarter-over-quarter in the domestic market due to price increases in our uncoated and cut size product lines. In international markets, our prices were slightly lower quarter-over-quarter due to product and regional mix. Looking at EBITDA, the 19% decrease quarter-over-quarter was driven by lower sales volume. When compared on a year-over-year basis, the 35% decrease in EBITDA was mostly led by lower prices in the external markets. Our EBITDA per ton was slightly better on a quarter-over-quarter basis. Looking ahead to the coming quarters, we expect healthier demand levels as inventory buildup continues in mature markets. In the domestic markets, we expect the lesion cycle to support demand in the coated segment, have recovered in the uncoated market segment as well as improving paperboard demand for packaging. The improvement in demand, combined with current market expectations for pulp, energy and wood prices is expected to sustain current price levels on the domestic market. While international markets, apart from the rapidly evolving scenario, we generally expect price levels to increase as several major international players have already announced price increases for the coming months. Despite the mounting cost pressures, the impact is not only formally distributed across all players and regions. Looking ahead, we expect a flattish cash cost performance in our Paper and Packaging business throughout 2024 backed by our strong structural competitiveness. Now I will turn over to Leo, who will be presenting our op business results.

Thanks, Fabio, and good morning, everyone. Let's please move to the next slide of our presentation to see our Pulp business unit results. I would like to begin by sharing with you some facts related to this past quarter. Demand for hardwood pulp was positively surprised -- has positively surprised our expectations throughout the period, both in China, where the rhythm of paper production continued quite healthy, actually growing 6% to Q1 compared to Q1 '23 as per CI and with low pressure on paper producers inventories as well as in Europe, which has recovered significantly from the value seen in the first half of '23 and where our customers kept revising their forecast up and up. On the supply side of the pulp fundamentals, we have noticed several disruptions coming from impacts of permanent closures announced previously, added to several new and unexpected events such as strikes, wars and climate-related events as well as the idling of some mills, reducing the availability of pulp in the whole system. Demand from our customers and the push for order intake has exceeded our capability to serve all their requests, and we had to limit and cap order intake during all months of Q1. Despite our efforts to reestablish our inventories in Europe and in North America during the quarter, optimum inventory levels were still not achieved, and we forecast that this situation will still take some months to level out, and for inventories to be physically repositioned and available in European and North American terminals. As I had mentioned in our previous earnings calls, our inventory levels across the systems were too low and unsustainable in the end of 2023. And during Q1, we had to start establishing a better operational condition. Regions and customers who are served by Suzano directly out of Brazil, like Middle East, Africa, Asia, including China, are still running with significant shipment and invoicing delays with no improvement during the quarter and indeed even more challenging, now reaching more than 70 days of backlog at the end of this period. Coming now to the graphs on the slide. Our first quarter sales were limited by inventory replenishment, as I have mentioned before. Our average export prices increased to $624 per ton, capturing only partially our price increases, due to the high backlog levels as I have also mentioned previously. Our price increase announcements during the quarter were all fully implemented in their respective markets. Our EBITDA totaled BRL 3.9 billion with an improvement compared to Q4 due to higher prices despite lower volumes. Now looking forward, I would like to highlight the following points. Rolling forecast coming from our customers in Europe and Americas keep improving, and we still see challenges to serve all the pulp demand in the short term. It will take time to reposition our inventories accordingly. Effects of strikes and new [ feeders ] in Europe have unexpected generated additional pulp demand for Suzano, and our current inventory levels do not allow us to tackle any, absolutely any, unplanned pulp demand. We expect S&D dynamics in Europe to remain quite tight during the second quarter. In China, we know that the leading paper producers are taking advantage of their financial strength to lower paper producer and the lower paper producers' margins in general in the market to push for market share gains, consequently squeezing smaller paper producers. Smaller paper producers lower operating rates, as recently reported, are being compensated by higher operating rates from larger paper producers. As in China, downstream paper demand continues healthy, also supported by our customers' macro sentiment in general, we do not expect major changes to paper production rhythm. And indeed, this paper rhythm -- paper production rythm has been quite solid during this year. Demand for our pulp came again over our expectations in April. And as we speak, we are still capping order intake and refraining from offering to spot markets as an effort to recover timely shipment to our customers. As we speak, we are completely oversold. In additional to tailwind demand perspectives, our constructive view for the short term is being even more benefited from disruptions on supply chain on the supply side of the equation, for which we are not sensing any significant improvement soon. Reason why we feel the [indiscernible] price momentum should continue. News keep coming, and you all have read yesterday that a new permanent closure was announced. With that said, I would now like to invite Aires to address with you the cash cost performance of the quarter.

Thank you, Leo. Good morning, everyone. We are on Slide 7. The cash production costs performed in line with company's operational plan, presenting stability compared with the previous quarter. In addition to the benefit from the drop in the price of diesel and caustic soda, which is the main chemical in the cash cost composition, we operate on a smaller ever distance from forest to mill and had a better performance in harvesting activities, further reducing the cost of wood. These positive factors were offset by nonrecurring events in some mills, which negatively impact input consumption and fixed costs in the quarter. In the annual comparison, we see a clear benefit of the better operational performance on wood and inputs in the last quarter, in addition to the reduction of the server in the commodity price in the period. Looking ahead, we continue to see stability in the cash production costs throughout the year, although with a small variation between upcoming quarters. Moving to the next slide. We are focused on the final [indiscernible] of Cerrado project, which has already reached 94% physical completion and 87% of fiscal execution by April. The project's CapEx guidance for 2024 is maintained at $4.6 billion, with more than half having already been disbursement by April, therefore, reducing cash flow consumption in the remaining 8 months of the year. On the next page, we would like to reinforce the company's vision of the expected ramp-up curve of the new plants, should be completed in 9 months. Such performance means a production volume of 900,000 tons and sales volume of 700,000 tons in 2024. In the first 12 months after the startup, we expect to produce 2 million tons of pulp in the new mill. Marcel, the floor is yours.

Thank you, Aires. As Aires has just mentioned that we are at the end of an investment cycle that is paving the way for us for further deleveraging in the coming months. So I'd like to start on Slide 9 to give you a recap on what happened with our net debt in the last 12 months. Despite the fact that we invested $2.8 billion in the period, our net debt just went up from $10.9 million to $11.9 billion in the period because of a very strong operational cash flow and also because of our very consistent derivative policy or hedging policy. But we have -- so that led the net-debt-to-EBITDA ratio to the level of 3.5x at this point, which is most likely the peak for this cycle of investment. We expect this number to start improving in the coming quarters. In terms of liquidity and amortization schedule, we have a very comfortable position with a significant amount of liquidity, $3.9 billion of cash plus standby facilities and undrawn facilities that will be drawn in the coming months with a very low level of maturities in the coming years that will lead us to a very comfortable position when it comes to average term and also average cost of our debt. With that, I will turn it back to Walter for his closing remarks..

Now we are going for a Q&A session. Please, we are available right now to answer your questions.

We will now begin the Q&A section for investors and analysts. [Operator Instructions] Our first question comes from Daniel Sasson with Itau BBA.

Walter, Suzano is about [indiscernible] again delivering important growth project on time and on budget. You showed the avenues that it opens up ahead. It keeps your excellent track record and so on and so forth. But now I think all eyes will be on the next steps, right? So it would be very helpful if you could elaborate on the next potential growth avenues that you see for Suzano? And more specifically, you have stated in the past that Suzano would be willing to analyze opportunities in different geographies as well. So if you could explain to us a little bit what would be the rationale or the main positives for Suzano if it decides to diversify abroad? And my second question, Walter, is also related to capital allocation discipline. When you became the company's CEO in 2011, the industry is going through a very hard time, right? And in 2012, capital increases had to be made at Suzano and Fibria. And then you conducted, what I would call, a transformational change that allowed your balance sheet to be strong enough to even raise that, consolidate the industry, create value to shareholders. So looking ahead, what do you think [indiscernible] dating [indiscernible] or the specific breaks you think that Suzano has put in place to guarantee that rationality in capital allocation decisions will always continue to be the case?

Thank you, Daniel. It's a pleasure to answer this question. First of all, I'd like to say to all of the next questions that we are not going to comment on possible speculation that we are seeing on the press. But it's very important to give a very clear framework from our view of the future. First, I think it's very important to mention that we are long-term viewers. So we are always analyzing the opportunities to shareholder value creation, all the time. That could be with organic or inorganic growth but could be through buyback shares as well. We are value creation. It's a very important point for us, always on a more long-term view and sharing value with all shareholders all the time. Give an example to you, it's what we did when we moved to a single class share to benefit all of the shareholders. Second, I think it's quite important to mention about our capital allocation discipline. I think this is very important to us. We are in an industry that is very intense in capital, and this is very important. We always -- I'm going to reinforce, always make a very deep analysis and not based only with one person. It's a group of person discussing what the potential new opportunities that we are facing for the future. And I can mention to you some of the movements that we did that was on this direction. On organic moves -- sorry, inorganic moves, we had deals such as Ibema, such as Facepa, such as expansion of land banking, including Parker. With Fibria deal, with Kimberly-Clark tissue acquisition in Brazil. Each of them, we have been going through the discussions how we would change our value creation, improve the value creation for the future. On organic moves, we had organic moves on the Tissue business on the fluff market or in Cerrado. When we presented Cerrado, many of the people who are asking us about the value creation and the risks of implementation of that. Now it's very clear that our team performed very well. Once again, we have a very good track record, and we will deliver a plan that is going to transform the company for the future. A plan that is going to have 2.5, additional, million tons to the company with the lowest cash cost on our system, and in the industry, around $100 per ton. With retrofits that we made on Suzano facility, on Aracruz facility, on Mucuri facility. It's another source of value creation. Then -- but I'd like to reinforce, Daniel, is that we are not just looking grow for growth. We are looking for growth for value creation. That could be retrofitting on new avenues for the future on organic or inorganic movements. The third issue that I would like to bring to your attention right now, it's our financial discipline. We do have a financial discipline policy, and we will stick with this policy that we have today. It's very clear. It's public, our policy, and we will stick with our policy. And fourth, not less important, in my opinion, very important is that we have a very strong team. We have a team that is committed, a team that is highly competent and align with all the stakeholders. We are all the time with this team looking for opportunities to reach new boundaries, new opportunities, new situations that we would deliver value creation to our stakeholders. Then all of this, it's balanced on something that is quite important to us that we want to create differentiation all the time in every single move that we do. We are going to create differentiation, and we are going to create scale. And the combination of both that would deliver value to everyone for the future.

Thank you, Walter, thank you for all these years.

Next question from Jon Brandt with HSBC.

Walter, thank you very much for the past decade plus, and I wish you the best of luck in the future and your role on the Board. I guess, just sticking with the capital allocation, and I understand you can't make any comments about what's happening in the media or what they're reporting. But I'm just curious, could you just maybe discuss it a little bit more in terms of a size of a deal, are there any limitations? Is there sort of an amount or a deal that might be too big for you. And on the financing side, yes, your net debt and your leverage policies are very clear, but you've also gone higher than the 3.5x in the past. And as long as there's sort of a clear deleveraging path, I'm wondering, would you sort of break 4.5x - 5x leverage for a deal that you considered really interesting. I guess that's -- and I guess also with that, would you perhaps consider equity in any deal? Or is that sort of off the table? And then my second question is just related to the pulp volumes. Sales volumes were down 2% year-on-year. I understand there were some inventory builds, but you had 3 mills with downtime last year, and there were no mills with downtime this year. So presumably, production was a lot higher. So I'm just -- I'm wondering, can we assume that the rest of that -- the rest of that production was put into inventory? And if you can sort of quantify how much more inventory builds you have to do and if it's safe to assume that you're running at 100% capacity utilization?

Thank you, Jon, for your question. It's Walter here on capital allocation for us. As I mentioned to you, we are very disciplined on that. And we are very disciplined on our financial policy and is very clear what we have right now. We are not going to change our financial policy. We could exceed at some time the 3.5x, but it's very clear that we have this -- we need to present a remedy on this. It's very clear on our policy. And we have happened to us, I think, 1x or 2x, and every time that we did, we present a remedy to our shareholders, then we are very disciplined on that. We want to be between 2x and 3x, and we could reach 3.5x during an expansion program. But if we exceed that, we need to have a remedy on that. And second, if you ask about the potential movements for the future that could bring cash and our shares. This is something depending on the opportunities that we have. But more important than that is the fact that we are always disciplined on value creation. Guys, we are not here just in the sake of growth. This is not our mindset. Our mindset is value creation. It's not growth in terms of ego centric for people here or the company being better or larger and things like that. We want to be, and it's very clear, delivering value creation to our shareholders. And we are very agnostic about organic or inorganic and about geographies. This is something very important to you to understand. If we are going to have used cash and shares, depending on the opportunities that you have and depending how we are going to see the potential value creation on these opportunities.

Jon -- Sorry, Jon, this is Leo here. I'm going to answer your question related to pulp volumes and inventory buildup and production. First of all, we have been stating for quite a time that we are not going to issue any comments related to our production levels. So I'm going to focus my answer on inventory rebuild and what we're seeing. First of all, the volume effect on Q1 is all related to inventory rebuild. We ended last year with a very unsustainable level of inventories which we had to quickly address in order not to compromise our agreements with key customers. So that was the issue that generated this below-expected, as per analysis, volumes in the quarter. We are still not there yet in terms of inventory we build. There's still some space to be fulfilled. There is cargo in the sea or leaving Brazil, that's in our inventories, but still not at our terminals available for our customers. And this is one of the reasons why I mentioned that we are completely oversold at this time and actually capping order intake in all markets.

Okay. That's clear. Walter, just a quick follow-up. How would you measure value creation? Is there a certain ROE or ROIC that you would measure that at? Or is there some other way that you would measure value creation?

Yes, we required a spread over walk on our projects. Of course, we are not going to open to the market, what is the required spread. And this is spread, it's not the same for different projects. When we have a retrofit, for example, the spread required are lower because the execution risks are much lower. When we have Cerrado, it's a little bit higher, when is a potential acquisition. It's even higher than that. It's a different spread for different movements that we are doing that is required over walk.

Very clear. And good luck, Walter.

Next question from Leonardo Correa with BTG.

Can you hear me? Yes?

Yes, Leo.

Okay. So I have a couple of questions here, guys. Sorry to insist on the capital allocation theme, but I guess it's going to be a bit of a monothematic discussion here today. Yes. So the first point, maybe going back to Jon's issue on M&A internationalization, right, Walter. Correct me if I'm wrong, maybe my understanding over the past quarters and years has been a bit off. But I guess the idea, for me, was always, look, the bar for internationalizing the company is very high. The bar for M&A is high. I mean, I guess you guys were talking about diversifying a bit away from pulp and diversifying from markets from very big China exposure. But I guess the issue -- the main discussion point over the past week has been on size and the level of risk that management is willing -- management and Board is willing to take on via potential move, which would be big, right? And I know that you guys are not commenting specifically on market speculation, which I understand completely. But just to understand, I mean, if the next move would be something big or you would be still my former understanding of something more bolt-on, smaller, lower risk? I just want to see how, if anything, the strategy of the company changed and the level of diversification that you guys are looking for? Because I think that's key. And I don't think the market is, at this point, really understanding what the next move is and how the risk tolerance is in the company and how much diversification you guys are really looking for? So I think any clarity on that would be very helpful for the market. Second point, still on this related topic, right, but on the buyback, right? I mean we've been in the middle of a big correction in shares, something completely unusual, right, for people who follow Suzano for many years. I mean the stock is down quite a lot this week. Clearly, there's a lot of doubt, right, in the market at this point. I mean, under any metric, right, NPV, if we think of multiples, right, into 2025? I mean the stock is highly derated, right? I mean the stock is probably below 5x EBITDA, which, in my view at least, makes very little sense, right, fundamentally. Given that you guys already have a buyback and have been active, I mean, how do you view the return -- the IRR now of buying back shares stacked up to any other investment alternative. I can imagine at this point, shares are looking very attractive. But I just wanted to hear you on that and whether you would be looking to increase the buyback?

Thank you, Leo. Yes, I think it's -- we are not going to comment on speculation. I'm going to repeat that, I think, several times during this call. But it's very important to mention that we present to you a framework during the -- our Suzano Day last year, I'm very clear what would be our positioning for the future. We -- of course, we have big deals such as Fibria. We have smaller deals such as Facepa or Ibema, but in every single deal that we are doing, we are looking for value creation to the shareholders on long term, looking for differentiation and looking for scale on the beginning or in the future. But it's very important to mention to you that in every move that we made, we are -- we were very, very disciplined on our financial policy. And we will continue to do that. I'm not understanding the reaction of the market right now. I can't -- of course, from outside, from speculation on the press, that the market is reacting that we are going to do crazy things. I'm assuring you that we are not doing anything that could create any kind of risk to the company. And in the other side, I'm not going to just make any movement here just on the sake of growth. We are going to looking for value creation all the time. This is and could be bolt-on opportunities or can be large opportunities, can be on geography A or B, can be on organic or inorganic. It's always with this mindset. And it's very clear that the market right now is challenging our long-term positioning. But our track record is always on this direction. And we are going to continue on a very disciplined and very clear and humble position to continue working on that direction. Marcelo, now your -- the second question regarding buybacks?

Yes, Leo, thank you for the question. We have a buyback program open. Of course, during the quiet period now we were not in a position to operate a buyback until the release of the results yesterday. And we will certainly consider that possibility for the future. And of course, this correction on the share price is an additional incentive in that direction, but we have no decision taken in that regard.

Next question from Rodolfo Angele with JPMorgan.

I'm going to switch course. I have only one question. Isn't it great to be starting up a project like Cerrado in a time when I hear -- now see that you're over sold for the quarter. So my question to you, probably this til now. So what's the strategy for this ramp-up? You showed the typical very fast ramp-up for the project 9 months. But if we start to see price reactions, is there flexibility to accommodate things? So can you comment a little bit on what to expect and any effects we expect to see possible comment on pulp pricing into the second half of the year end in 2025?

Hi, Rodolfo. Thank you for the question about Cerrado location. Unfortunately, I 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, right? 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. Half that, we see this year an impact of 1.7 million tons just because of the timing of the announcements. And this year so far, with yesterday's night announcement, we have reached a 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 fiber through all 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 this pertinent closures as well.

Next question from Caio Ribeiro with Bank of America.

Yes. Good morning, everyone. Thanks for the opportunity here. So my first question is on paper markets in Brazil, where demand started off the year quite weak. As you mentioned, your leads with printing and writing dropping 20% year-on-year in the first 2 months, and paper mill also down around 6%. I just wanted to see, according to you on what's driving this weakness and your expectations for the coming quarters? And then also on paper prices, right, whether this weakness in demand could translate into further weakness for price. And then secondly, on your pulp cash costs. I just wanted to see, I mean, 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.

Caio, 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 expected. This is mainly due some postponements in the books program from state and federal government. There's a discussion in Brazil now on about the higher education at 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's going to be even -- the volumes for the books programs 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. And 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 this price increase were fully implemented. So -- 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 a 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 and packaging.

Hi, Caio, Aires speaking. We continue to see stability in the cash cost production for this year. And of course, after the first quarter and the next ones, we have [indiscernible] planted, then it could affect, in certain quarters, the mix and the average distance from forest to the mill, but I believe that to impact little single-digit in the cash cost. And then especially in the fourth quarter, in the first part of next year, after the ramp-up of Cerrado, were our cash cost for our best performance, especially because of the impact of Cerrado. And the growth of our new forest that will reduce our average from forest to the mills, put in order with our target orders 2027.

Next question from Marcio Farige(sic) [ Farid ] with Goldman Sachs.

Thanks for the time. Leo, first question to you. Obviously, pulp prices have been much stronger than expected for the past few months. There has been kind of 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 [indiscernible] 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 -- are close to $100 per ton higher than China, right? Or are we going to be seeing a more aggressive push for China oil prices to catch up to Europe and eventually, we are back to one single global market where profitability is kind of in balance in the different regions. And if you can comment on why pulp futures in China has been so weak? I know it's a hard one, but if you have any idea of what's driving the domestic sentiment would be good. And then about a follow-up to you on your early comments, please. I know you mentioned some quite successful acquisitions, right? You mentioned Ibema, Kimberly-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 first base, or is not close in terms of competitiveness to Brazil, right? So just trying to understand what's -- how -- what will be your ability to generate value outside of Brazil, if not starting from the forest, right? Those are my questions.

Okay, Marcio, this is Leo here. I'm going to tackle here the first part of your question or questions. Yes, 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 pulp 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 market, as we have seen in several past cycles, obviously, as a commodity prices trends 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 he 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 pulp 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 trades 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 on 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 we'll be at a completely different level for future years.

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 are always looking for differentiation on our strategy. When we start moving toward [indiscernible] 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 buying 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 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 humble 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 for us a limitation. In the future, the company will go through internationalization, and 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.

Next question from Alfonso Salazar with Scotiabank.

Hello?

Hello, go ahead, Alfonso.

Thank you. So well, a moment ago, you mentioned that you were -- that Suzano is agnostic about organic or organic 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 to what extent this changed the view that forestry land, 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 -- or at least my impression is that it's going to be more challenging to build a new pulp mill in Brazil in the future?

Thank you, Alfonso. I'm going to start with the second question. Brazil will face opportunities in your plans for the future. But at this point of time now, we have wood scarcity that we have in Brazil. And as you know, one of the -- we are not seeing any construction of new plant at this point of time. We are not going to see a new plant in Brazil in the next 3 years. It's almost impossible to have that. Then, of course, everybody can build your land banking, then 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. The land is going up, the interest rates are high. This is going to require higher pulp prices for the future. I'm very pleased to see that with higher pulp prices, it happens on the future. Suzano is very well positioned to deliver very good returns to our shareholders. Regarding the first question on the products, we could have different verticals that we aim for the future. We already mentioned to you during our Suzano Day last year that textile market, it's an important market for us on the future packaging market. It's an important market that we are looking for in the future, then we will consider these possibilities. This is not a decision made at this point of time, but we will consider how we are going to expand on different verticals for the future.

The Q&A session is over. We would like to hand the floor back to Mr. Walter Schalka for his final remarks.

Well, I would like to thank you very much. I'd like to spend 2 or 3 minutes to thank a lot of people here. We are -- after more than 50 of these sessions that I had in the last 11 years with you. I'm going to hand over my position to Beto. But I'd like to thank you, starting thank you, the Board of Directors of Suzano that have been supporting us at the C-level for the last 11 years. I would like to thank you everyone of my colleagues at the C-level that have been working with us to deliver a new company, to transform Suzano all the time. I would like to have a very big applause to more than 40,000 people that every single day have been working with us to make the Suzano better and to impact the society impact all the stakeholders and how we can transform Suzano all the time. And more than that, I would like to thank you as well, the buy and the sell side that we have been working with us for many years, understanding the company, bringing new ideas, investors, there is bringing new ideas to us challenging our position. We are very humble all the time to hear, listen, and to implement things that you have been recommending for us several times. The good news is that the company has been improving. We are not perfect. We will not be perfect, but we have been improving a lot this organization. I'm very pleased from the impact that we had with the society on not only environmental side, but in the social side as well. And on the economic side, creating value to different stakeholders, and I'm very pleased with this development. Thank you very much for that. Now I'm going to pass to Beto Abreu for his few words, and not only a few words, but the first words as a leading of this organization for the future.

Thank you very much, Walter, and hello, everyone. Walter, let me start saying my congratulations to you. It's really very hard to see such a brilliant journey as a leader as you did. So all the best for you in the next cycle. So that's what we all deserve. I also want to say that I'm very glad to join this group to be part of this team. This is a unique organization. This is a very powerful team and a very broad, I would say, business platform to keep creating value for all of our stakeholders. And I must say with the same level of discipline in capital allocation. I also want to say to all of you that we're going to continuously hard working to generate this value. And I'm also looking forward to meet you, either to see you personally to keep talking about our business. So very thank you to attending the call, and I will have the pleasure to be with you in the next coming months. Thank you very much.

The Suzano S.A. First Quarter of the 2024 conference call is concluded. The Investor Relations department is available to answer further questions you may have. Thank you, and have a good afternoon.