Suzano S.A.

Ladies and gentlemen, thank you for holding and welcome to Suzano's conference call to discuss the results for the first quarter of 2020-21. We would like to inform that all participants will be in a listen-only mode during the presentation of Mr. Walter Schalke, Chief Executive Officer Marcelo Bacci, Financial and Investor Relations Executive Officer Fabio Almeida, Paper and Packaging Executive Officer Leonardo Grimaldi, Pope Commercial Executive Officer, and Aires Galhardo, Pope Operation Executive Officer. After the company's remarks are completed, there will be a question and answer session when further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. Before proceeding, please be aware that any forward-looking statements are based on the beliefs and assumptions of Susanus 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 would like to turn the floor over to Mr. Walter Schalka. Please, Mr. Walter, you may proceed.

Good morning and good afternoon to everyone. It's a great pleasure to be with you today. Welcome to the first quarter results video conference of SUSANA. With us here, we have all the executive committee. At the end of the session, we'll be ready to answer your on a Q&A session. Today, team, it's a very important day. I think it's a historical day for us. We are announcing not only extremely good operational results, but we are preparing the company for the future. As you may know, we have been discussing with you for several times about several capital allocation alternatives that we have, and one of them would be to keep our relevance on the pulp market for the future. And we are announcing today, under certain precedent conditions, the approval of the Projeto Cerrado that we are going to share with you during this session. We'd like to start presenting to you the operational highlights that we had on the first quarter. First, mentioning about the pulp volume. We were able to sell 2.7 million tons in this quarter. We have yet to match all the price in government on this region, as things are lagging in this process, and in specific geographic states. On the paper market, we had extremely good performance with sales that come back at the same level that we had before the COVID-19 issue, comparing with the first quarter of 2019. On the pulp inventories, we are very stable comparing Marcos Moreno Chagas We had an operating cash flow of 3.9 billion reais. and this could lead us to deliver the company at a faster pace as we are going to mention to you in a few moments. Our cash cost was 623 reais per ton, extremely competitive but I'd like to leave a warning to you at this point of time that the brand prices and exchange rate FX and combining with higher chemical costs Thank you very much. Thank you. The benefit of higher prices and better effects on our results and leverage going down at a very fast pace. End of last year was 4.3, right now is 3.8 and we are approaching the level on our financial policies that have to be between two and three times and three and a half times during the expansion of projects. Our financial discipline is critical for us. We are going to discuss in a matter of moments about our new project, the Projeto Cerrado, and the conditions under this project. Now I'm going to pass to Fabio that is going to show you our performance on the packaging and paper business. The floor is yours, Fabio.

Walter, Fabio is having problems in connection. I'm back. Okay, great.

Thanks Walter. Good morning everyone. I'm sorry about the connection problem here. Please, let's turn to slide number four in the presentation. Let's look at the paper and packaging business unit results for the first quarter of 2021. The figures presented here are specific to our paper and packaging business unit, therefore excluding Suzano Consumer Business Unit's results. Despite several challenges imposed by the second wave of COVID in Brazil, the paper and packaging business believed that solid performance were compared in a year-over-year basis, indicating demand recovery, the domestic, international market, and better overall pricing. As you can see in the top graph and look at our sales figure, Q1 2021 has been our best first quarter in terms of volumes for the past two years, indicating demands recovering after the major impact last year. We have sold 264,000 tons during the first quarter of 2021, which is a 10.4% increase compared to the first quarter of 2020, and we were 18.4% below the Q4 2020, mainly due to seasonality of demand in the domestic market between periods. Domestic sales represent approximately 67% of our total sales in the quarter, totaling 176,000 tons, a 13.5% increase on a year-over-year basis. Strong recovery is mainly led by our paperboard sales, which have grown 13.8% year-over-year, with a strong demand for paper packaging products in the period. Our domestic print and write and paper sales also grew by 9.6% on a year-over-year basis, reflecting continuous demand recovered, which started in the second half of 2020. Our international sales totaled 88,000 tons in the first quarter of 2021, a growth of 4.7% year-over-year and with a 5.3% reduction quarter-over-quarter. Many export markets are still suffering from continuous logistics bottlenecks. Rising logistics and pop costs pushed paper prices higher in our international markets, and that, coupled with a weaker real, allowed Suzano to export more at better conditions. Looking at the lower left side, we can note that our average prices during the quarter totaled 4,192 reais per ton, being 8% higher than our average prices in Q4, and 9.6% higher and our Q1 prices of last year. During the period, SUSAN has announced multiple price increases to its entire portfolio and to all markets we serve. We expect full implementation of these price increases in the months to come. Looking at the lower right part of this slide, we can note that our EBITDA totaled 373 million in the first quarter of 2021, being 28.6% higher on a year-over-year basis. and 8.5 lower on a quarter-over-quarter basis, mainly due to seasonality between periods. Our EBITDA margin has reached R$1,412 per ton, which is an all-time record for the paper and packaging business. Now I would like to invite Leo to present the results of our whole business unit.

Thanks, Fabio. And good morning, everyone. So now let's move to page five of our presentation. As you will note, the results of our pool business unit were positive in this first quarter 2021, supported by solid sales volumes with increasing prices at all regions and still low stocks. Just to give a recap on the market during the first quarter, after the inflection point, which we perceived in the fourth Q20, several factors continue to align and support The positive market fundamentals which were present throughout this first quarter. On the supply side, we have noticed low producer pulp inventories coming into 2021. And production downtime during this quarter, both planned and unplanned, have shortened even further the availability of market pulp. When we add the logistics constraints on container shipments which have reached the breakbook trade, We note even further challenges on the supply side of the equation. On the demand side, we have noticed positive consumption trends in tissue, paperboard, specialty grades, and the recovery of printing and writing grades from 2020 levels in all markets. Fairness paper and paperboard production, as well as end demand, has been positive in all of these mentioned grades, supported by a strong economic recovery and consumption, as well as positive exports of products to other regions of the world. Additionally, we have been noticing price increase implementation in most paper and paper board grades in all markets, which obviously help support these positive fundamentals. Regarding our production in the quarter, I would like to recognize all the actions that our team has been taking in this critical COVID-19 pandemic moment, remaining focused on very strict Very strict health and safety protocols for our employees and for the uninterrupted operation of all of our meals and supply chains. Looking at our numbers for the quarter, we have sold, as Walter mentioned, 2.7 million tons of market pulp, which is in line with our fourth quarter sales. These volumes consequently bring us to low inventory levels for the quarter, and we are endeavoring our best effort to meet our customers' ideal needs in a turbulent supply chain scenario caused by these logistics problems and constraints that we have been facing. Our sales for the last 12 months reached 10.6 million tons of market volume. Our average export prices have reached $532 per ton in the first quarter of 2021, which is a 16% increase when compared to the fourth quarter, or equivalent to R$2,913 per ton. When we factor in the strong sales figures which were presented in the quarter, the increasing prices, both in U.S. dollars and also in Brazilian Reais terms, we reach an EBITDA of 4.5 million Reais for the first quarter 21, being 1,683 Reais per ton, or equivalent to a 59% EBITDA margin. Looking forward, we continue to focus on the execution of our commercial strategy, Taking advantage of the supply and demand fundamentals, which continue to be very supportive. Supply continues to be tight, considering low producer inventories, production curtailments due to the spring maintenance shutdown season, mainly in the northern hemisphere. Unexpected production losses still continue to happen, in addition to constraints in global logistics, as I mentioned before. Demand for pulp continues to be solid in all major markets, and our order intake is also positive and according to our expectations. With that said, I would now like to invite Walter back so that he can give us more news on our next bold strategic move, the Cerrado project.

Thank you, Leo. It's a great opportunity to share with you our view about the future. It's very important to tell you that we have been implementing our A purpose, there is renew life through trees that we have been discussing with you in the last several years. Our ambition is to impact the society with this project, not only in the economic side, but on the environmental and social side as well. And this is very important to you. Iris is going to show with you in a few moments about our vision of this specific details of this project. But it is very important to mention to you there would be an extremely positive project for all stakeholders. We will impact and create value for our shareholders in one side, but we will have extremely good benefits as well on the environmental effect through increasing our carbon sequestration Thank you very much. Thank you very much. The first condition would be to follow very close our financial policies. As you may know, we have a policy of between two and three times net debt over EBITDA. But during the expansion period program, we can reach three and a half times. We believe that with this project, and Bart is going to share with you, we are going to be, during this program, Thank you very much. Thank you. How, with whom and with whom we are going to use and use this technology for the future. On the slide number eight, you can see that we have been moving ahead with our long-term strategy. One of the avenues that we have been telling you during the Susanna Day is our relevance on the pulp market. This is going to increase our competitiveness on this industry since we are going to have even better cash cost comparing with our average best cash cost of the system. It's going to be the lowest cash cost of all of our plants. We are going to have a very good resiliency in terms of returns on capital employed. Even on very difficult and acid scenarios, we will deliver Extremely good return on capital employed. We will increase our economies of scale. That is important as well. We are going to exceed 13 million tons of total capacity on our system. We will believe that we can expand the addressable markets with this project. As you may know, we have been discussing with you that innovability and bioeconomy is very important to us. Then we are going to use this opportunity to bring alternatives of short fiber use to several other markets that could replace recycled pulp, could replace long fiber pulp, and could replace fossil fuel products for the future. And this could be a very good opportunity. and not less important is going to contribute of our sustainability goals. We will announce our ESG results next week on our website and we were very pleased that we are going to have even higher targets for the future with this project. We are extremely Good on the environmental and the social side as well, creating a major impact on that specific country region. Now I'm going to pass to Aires that is going to explain a little bit of details of this project.

Thank you, Walter. Good morning, everybody. It's a great pleasure to be here with you announcing this important Suzano encrustment in the state of Maturus do Sul. that will greatly contribute to the development of the region and the growth of the economy in Brazil. As you already know, the Cerrado project is located in the city of Ribas do Rio Pardo, in the state of Mato Grosso do Sul, approximately 100 kilometers from the capital, Campo Grande. This new plant will be able to produce 2.3 million tons of pulp per year, and it will have The lowest production cost of our acid base. This excellent cost-compativeness is the result of a combination of the following factors.

An average extrude supply radius of 60 kilometers.

An energy surplus generation of 108 megawatts in average.

An efficient logistics system

For supplying and exporting production And a modern eco-efficient system in the treatment of residues Our estimate is that the Cerrado project will start up in the first quarter of 2024 And the necessary capex to invest inside the fence That is, industrial capex, infrastructure, indirect costs of 14.7 billion reais, considering the effects of 5.25. Now I give the floor to Marcelo, who will address the financial issues of the Cerrado project.

Thank you, Aires. Hello, everyone. Moving to page 10, I'd like to emphasize that the Cerrado project is very special in the sense that it's very low cost of production. This is a must for us. Zono will always seek to enhance its low cost of production position globally. On the following page, page 11, we show that the capex will be concentrated in 2022 and 2023 with only 1.3 billion reais expected to be spent this year. We've been preparing the company for that over the last two years, moving forward on a constant basis our debt maturities to 2025 and onwards. And therefore, we've prepared our maturity schedule to cope with the CAPEX execution that will be concentrated in years where the maturities are very low. So we are very well prepared from the financial discipline point of view to On the following page, we update our CAPEX program for 2021 as a result of this announcement, including R$1 billion of industrial and infrastructure CAPEX related to Cerrado project, plus R$300 million of additional forestry CAPEX also related to the project. So now the guidance for the year is R$6.2 billion of total CAPEX. Moving to page 13, we would like to highlight the key points of this project. First, the project will enhance our relevance in the pulp market over the years as a result of the belief that we have in the continuous growth of pulp demand with the current applications and with new applications of pulp. And at the same time, it will improve our cost advantage that is so important to us. Moreover, we will be significantly advancing in our ESG goals with the additional forests and the very high eco-efficiency that the new plant will bring. So climate change with the new forest will be impacted, plus additional renewable energy exports, plus the development that will be to this region contributing to the mitigation of inequality. We have in our team A very experienced team with a very good track record in implementing projects of this nature. So we are very confident that we will be able to deliver this project on time and on budget. And at the same time, we now bring with this project a new important point, which is the ability that Suzano has to implement a project of this size, with only internally generated cash flow. We are not planning to take on any new project-specific financing, but rather to rely on the cash position that we have today plus the cash flow generation that we're going to have over the coming years. And this will all be done with absolute compliance with our financial policy, financial discipline. So this is very different this time around when compared to other Thank you. The floor is now open for questions.

If you have a question, please press star 1.

Our first question comes from Tiago Lofiego Bradesco.

Good morning, guys. Thank you. So, two questions on my side. The first one, how should we think about the wood supply equation for the project? You mentioned 85% of the wood requirement is already under contracts. I just would like to understand this a little bit better. What does that exactly mean? Is this for the first years or is it for the long term already? As far as I know, you own roughly $100,000 The project demands something like 200,000 actors, right? So just would like to understand this equation a little better and potential new CapEx involved on the forestry side, right? And then the second question, it's about the project's internal rate of return. Bachi, you mentioned and you put a slide with sensitivity analysis there, but could you give us some numbers? What would be Like the more acid scenario, internal rate of return, maybe a range, just for us to understand how the project goes in the very negative scenario. Maybe with $500 per tonne pulp and BRL at four or five, maybe a range. Thank you.

Good morning, Tiago, and thanks for your question. So on the wood side, We already have most of the volume contracted for the first cycle. By that, I mean for the first seven years. That means that, again, on the wood side, we are already ready to start a new mill.

Carlos, can you tell us, like, longer term, like, what could be, like, the additional cathetics needed? And like the percentage of own land versus, you know, leased land, etc. Maybe a ballpark estimate for us to understand a little bit better.

Yes, all I can say right now, Chuck, is that we are already expanding our forest basis and the plantation pace will only increase from now onwards. By the end of this year, I can say that we will have a relevant part of our plantations established. Chago, due to the commercial sensitivity of such information, we cannot disclose any other information like the volume or area for the time being. I hope that you can comprehend that sensitivity now.

Of course, yes. Thank you, Carlos.

Chago, in relation to the internal rate of return, we are not in a position to share specific numbers with you. But I read your report and I can say that your analysis of the net present value of the project is not too different from the analysis that we have internally here. In any potential scenario, according to what the history shows to us of fall prices, this project will always be generating cash, positive cash, after CAPEX. And in only a very few scenarios, this cash flow generation will be below the necessary to have a positive value generation in the sense that the return will be, in most cases, above our cost of capital. But of course, you understand that this is very sensitive to poll prices. And again, your analysis is not too different from our internal view.

That's clear. Thank you, Bachi. Thank you, Carlos, again.

Our next question comes from George Staffos, Pink of America.

Hi, everyone. Good morning. Thank you for the details and good luck with the project. I wanted to go back to the cost positioning of the Cerrado mill and what makes you comfortable that it'll be your lowest cost mill in the system. My guess is it's going to be Thank you very much.

Thank you, George. Is Walter answering this question? It's very important to mention to you and to all of you that one of our key strategic views for the future is to increase our competitiveness. As you know, our total disbursement cost is a critical factor that we have been telling you to the future that we have been working on. There is the combining number of OPEX and CAPEX on the forest, industrial and logistic area. We have been working on this dimension in every single plant of our asset base. Specific in the Cerrado project is going to be the lowest of all of the others. And the reason behind that is the first, As you know, wood represents more than 40% of our total cost, and wood is going to be extremely competitive. We are not going to operate only with very low average distance, but with off-roads in EXA trains, that is very important with us, with higher trucks, bigger trucks that could bring more wood. Thank you very much. and any other plant of our system. And this is the reason behind that we believe, as Marcelo mentioned, that we are going to generate cash in any single alternative combining FX and full price for the future.

Walter, thank you. Just a point of clarification. What energy assumption have you Baked In, as we would say, to your energy benefit for the project over the course of the cycle. And then my other question, I will turn it over. As we sit here today in terms of pricing that has been accepted by customers, pricing that's been reflected in the published benchmarks, what additional pricing should we bake in? I'm not asking about any new initiatives that you might have, but just Based on what's already happened, what benefit should we see from pricing in 2Q, and what embedded inflation do you have in inventory and cash costs should we expect for 2Q? Thank you very much, and good luck in the quarter, and congratulations.

Thank you, George. Just to complement your question related with the cash costs, the company will operate this plant With major sales to Aden Energy Grid, we are not going to disclose any information about guidance on energy prices. But I can tell you that it's not going to be different from what we have today. Not today, but during the last years. Of course, if it's today, today the energy price is very high. But if you compare the average price of the last years, this is exactly the same amount that we have in the calculations that you use for the future of this.

Very clear.

Now, you know about the market.

Yeah, sure. Hi, George. Good morning. And so talking a little bit about our prices, as you know, we have announced seven hundred and eighty dollars for China. April and change for May and announce now a new increase of $80 for Europe and North America, bringing these local prices to $1,090 per ton and in the U.S. at $1,320. We believe strongly that the current market conditions fully support the implementation of these announced prices. It is also important to mention that the prices that were lately or recently announced are all being fully implemented with no discounts, no discount from these price levels that I mentioned to you. But it's also important to bear in mind that the price realization may pose delays in both directions, up or down, especially when the curves are moving so quickly as they are. And this is why we increase implementation. And we are watching very closely about their ability to do so and also the ability of the price implementations and other major markets, as this will all be very important for the equation of the fundamentals to our business.

Thank you, guys.

I think Marcelo could answer a little bit about the second question that was not answered yet.

Yeah, Daniel, on the CAPEX flexibility, we are still negotiating with the major equipment suppliers, so the CAPEX schedule is still Thank you very much. At this point, we have tried to minimize the CAPEX volume in the first year, in 2021, but we will have certainly room to manage the additional years.

Perfect. Thank you. Our next question comes from Leonardo Correa, BTG Pactual.

Yes. Good morning, everyone. Thank you. The first question for Marcelo, looking at the leverage numbers, when Susano acquired Fibia back early and started consolidating the numbers in 2019, Susano's net debt number was about 54 billion reais. Since then, clearly the currency changed. and that had an unexpected negative impact. Six billion. So we've seen 68 billion highs of net debt. And again, the currency has been a big headwind, right, on the deleveraging. To get your thoughts on How are you seeing this evolution and maybe what type of targets be speaking of in terms of absolute net debt? I understand that EBITDA generation has changed, has completely improved and changed. But as always, we never know the denominator, right? I mean, we've lived through many cycles and prices go up and down quite aggressively in these markets, right? So just if you can focus on the net debt generation On an absolute basis and where you see that trending, especially now with this new 15 billion reais project being announced at a time where net debt is still very high, right? I just wanted to see your thoughts on that. And the second question, maybe for Valter, just moving back to the basics, right, on the thought process, on how you guys have been thinking and why the approval at this point I understand leverage is now more manageable from a net debt to bidat perspective and the cycle improved. But just thinking of the competitive environment, the main competitor in the region is still under turmoil with the big dispute between shareholders. So it doesn't seem that any competitors have been moving up to approve a project in the region. So I just wanted to understand a bit more of the thought process on why now and Leo, thank you for your question. In terms of the debt, remember that right after the merger, our net debt was around 13 billion dollars.

and we believe that we have to keep looking at it in dollar terms because this is the currency in which we generate our cash flow. This is the currency in which 100% of our net debt is denominated indirectly or indirectly through fall. So we came down from $13 billion on a sequence of reductions over the years and this first quarter of this year we posted a very significant reduction in the nominal number of our net debt. We've been doing that even in years of difficult scenarios like 2020 last year, where we had the lowest average coal price of the history. And even so, in that year, we reduced by 1.2, 1.3 billion dollars our net debt. So we've been moving very well along that direction. We gave, by the time of the merger, we gave A number to the market that our goal was to have net debt of around $10 billion. We are approaching that number. And of course, when we talk about on a per ton basis, that $10 billion would be around $800 per ton of capacity. So if you adjust that to the new capacity, that would mean about $11.5 to $12 billion. So we will be well below that. Even during the execution phase of the project we will be approaching 10 billion dollars at the end of this year and our idea is to keep the nominal debt in a number that we believe is very well manageable to us and also the leverage in relation to EBITDA which at this point of course is favored by the fact that the EBITDA is very high but even when we do our projections over time we of course don't consider forever Thank you very much for your second question. We believe that we have been preparing this project for a period of time.

and all of the social conditions in the region with the permits of the local government and not only but addressing all the infrastructure. And we believe that right now we reach almost all the precedent conditions to proceed with this project. We believe that this project is going to increase our competitiveness We believe that we have all the financial conditions to proceed, respecting, as Marcelo mentioned to you, our financial policy that always are going to be one very relevant and disputable position of ourselves in terms of our vision for the future. and we believe that we can expand the addressable market in the years to come that would allow the short fiber to gain market share over other materials. And we believe that with combining organic growth with higher market share, we will allow to have a balanced demand and supply that could bring very good return to our shareholders. This is the reason that we have the decision right now As you may see, our ambition is to have the commissioning of this plan in the first quarter 2024. Then, at that time, we believe that the market would be balanced and would be positive for this new project.

Thank you, Walter and Marcelo.

Our next question comes from Carlos de Alba, Morgan Stanley.

Yeah, good morning, everyone. Thank you very much. So just keeping on the discussion about the project, I would like to ask if you can comment a little bit more on the expected production cost, even if you cannot disclose maybe the number or the range for the production cost, if you can comment how much lower and perhaps a horizontal two line this could be just to give us a sense of how much attractive this is and also if you could elaborate a little bit more on the logistics options to deliver the pulp from the mill to the Santos port and how much cost Thank you, Carlos. I will take your first question. Our current average cash cost of production in the last two quarters has been around R$620 per ton.

And we have a dispersion among our different meals. And for strategic reasons, we don't disclose the number on a meal-by-meal basis. But what I can tell you is that after this new meal, after the startup phase and the ramp-up, this new meal will be the lowest cost-producing unit of Sudano. Even lower than the current better one, which is line two of Tres Lagos. And the reason behind that is, as Walter mentioned in the beginning, a combination of the scale of the meal, the very low average radius, and also the technology applied, the new equipment and new technology that always gets better over time. This is as far as we can go from the strategic point of view in terms of projection of cost of production.

Carlos, good morning. This is Carlos speaking. Thanks for your question. On the outbound list, we have different options and alternatives which are being studied now. We can say that we have already defined part of the solution. It's done. It's concluded. But due to our current discussions for the whole system, we cannot disclose any further information for the time being. and also for the same reason, we cannot make any comment about cost now. So I hope you can understand that.

Carlos, it's very important to mention that we are going to operate at Santos Port. We have two different terminals over there. There is the, in the right side is T332 and the left side is the TPW, Vertere Project. We did not decide from which of the sides we are going to operate yet. But as you may know, both of these terminals are extremely competitive. Then it's very important to mention that we are going to move the volumes from Rio, from the state of Mato Grosso do Sul to the Santos port. And then we have two alternatives, as you may know. This is the reason that Carlos did not want to disclose about these alternatives at this point of time. But I can assure to you that the cost of logistic cost combining terminals, port terminals and rail are going to be at the same level that we have with Tres Lagos today at this point of time.

All right, thank you. And if I may squeeze a last question. And I appreciate your prior responses. How much was the production, the coal production in the first quarter?

We are not disclosing.

Go ahead, Marcelo. What costs affected by fossil fuel and freight? In relation with our guidance of our cash cost or total disbursement to 2024, SEHADO project was not complaining in that number. Then in the following months, probably at the end of the year, as Marcelo mentioned in other meetings, we will update this number for 2024.

Okay, understood. Thank you very much.

Our next question comes from Marcio Farid, JP Morgan.

Thank you. Good morning, everyone. I have just a couple of follow-up questions on the project itself. I think there were a couple of surprises last night during the announcement. The first one was obviously the timing of the announcement, I guess. Consenso are expecting this announcement to come later in the year. So just trying to understand why now. I know you have better visibility in terms of cash flow generation, but how confident are you that this is the right time to make this announcement and start investing, considering the long, you know, the supply conditions for the long term, but also difficulties and challenges in the short term with COVID unfortunately still being around us. And the second point is related to the CAPEX that has been announced. In U.S. dollar terms, it's about 20% to 30% higher than the last project was basically few years ago, a couple of years ago. So just trying to understand what is the main driver of this inflation. I understand that it's equipment inflation, et cetera, but it's also a little bit higher. I was expecting that to be related to higher logistics costs, but logistics doesn't seem to be included. So it sounds like you can expect more CAPEX to come as well. If you can comment a little bit about that as well, that would be great. And lastly, maybe a question to Leo on the pulp markets. Leo, I know you're not disclosing production anymore, but just wanted to understand that if you're still, I know you mentioned other books are good, but Are you still seeing a relatively tight market out there? I mean, are you saying no to some clients still? Or is everybody getting, I guess, now, obviously, a 780 at high prices, but are you still saying no? Can you still see that tightness on the market? Thanks, everyone.

Well, thank you very much, Márcio, for your question. First, I'd like to answer about the timing of the project. If you have a deep analysis on our forecast disbursement of this project you are going to see that this year we are going to have the minor effect just representing 9% of the total amount meaning that end of this year we are planning to have a very strong cash position since our cash generation has been very robust and with higher realized poll prices in the coming quarters, we are going to have a very positive cash generation for the company. And we believe that next year we are going to be in a position, a much better position, not only in the sanitary conditions due to COVID, but on the financial position as well to have higher disbursements early next year. Then we are Well positioned. This year, the CAPEX is going to be very limited. And we are very comfortable with that position. Related with the CAPEX per ton, as you mentioned, I will bring to the surface two different issues. First, the Tres Lagos was a brownfield, not a greenfield. Of course, we have a certain difference on that. All the infrastructure that is necessary to do it. And the second point is that we are in the all-time high iron ore and steel prices that we consider on our project, combined with very high effects. If you believe that in the coming quarters or month, the steel price will go to be lower on iron ore, we could have some benefit on that that we are not considering at this point of time. We believe that 1,200 per ton that we have roughly inside the fence considered to this project. It's basically a little bit better than the average capex per ton of other projects in South America.

Should I jump in now? Yeah. Thank you for your question. In order to answer that Let me give two step backs. At first, it's important to say that we have reached our record low stocks in the end of 2020, as Carlos mentioned in the last call with all of us, and we have been seeing increasing challenges in logistics ever since then. So that brings us to two very clear priorities. The first priority is to implement price or all the announced price increases that we have made public. And as I have mentioned before, this is being done with no exception. The second priority we have is to well service our customers, which obviously depend on us, rely on us. And with all this supply chain challenge, We are really focusing on how to make sure that there will be no interruption. So for the time being, we are really devoted into how to service better or make sure that there are no interruptions to our current supply chain with our existing customers. And we do not have additional technologies to be sold in spot markets or in customers which are not in Susana's customer base as we speak.

That is very clear. Thank you a lot, Walter and Leo, and good luck on the quarter.

Thank you.

Our next question comes from Jonathan Brent, HSBC.

Hi, good morning, everyone. Just to follow up on that last question, Leo, it seems like You're saying that the market is still really tight and you've implemented all of your price hikes. And we've seen significant price hikes in the first half of the year. So I guess I'm wondering why weren't you pushing for May price hikes? Is there something that has changed? Is the market not as tight as it was before? Or is it simply there's this supply chain issue? Because it would seem to me based on your comments that Marcos Moreno Chagas Paul Prices can change pretty quickly and have become more volatile. I know you're pretty comfortable now saying you won't breach the 3.5 times net debt, but have you run the scenario analysis? What happens if Paul Prices next year go back to $500 or $550? Are you still comfortable in that scenario that you wouldn't breach the 3.5 times net debt? And then, you know, just sort of related to that, you know, because you're starting up this CapEx cycle, have you given any consideration to potentially trying to hedge pulp prices, you know, in some of the Asian exchanges? I know it's not a perfect hedge, but have you considered trying to lock in today's pulp prices given the project? Thank you.

Hey, Jonathan, this is Leo. I will answer your first question related to price. Obviously, we do not give disclosure on our commercial strategy and the rationale behind it. But what I can say is that when we compare prices in China with other regions in the world, we see that in other markets there is still a lag behind it. And therefore, we believe that prices could continue to increase. and other regions in these regions. Historically, prices tend to balance among markets. And related to the levels where prices are now, it's very, very hard to foresee the new levels or what they should be in the next coming weeks or months because there are several new variables that are coming into play which are different from past cycles. First, as I have mentioned before, the supply side. We are just entering the maintenance downtime season in the northern hemisphere and we have been tracking and we see a lot of productions being lost over what was originally at this close for this maintenance period and we know that this might be a new reality at least for 2021 after what happened with all the maintenance downtimes in 2020. On the demand side there is a growing optimism with all the global economic recovery which can result in a seasonality which is completely different than in previous years as well. So the equation is still uncertain for the second half of the year. We are tracking the fundamentals closely and that's all I can say for now.

John, this is Marcelo speaking about your second question. We, of course, we have run different scenarios We have run scenarios using prices around 500 for the coming years. Of course, this is not an indication of what we believe where the prices should be, but of course, knowing that we are exposed to cycles, in a CapEx decision of this size, we run all types of scenarios. We have run scenarios, just to give you an idea, that have, according to past Marcos Moreno Chagas Assumpcao We believe that they may happen, but it is not expected that very low prices could last for a long period of time. And last year was an example of those prices lasting for a year, but we don't believe that prices should be below 500 for a long period of time, for longer than a year, for instance. In terms of pulp hedging, There's this new instrument in the Chinese market that is available, but we are not considering at this point to hedge. Not so much because it's not a perfect hedge, because it's a softwood contract, but mainly because the liquidity of that market is concentrated in the nearby maturities first. So it is not a good instrument to be used to hedge long term, which would be the need in this case. And second, because we still don't feel comfortable in operating in that market, having no experience so far in operating in markets of that nature and not having, in this case, the ability to liquidate physically because we don't produce software. So we are not considering hedging pulp for the time being. All right, great. Thank you both very much.

Our next question comes from Hernan. Give it over to Mr. Walter Schalke for final considerations. Please, Mr. Walter, you may proceed.

Thank you very much for joining us on this session. It's a great pleasure to be with you, and we are very pleased with the announcements that we are doing today. I'm sure that this year is going to be the best year of our history in terms of EBITDA and cash generation, but more than that. We are preparing the company for the future. We have a major ambition to impact all the stakeholders. We are talking about our shareholders, but not only. We are talking about our suppliers, our customers, the communities, our team. We would like to have a very clear vision of creating and sharing value with all the stakeholders. On the other hand, we believe that we have a major Marcos Moreno Chagas Assumpcao, Pablo Gimenez Machado In the last many years, but our mission for the future is going to be even more to impact all the stakeholders and to create and share values with all of them. Thank you very much. I hope everyone stays safe. I'd like in the end of the session to invite all of you to our first ESG call. It's going to be then hold on next June 25. When we are going to announce our next goal on biodiversity, it's going to be our first ESG call and I'd like to invite all of you to this session. Thank you very much and stay safe and well.

Thank you. Suzana, first quarter results conference call is finished.

Thank you for your participation and have a nice day.