Suzano S.A.

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'd like to inform you that all participants will be in a listing mode during the presentation of messages. Valter Schalka, Chief Executive Officer, Marcelo Batti, Financial Investor Relations Executive Officer, Fabio Almeida, Paper and Packaging Executive Officer, Leonardo Grimaldi, Public Commercial Executive Officer, and Aires Galhardo, Public Operations Executive Officer. After the company's remarks are completed, there will be a question and answer session where further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. Before proceeding, please beware that any forward-looking statements are based on beliefs and assumptions of Suzano's management. and all 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 maturely from those expressing such forward-looking statements. Now, I'd like to turn the floor over to Mr. Walter Schalke. Please, Mr. Walter Schalke, you may proceed.

Good morning, everyone. It's a great pleasure to be with you here. Welcome to the session of the second quarter result 2021 of SUSANO. With me here, we have all the executive committee and we'll be ready for a 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 reinforced Our competitiveness and resilience. I think it's very important to bring to the surface our very robust balance sheet with long-term and low cost of debt and high liquidity, what is critical for the high-intensive critical industry that we are in. 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 there is on 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 Pope 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 with diversity and inclusion related with women in the leadership. I'm very pleased to mention to you as well The IPO of Spinova is one of the investments related with our innovability targets for the future where we have around 20% market ownership and the market cap of the company right now is over 500 million euros. Now I'm going to pass to Fabio Almeida that is going to share with us about our

Thanks, Walter, and good morning, everyone. Let's look at the paper and package business unit results for the second quarter of 2021 on slide number four. Despite the continuous challenge imposed by the second wave of COVID in Brazil and in Latin America during the quarter, Suzano delivered a solid performance on a year-over-year basis, and even when compared to previous Thank you very much. mainly because of weak basis of comparison in 2020, the hardest 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 print and writing papers consumption, and a strong paper board 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 rise in the same quarter of 2020 and 6% higher than Q1 2021. During the period, Suzano has successfully implemented the previously announced price increases for all product lines and markets we serve. With a combination of strong volumes, better regional allocation, higher prices, and operational stability, our EBITDA has reached 416 million in the quarter, being 64% and 12% higher Thank you very much. Reaching even more customers with our e-commerce platform, which already accounts for 24% of our total revenue and 65% when taking into account medium and small size customers. It is worth mentioning that we will also keep focused 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 whole business unit.

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

I can speak here about cash costs. Then, please, we are in the slide number six. I am on screen?

Yes, you are on screen.

Okay, okay. Good morning, everyone. We are in the slide number six. The second quarter 2021 cash cost performance, both quarter over quarter and year over year, was marked by the exogenous pressure of rising commodity price, mainly Brent, affecting puts and wood costs, followed by steel 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 a routine maintenance that takes place during scheduling times and the lower volume of energy exports due to a reduced operational availability of turbo generators. In addition, in the second quarter, Suzane started to recognize the disbursements related to COVID-19 on the cash cost production and is no longer considered to be a no recurring nature. Previews are located directly on the COGS. For the coming quarters, the company expects that the cash production costs X down times should remain about flat over second quarter and one, up to a low single digit increase. In the middle term, management initiatives such as energy efficiency, a lower average distance between forest to the mill, and a reduction of third-party woods 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 Botti to continue the presentation. Hey, this is Leo here. You hear me now? I will do it. Yeah, I hear you.

Okay. So maybe we can go back to page number five. I'm sorry, folks, for my technical problems here. So moving back to page number five, just to give you guys our view on the results of the Pope 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 tons in the second quarter, which is in line with previous quarters prior to the 2020 and 2019 Non-recurring periods. Hope consumption has exceeded our expectations across all paper grades in Europe, but in China, hope order intake was reduced during the end of May and in June, as paper and board producers have taken production downtimes to adjust for weaker seasonal months, notably June and July. Our inventories close the quarter below optimum operational levels, and this is still ongoing as we speak. 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 Q21. Some specific and non-recurring 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 do mainly will lower order intake from our captive customers in China during the second half of Q2. And when we combine this with specific breakbook vessels 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 prize 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 5.5 billion reais in the quarter represent an all time record for the pool business with a 65% EBITDA margin. Now, looking forward, we are really sensing pickup in order intake in China. Thank you very much. With the upside risks of the often unexpected downtimes, and here just to point out, RISE's recent forecasts 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 their 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 recent UN paper reports. And in Europe, according to Aeropulp, 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 Ares, and now I'm going to move on to Bachi so that he talks a little bit about our financial position.

Thank you, Leo. Let's move on to page seven, where we see that during Q2, we advanced 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 3.3 times down from last quarter, coming from 4.7 one year ago, which is a significant advance. 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 $3 billion of liquidity, which covers our maturities up to 2024. 90% of our debt matures on or after 2023. Last quarter, we issued very successfully one more sustainability-linked bond, at a very attractive rate, using the proceeds to liquidate shorter maturities, as you can see also on the right-hand side of the page. With that, we reached 87 months average standard on our total debt. Moving to page 8, we see that Q2 was a quarter of a very sharp appreciation of the Brazilian real. Our hedging portfolio responded to that. Delivering a market-to-market gain that we will offset lower potential revenues in the future. Of course, this is not a cash gain. It is mostly a mark-to-market gain. It has the same relevance that the losses that we posted in the past have. It has to be seen over time according to the business cycle that we have. Our dollar-denominated debt also posted FX gains following our strategy of carrying only dollar-denominated debt, both directly or through derivatives. In the same manner, this will offset potential lower revenues and the fifth real continues to be appreciated. Of course, it was at 5 at the end of the quarter. We are now at 5.24. The situation is different. We continue to have a robust cash flow hedge portfolio that protects us from potential further BRL appreciation. Our average portfolio sits now at 5.21. Call at 6, which is a significant advancement as well in relation to the position we had last quarter. Moving to page 9, our financial discipline is also evidenced on our CAPEX program. We disbursed on the quarter R$ 1.3 billion, the same amount as Q1, and confirmed our guidance of R$ 6.2 billion for the full year, already considering R$ 1 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 will continue to reduce our cash costs. This is part of our DNA, not only cash costs, but expenses as well. This is how we are going to look forward to 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 leveraged. It's a very important and a key metric for us and we will keep working on this, not with Thank you very much. Thank you. 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 continue to do advocacy in order to mitigate the situation that we have being and now was presented by IPCC in the last few days the importance of reduction on greenhouse emissions 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. The executive committee will be ready for your questions.

Thank you. The floor is now open for questions. If you have a question, please press star one. Mr. Jorge Staffos would like to make a question.

Hi, everyone. Good morning. 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 – 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 Pinto Paiva, Luis Renato Costa Bueno, Leonardo Barretto De Araujo Grimaldi, Fabio Almeida de Oliveira, Carlos Anibal Fernandez de Almeida, Douglas Seibert Lazaretti, 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 organ 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. Thank you very much. The smaller order intake that we have had consequently in May and June, so that the stocks 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 Baldino region, are also now returning to purchases and now recovering their production. So we see that the correction that happened in In July, again, paper prices and coal prices and the reduction of intermediary stocks is making all the chain rotate again and move, which is quite positive. And we see a lot of positive perspectives in that sense.

Thank you for your question in terms of cash cost. I mentioned in our last session that we expected an increase in our cash costs around 7%. We come with nine. But we believe that the following quarters will remain about flat this second quarter. Up to a single digit, probably one or two percent. 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 forward here in Brazil, probably in the coming quarters, we will reduce a lot of costs that we have with these protocols in our facilities. We will increase our availability in the turbo generators in order to produce a higher earning surplus. And it remains that we expect our operating stability. All of Our conception in chemicals and other inputs are under control and I don't see any risk to impact for this reason the cash cost.

Thank you, Iris. Thank you, everybody.

Mr. Leonardo Correa would like to make a question.

Good morning, everyone. Thank you. So I'm going to still insist on the price realization of the quarter, which was, I think, 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 carryover happening in the quarter, right, in the second quarter with the A very strong rally in oil 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 lag effect from the second. There is a... 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 a cash flow? 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, that would be great. I'm also curious to hear... I mean, the pulp industry has been over the past years been trying to reduce discounts, mainly in Europe, on the pulp pricing. 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 carry over. Since our order intake was lower in May and June, our supply chain to Asia is back on track and reestablished. So we are caught 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 this specific happening for Suzano in the second quarter of the year. Sorry, can you please repeat your second question Leo? 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 and 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, a 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 S.A.

Thank you. Mr. Thiago Lofiego would like to make a question.

Hi, can you hear me, guys?

Yes, we are here, Thiago.

Okay. All right. Thank you. 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 collection? So, are you seeing improved demand after, you know, the sharp drop in poll prices? And also, if you could give us some color on the paper, Do you see paper prices starting to rise at this point? And how is the inventory situation, the pulp inventory situation with the paper makers in China at this point? And within this same China question, is there any update on the COVID situation in China? We saw that one of the ports in China closed. Are you hearing anything different or any concerns on that front? And then my second question on paper demand in Brazil, 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 markets. Thank you.

Okay, thanks, Tiago. So I'm going to start with both sides of your questions, first related to market conditions. I 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 bulk 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 and away from home tissue, we are seeing and sensing some non-traditional 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 and not only for Suzanne or the South American producers. I think global trade is all impacted by that. We also see customers now getting also concerned 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 positioned 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 risks that we have of the unexpected downtimes. Rizzi just presented Brand new, fresh information during the RISI Latin America Conference a few days ago, and they expect, due to their statistics and modeling, 700,000 to 800,000 tons 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 you asked, have increased in the beginning of the year tremendously, more than 30%. Then they have reduced 30% in May, June, compressing a lot the margin of producers and may be one of the catalysts for the reduction of the pool 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 200 RMBs. For August, and we believe this is a startup 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 question on pulp inventories, we see pulp inventories in China growing. Thank you very much. Thank you very much. and 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, only the restraining of some regional traveling in China. That's our sense for the time being. I'll now pass 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 you know with in-person students attending to schools and also the opening of the offices what should happen should help also the demand for office paper so we have these two factors that should help us with the demand in the domestic market As of paper board, 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 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, we're 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.

Thank you, Fabio. 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... Yeah, in the third quarter, yeah. I'm sorry, Chagas, could you repeat?

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

For paper, we have already implemented most of our price increases that we have announced, so we should not expect any carryover.

Okay. All right. Thank you, Léo. Thank you, Fabio. Thanks.

Mr. Daniel Sanson would like to make a question.

Hi, everyone. Good morning. Thanks for the opportunity. My first question is on your own inventory. You mentioned that they are still below normalized levels, which could be read as good news, given that you are basically selling everything you produce. But below normalized levels, does that mean that you will proactively aim at restoring Pinto de Almeida de Oliveira What do you expect with the start of new projects in the industry? When do you expect those new plants to effectively impact supply in the market? Thank you.

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 For this quarter, starting in a few weeks from now, in the end of August, this is traditionally the beginning of a high peak season in terms of paper board seasonality, which consequently will move both volumes further. This is to be boosted, in our view, by the recovery of economies throughout the globe, also by software substitution by hardware, and also with all the opportunities that we see of virgin fibers In general, substituting recycled braids and recycled fibers due to their lack of availability. And one example of that is sorted office products in a way from home tissue. They were very much used in that sense. And due to the lack of sorted office products, paper, recycled products, Recycled paper, we see a push or a 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. Breakbook, containers, ports congestion, several COVID cases impacting full vessels crew and getting the vessels stuck for at least 14 days at the port. So this is kind of ongoing. Our customers are reporting these challenges of how to build up their raw material inventories to support the better demand that will happen a 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 their dates or their startup dates are the same that you have. We have the official Thank you very much.

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

Thank you. Good morning, everyone. A couple of questions. One is on the geographical distribution of your pulp sales. How do you see that going forward vis-à-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, Paul 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 have 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 We do have certain specific normal downtimes on our plants related with our Thank you very much Walter and Leo. Mr. Rafael Barcelos would like to make a question.

Good morning and thanks for taking my question. My first question is really a follow-up on prices. I mean, do you believe that the new capacity that will arrive in the end of this year already affecting the bull price negotiations? And how do you see buyer sentiment at the moment? And my second question is related to Spinova. Suzano has currently almost 30% of Spinova. 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 Spinova adding value to Susano and how should we think about this going forward? Thank you.

Rafael, this is Leonardo here. I'm going to take your first question on Pope and on Pope 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 a few weeks or a few months from now. These 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 of $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 the channel had to readjust so that or the intake would be back again into a 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 startup of this new incoming capacity because I think it's to the knowledge of everyone that when you add a regular ramp-up in a project like this one, close all the logistics constraints that we have today And the probability of the volumes actually only arriving at the utmost 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 Spinova. Spinova 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 on sales so far is very low, but the market has understood that the technology is very promising in a way that it allowed the company to go public at a very attractive valuation. Susano 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 Spinova 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, Susana will incorporate this technology into our strategy when it comes to textiles.

Okay, thank you.

Mr. Caio Ribeiro would like to make a question.

Yeah, good morning. Thank you for taking my questions. So the first one is on the significant price spread between regions, you know, that exists today for pulp prices. I just wanted to see if you could comment on how you think that will evolve in the coming quarters. You know, 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 they 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. You know 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 month, right? We are very optimistic on that, and that should support a firm and 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're 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 non-integrated announcements as I have pinpoint 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 Pope side, we are very... Thank you very much. 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 folk side or the BCTMP part of those mills happening.

Perfect. That's very clear. Thank you.

Remembering, if you have a question, please press star 1. Remembering, if you have a question, please press star 1.

Alessandra, I think we are getting close to the end of the session. I would like to have my final speech here. I would like to thank you very much for everyone to be joining us on this session. I would like just to bring to you the long-term perspective. I think several questions Thank you very much. Thank you. One of the lowest cost producer in the world and will begin even better for the future. I'm sure about that. We will continue our expansion on our pulp production with a new project 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 Thank you very much. Thank you very much. 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. There is critical for all of us. Thank you to all and have a good time.

Thank you. Water results conference call is finished. Have a nice day.