Suzano S.A.

Ladies and gentlemen, thank you for holding and welcome to SUSANO's conference call to discuss the results for the first quarter of 2022. 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 Schalke, and the other executive officers. After the company's remarks are completed, there will be a question and answer section 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 Susano'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 the 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 forelooking statements. Now I will turn the floor over to the company's CEO. Mr. Valter Schalke, you may proceed.

Good morning, good afternoon, and good evening to everyone. It's a great pleasure to have you all joining us for the first quarter section of discussions of our results. It's a great pleasure to be with you. I think the main highlight that we have on the first quarter is related with the strong cash generation that we have despite the cost pressures that we have in lower volumes regarding The annual shutdown on several of our facilities in the first quarter of this year. We in the pole business had lower volumes since our inventory is quite low. We are not able to increase our sales than we have to sell just the amount that we have producing that was around 2.4 million tons. We in the paper business We had a very good quarter in terms of production and sales comparing with the previous quarters. And this scenario had 5.1 billion reais on adjusted EBDTA. Even considering the cost pressures in the cash cost that was over Thank you very much. Thank you very much. Our developments on the SCG on the governance. Now we have more than 50% of our board with independent members and with three women out of nine members that representing more than 30% on gender diversity. Now I'm going to pass to Fabio. There is going to tell us a little bit more about our paper and packaging business.

Thanks, Walter. Good morning, everyone. Let's move to page number four. We have had the best Q1 results of our paper and packaging business unit. Strong volumes and prices have led to record Q1 EBITDA and the highest EBITDA per ton for a given quarter. Demand for paper grade products continue to be strong both in the domestic and international markets served by Suzano. The return to presidential activities and the rebound in commercial printing have been positive drivers for tape demand in most markets. Additionally, production disruptions and major mills, coupled with logistics bottlenecks and geopolitical tensions, contribute to the tightening of supply. Raw materials, logistics, and notably energy inflation continue to pressure production costs globally, elevating cash costs and pushing for higher price and energy surcharges. According to IBA, print and writing demand in Brazil has grown 1% in the first two months of 2022 and compared to the same period of 2021, mainly due to an impact of 27% reduction of imported papers. Sales by domestic players have grown a solid 4.6%. Paperboard demand has shrunk 9% in the first two months of 2022 on a year-over-year basis, given the strong comparison period in 2021. Our Q1 sales volumes were 6% higher than Q1 of 2021. Domestic sales represented 67% of our total sales in the quarter, totaling 187,000 tons, a 6% increase compared to the same quarter of last year. Our average net price during the quarter was 10% higher than our average price in Q4 and 28% higher than Q1 last year. As a result of strong volume in prices, revenue management and operation stability, our EBITDA has reached 525 million in the first quarter, a 41% increase compared to the first quarter of 2021. Our EBITDA per ton has reached a new time high. Looking ahead, our major short-term challenges reside in minimizing the pressure of inflation while overcoming the continuous logistics disruptions of maritime shipments and ports and bypassing eventual disruptions caused by geopolitical tensions. Our e-commerce platform accounted for 24% of our total revenues and 54% when considering medium and small-sized customers in the last quarter. We're also on track to deliver our sales from our innovation pipeline, as we have shared during our Susana Day presentation. Strong demand for our products has led to a reduction of our paper inventories, which are currently running below optimum levels. Now I will turn over to Leo, who will be presenting our top business results.

Thank you, Fabio. Good morning, everyone. So let's please move to page five of our presentation so that we can address the results of our pool business unit for the first quarter of 2022. As you will note on the left graph, our sales performance totaled 2.4 million tons in the first Q22. During this quarter, we had the concentration of several planned maintenance downtimes in our pulp mills, as well as some one-off events during the resuming of production on a few of our pulp lines after their planned downtimes. Production rhythm is now fully recovered and our annual production will be delivered as planned. Since our inventories were and still are below optimum levels, we did not have room to compensate the lower production availability which pose therefore additional pressure to our global supply chains to serve our customers. As I have mentioned during our Susana Day presentation, we have withdrawn from all spot markets and are focusing our maximum efforts to fulfill our customers' needs. This first quarter was marked by increasing tightening of the supply-demand balance, mainly as a consequence of supply disruptions all over the world. Due to factors such as planned and unplanned downtimes, sanctions on Russian hardwood for European pulp production, as well as the persistent logistics constraints, which consequently resulted in low pulp stocks throughout the chain. Pulp inventories in European ports closed a quarter 2% below the fourth Q21 and 26% below historic monthly averages since 2018. In China, March pulp inventories posted a 17% reduction when compared to February and were equivalent to the low levels of December 21. This scenario placed challenges to pulp paper and paperboard producers globally as they were running with low inventories while their production figures in order books were quite strong during the quarter. The tightening of the S&D balance has favored therefore price increases in all markets. Our average price for exports for export markets for the quarter has increased to $639 per ton. Since we had a concentration of sales volumes in the end of the quarter, When FX appreciated significantly, the translation of our effective price in U.S. dollar terms using the average FX for the first quarter does not represent precisely our invoiced prices to customers, which was approximately $655 per ton in the first quarter 21. And this base price still does not reflect the full implementation of our price increases, due mainly to invoicing carryover from past quarters orders. I can confirm that our order intake and sales during the quarter were done completely in line with our announced price increases. Our EBITDA of R$4.6 billion, being 2% over the first Q21, was mainly a result of higher prices, despite lower enforced volumes, affects appreciation and cost pressure. Now, looking forward, I would like to highlight the following points. We have been oftenly calling your attention to unexpected downtimes in the overall pulp market and how it has been increasing during the past years, impacting to a larger extent market dynamics. According to our estimates, just between January and April 22, over 1.5 million tons of production has been out of the market unexpectedly. And you all remember that the historical number was close to 700,000 tons a year. So we are already adding up 1.5 million tons. And this figure still does not include recent news about production limitations from a relevant Russian producer for April and May, as reported last week by RISI. When we add up this effect to the planned downtimes, to project delays, and to the challenging logistics globally, we foresee the continuity of a significant restriction in supply of market pulp for the next months. We are also watchful for the magnitude of the effect of the restriction on Russian wood for European poll producers and the additional risks that this can pose for the reduction of BHKP supply. Demand has been strong in Europe and North America, and segments like packaging and specialty papers are reporting order books that exceed 90 days. In China, there is a lower visibility during the past weeks due to measures to contain COVID. In the tissue business, we didn't identify up to now evidence that show a retraction in downstream demand, but it is important to point out that the paper industry has a low operating rate and that a possible regional restriction to production due to lockdowns can be compensated by producers located in other regions. This similar trend was observed during the end of 2021 when energy restriction measures were adopted in some regions in China. In packaging our customers in the ivory board segment, for which, as per my Susanus Day presentation, BHKP represents 35% in their fiber furnished, they report solid production levels benefited by the recovery of their exports since the beginning of the year, while a greater uncertainty is being posed on the printing and writing segment. We expect that hardwood inventories should remain low, and our sources in the ground in China indicate that the flow of imports of BHKP to China should persist at below historic levels during the next months. In our view, The current main concern of paper producers globally is the guarantee of their raw material supply chains, which we can translate by the fact that our customers in all regions are increasing their order books with us, operating at the highest possible limits of their contracts and agreements. More specifically in China, the risk of lockdowns being short-lived and coupled with an expected governmental stimulus program, has been incentivizing customers to strongly push for volumes, translating into a healthy order intake. With that said, I would now like to invite Aires to present our cash cost performance for the quarter.

Thank you, Leo. Good morning, everyone. We are in slide number six. Cash costs excluding downtime in the first quarter 2022 came to R$868 per ton, 16% higher than in the fourth quarter 2021, and above of our expectations on the last quarter earnings call in the beginning of February, when the Russia and Ukraine war was not foreseen. The main drivers of cash cost pressure were pretty much similar when compared to previous quarters. being commodities in the first quarter stressed by the war. As you can see, high input costs took a main toll, mainly due to higher price of chemicals, especially caustic soda, followed by chlorine dioxide, and branch price, especially natural gas, on fuel. The increase in fixed costs was linked to higher-scale downtime seasons, which in turn also impacted their energy export sales. Wood cost remained flattish since the negative impact of the higher diesel cost was offset by lower average forest ranges and the lower share of third-part wood in the period. Despite the appreciation of the average Brazilian reais against U.S. dollars during the quarter, there was no impact from the exchange rate variation On the cash cost due to the effect of inventory turnover of inputs, which results in a delay of about one month between acquisition and consumption. Looking on two-year over-year performance, cash production costs excluding downtime in the first quarter 2022 was 39% higher than in the first quarter 2021. Due to the same most relevant inflationary pressures just mentioned when comparing quarter-over-quarter figures. Higher wood costs reflect the increase in diesel price on harvest and transportation, with no offset by forest operations. The increase in fixed costs and lower energy sales were due to the absence of downtimes in the first quarter 2021. Looking forward, To the remaining quarters of 2022, although endogenous factors would guide us to a lower cash prediction cost, the commodity scenarios still represent a challenge. So, I would say that our latest forecast shows cash costs flourishing going forward. As presented recently at the Suzanne Day in the end of March, Moving to the next slide, the Cerrado project is progressing precisely as scheduled, closing the first quarter of 2022 with the inside defense execution, which corresponds to industrial and infrastructure investments, reaching physical progress of 10%, which is in line with the respective financial disbursements. The overall progress is also evolving as expected, with no new or major risk identified to deliver the product as promised in the second half to N24. Now I pass the floor to Marcelo Basch to continue the presentation.

Thank you, Iris. Moving to page 8, our net debt and our leverage ratio in dollars remained stable during the Despite the acceleration of the Cerrado project disbursements and the devastating labor period, we have now a sizable liquidity position of $5.3 billion and a very light amortization schedule for the next three years, with an average cost of debt at 4.4% a year in 87 months of average tenor. 90% of our debt is at fixed rate. Important to emphasize that. Moving to page 9, it was a quarter of significant FX volatility and a relevant appreciation of the BRL at the end of the quarter. We continue to run our hedging portfolio according to our policy, and at the end of Q1, the mark-to-market of our portfolio turned positive, and we started to receive positive cash adjustment on the cash flow hedge portfolio. We have now a cash flow hedge portfolio of $3.7 billion that gives us a significant downside protection at $5.52 on average and has an elevated call strike. For the Cerrado project hedging portfolio of $600 million, we have even higher average put-to-call levels because it's longer term, as you can see on the graph. Moving to page 10. We made, during Q1, 2.6 billion Reais of Apex. 1.2 billion was related to the Cerrado project. That was a bit below what we expected, but we keep the guidance for the year at 13.6 billion, the same number that we discussed before. We are not including yet the disbursement of the Parque acquisition that we will talk about in the next slide. On slide 11, we have just announced the agreement to buy the parked vehicles for a total of $667 million and two installments. The deal depends on the approval of the General Shareholders Meeting and also CABI. The General Shareholders Meeting will be called in the coming days. As we don't control the timing, we cannot precise at this point when this disbursement will be made, but we expect it to be in the coming months. That acquisition will allow us to reduce our annual capex by $51 million per year in the next 16 years, and that would be even increased by PPI over time. So the acquisition has a very positive effect in terms of net present value, reflecting our lower cost of capital. And this will also enhance our land base by 260,000 hectares in the main states where we operate. Finally, moving to page 12, our favorable cycle is enabling Suzana to pay additional dividends of 800 million reais that was approved in the general shareholder meeting, and also to allocate approximately 1 billion reais in a share buyback program that we have just announced. Those initiatives will be implemented in strict respect to our financial policy, maintaining our robust financial discipline. With that, I turn back to Walter for the conclusion.

Thank you very much. I think the takeaways that we have on this quarter is that we have been with a very good and solid, strong cash generation. And capital allocation, it's critical for us. We are a high-intensity capital company. And then we have been investing on the Cerrado project. Now we have a Very clear program, not dividends policy. We have now this capital location on the buyback program that we have right now and many other areas that we are investing. The company is preparing ourselves for the future in many different areas. It's very important now, after two years, that the cash flow hedging policy, it's very consistent with it to us. We are not here on the speculation on currency. We are here to prepare our cash flow for our needs in the near future. In the terms of the price environment that we have, we are going to see prices going up on the next month since we are not yet reflected all of them in the results. Very pleased that our Cerrado project is on time on budget. And it's very pleased that our ESG agenda continues to do it on the right track, on the right speed for the future. With that, I would like to invite all of you to our second ESG call on June 23rd here in São Paulo. Thank you very much. Now let's go for the Q&A session.

Thank you. The floor is now open for questions. If you have a question, please press star 1. Mr. Leonardo Correa with BTG Pactual would like to make a question. Please, you may proceed.

Hello. Good morning, everyone. Yeah, so thanks for taking the question. My first question for Leo. Leo, we were waiting for Suzanna to announce this $30 price increase into China, right? Maybe some days. Some would consider this maybe a bit more atypical, right? For the industry leader to wait a bit more. So I just wanted to hear you, Leo, on what you're seeing on the ground in China and whether some of the recent I just wanted to hear you on exactly what made you guys pause perhaps and wait a bit more to announce the price hike in China and whether you see conditions ripe for implementation, right, given all the risks and all the uncertainties surrounding the supply chains and lockdowns and We're still in an environment of pressured paper margins in China, and now we're seeing the reselling price in China also drop a bit, right? So it's a tricky market. I understand a lot of volatility, but perhaps we were a bit confused on why you paused to announce this price increase in Asia. And the second question about it, I mean, Suzano is in perhaps a group have been compared with a group of companies, and I know the comparison is not valid and perhaps not ideal, but at many times Susana is compared with several other basic resources companies which have very strong cash return policies, and at times the impression we have speaking to investors is that perhaps Susana has been criticized for embarking in full-out growth and perhaps lower cash returns and lower dividends. And the sensation is that the company, the stock price is penalized for that issue, right? I mean, the stock has been underperforming poll prices and perhaps investors have been looking to other names that have higher cash return potential in the short term, right? So I know that this is a difficult balance and We've been advocates of Susano on the project side, given that these are high return projects and accretive projects. But I understand that maybe the company is suffering some pressure from shareholders to strike a balance between cash returns and growth. So given the buyback, and I know that nothing is completely out of the blue, right? These things are all connected. I just wanted to understand what exactly is behind the move and a bit more of the thought process behind this again unexpected buyback which no one was really indicating right inside the company for the markets at least over the past months. I just wanted to hear you more on how you're viewing this balance between buybacks and growth. That's it guys. Thanks.

Okay, so Leo, good morning. Thank you for your question. The first part of it regarding the timing of our announcement, obviously we had already decided the price increase prior to yesterday night. It was just a question of timing of the announcement. The profile of our customers, the large paper producers in China, we didn't expect that any of them would make any decisions regarding their order intake during Labor Day holidays, so we thought it was unreasonable to announce price increases before that. So that's how we put together our strategy and our decision-making regarding timing of the announcement. Regarding conditions to implementation, We see market as supportive as it has been up to now from Jan to April. S&D fundamentals are very strong. There's a big supply constraint. Citing the two main factors, which are all these unexpected downtimes, which I mentioned just in four months, already exceed 1.5 million tons. This is absolutely impressive. And also the logistics constraints. It only seems to be getting worse and worse as we speak. Additional to that, in China, Our market sources on the ground report that the risks that the lockdown are short-lived, as I mentioned in my speech, together with a plan from the government to reach out for a stimulus program, has been making our customers be very bullish in a sense that they want to guarantee they're going to have raw material, which is once again challenging supply chain. for their third quarter production and sales. Just remembering what we sell in April and May will arrive in China in the third quarter. So they're getting prepared from that. And recent news right after the end of the Labor Day, our office and our market sources again report a much better sentiment than before the holidays. The region, which had a little bit of issues with lockdowns on the previous week, is now fully operational. So the lockdowns are completely over in that region, as well as the internal logistics scenario has been improving, and we see a spike in exports of printing, writing, and also of paperboard from Chinese producers mainly to the Southeast and Asian markets. So this condition is making the sentiment on the streets be much better than it was before.

Leo, thank you very much. It's a very important question. Thank you. Thank you very much. Thank you very much. Our industry is growing through different dimensions. We are gaining market share on the hardwood. We are expanding our addressable market and gaining market share, what we call fiber to fiber, to gain market share over long fiber. We are gaining market share comparing other materials, what we call fossil to fiber, expanding our addressable markets to replace plastics and other materials. And as we are in a growth industry, we are able to have a very good project to present to the market that is delivering extremely good returns. Just remembering what we present several times to our investors in the different moments is that this project is going to be the lowest cash cost on our system. There is the lowest in the world. Thank you very much. In the Oregon, we have been announced this buyback program, but we have financial discipline as well. We are very aware that we cannot increase our net debt in the next coming years. Then we have to balance everything. I think our track record in terms of delivering value to our shareholders is very critical. We had the Merge with Febre. We had the Imperatriz project. We had the Tres Lagos project. The industry is performing value to our shareholders, and we expect that this is going to be more clear in the near future when we are going to show the results after the Cerrado project. Thank you for the question.

Mr. Rafael Barcelos with Santander would like to make a question.

Good morning and thanks for taking my question. So my first question is about costs. I mean, could you please comment a little bit more about your expectations in terms of pooled cash costs in the coming quarters? I mean, would it make sense to believe that the worst in terms of cost pressure is already behind us? And my second question is related to pooled production. Could you please elaborate further on your production run rate in the second queue? Also, do you believe that the ongoing logistical bottlenecks can significantly affect your poop sales volumes in the second queue? Thank you.

Thank you, Rafael, as I was speaking. Regarding cash production costs, our last part was The most challenging quarter represented because we had five important planet shutdowns in our most competitive bills in terms of cash costs. Then, in a normal scenario, we could expect deletion of fixed costs, energy surplus in an increase line, and the wood costs could be in the same line. But how the commodity scenarios is so uncertain to the future, we are considered deliver a flash, a flattish level of cash cost to the next quarters. In terms of production, As I mentioned, we have five important shutdowns in this last quarter. It's not simple to have these stoppages in our mills. And normally, we have a learning curve to restart the pace and the operation stability to have before the stoppage. And we had some occurrence that you have to stop it again, adjust the maintenance, and restart it. But when you consider that the second half we have only two planned shutdowns in our cruise lines A and D, we believe that we are enough room to recover any considerable loss that we had in the first quarter and deliver the same level of volumes that we had last year.

Let me tag along to Ari's explanation on production and get into your question, Rafael, regarding how logistics can or will affect Suzano in the second quarter. We don't see that for some reasons. First of all, we own our terminals in Brazil. We have dedicated vessels to Suzano. And all our production volume is already planned for in terms of how it's going to be Deliver to our customers globally. So we do not see any risks of not delivering our volumes, our increased production volumes, as I already said, to our customers in the second quarter.

Okay, thank you.

Our next question comes from Caio Ribeiro with Bank of America.

Yes, good morning. Thank you for the opportunity. So my first question is on on fluff markets. I just wanted to see if you could talk a little bit about, you know, current supply and demand conditions in this market, which seems very tight with prices continuing to move up and whether you would consider an expansion in capacity here. And then second question, you know, more specific to some of the risks in pulp markets right now, you know, with resale prices dropping in China, Seasonally weaker demand in the coming months, the impact of the lockdowns. I know you already talked a little bit about this, but the impact of the war in Europe as well. I just wanted to hear from you whether you believe that these current prices, which are migrating to $810 per ton, whether you see them as sustainable and if you expect a drop in prices at some point in the coming months or not. Thank you.

Okay, guys, so this is Leo here. I'm going to take both of your questions. First of all, regarding fluff, our Ilka fluff is going extremely well. We have actually been oversold for more than 18 months in a row and been therefore repositioning our pricing in international markets and in Brazil, much in line with the news that you have been reading globally. We are very happy with how the product is being received and the quality is being perceived by our customer bases. Global brand owners are already using our product. And that makes us and brings the opportunity to discuss what's next. In this stage, our executive committee is discussing the next steps for future investments or conversions so that we can later on present to our board. But again, we're extremely happy how this business has developed, how this innovation has developed itself. Regarding our second question on the sustainability of current prices, we believe, yes, there is fundamentals for that. Huge supply constraints, which we don't think will be solved in the short term. But obviously, there are some factors to be watched looking forward, maybe towards the second half of the year. which is how effectively the Chinese producers will be able to implement price increases on their products and how COVID, if short-lived or not, will impact demand. Regarding pricing or paper pricing in China, we have seen movements. We have seen movements including during the Labor Day holidays, new announcements coming out for tissue prices. Maybe tissue prices at the moment is the grade that has been more accelerating in terms of price increases, but we have been seeing a positive trend in most grades or in all grades. And when we analyze the margin of our customers, obviously we do that very frequently, we come to a conclusion that's a bit different than the one that's usually published by professors that there is no margin in China. Since our customers, the big customers, and police orders far in advance. And there is a delay in the system, as I mentioned, inclusively for the reasons why our prices were and not as we hoped it will be in the first quarter. Our customers are still receiving low cost hope. So this means that they still have space and time to be able to implement price increases downstream. And they use this moment to gain market share over smaller customers who obviously don't have this benefit. So we believe that They will be successful and the implementation is therefore expected to be successful as well.

Super clear. Thank you very much.

The next question comes from Daniel Sasson with Itaú BBA.

Hi, everyone. Good morning. Thanks for taking my questions. My first question is on price realization, the Pope business. I know that you mentioned that the recent improvements in Pope prices are not yet reflected in your results, but if you could give us more color on the most important factors that impacted your price realization in the first quarter. I mean, if it's purely related to the fact that you maybe had more Pope sales concentrated in a period in which the BRL was stronger. or if there are some lagging volumes from previous periods in which the prices were not as high as they are right now, that would be pretty interesting. And my second question, in regards to the expected impact on supply from the Russia-Ukraine tension, if you could elaborate a bit more Even if the war is over, probably sanctions on Russia will not be lifted in the very short term. So if you could give us more color, more numbers in regards to how dependent on Russian wood is European supply or European pole production today, that would also be helpful from our end. Thanks a lot, guys.

Daniel, good morning. This is Leo here. I'm going to answer both of your questions. The first one regarding price realization in the first quarter. There are two main reasons. We usually, obviously, we invoice our customers in U.S. dollar terms. And at the end of the quarter, we calculate the price back to U.S. dollars for reporting purposes using the average FX of the quarter. This quarter, we had a particular situation that due to our maintenance down times and production schedule and the program times of vessels to arrive and to be shipped out of Brazil, we had a bigger concentration or a very big concentration of our invoicing in the third month or in March when FX played a different role, right? FX was appreciated at the time. Therefore, our price of $639,000 Carlos Anibal Fernandez de Almeida That today we have a carryover on invoicing of over or a little bit over 30 days. So we are running with this late invoicing and with our planned productions, we were not able to recoup that. So when we had those two effects, we come into the price that I have just stated before. Now, in terms of Russia-Ukraine war and impact in supply, we see two main factors playing out, possible factors playing out. First is related to the sanctions on Russian wood, and there are two optics to look at it. First of all, it's related to certifications.

You all know that FSC has canceled certification on Russian wood, so this is an important factor to consider.

And second is the fact that 30% of the wood necessary for the Finnish coal production was coming from Russia. That's a bit over 4 million cubic meters, or maybe approximately 1.2 to 1.5 million tons of coal production a year. That was birch wood crossing the border, and now the Finnish producers have a challenge to find alternative wood supply To be able to run the operations, we still haven't seen a solution playing out on what they're going to do for the upcoming months. And the second issue on Russia that will also affect supply is due to the fact that Russian producers at this moment, or at least in the beginning, in the short term, are facing, from what our market sources report, difficulties in getting supplies into their mills. And the issue or the item that we see a greatest restriction are chemicals or bleaching chemicals. So, for example, Fast Market Suisse just reported last week that this relevant or the most relevant Russian producer, who was a big exporter to China, ran April only with 50% offerings of their volume of bleached park and pool and will be not offering at all volumes in May due to a 30-day We do not know exactly the reasons. The reasons are in the news. We know are the ones that you all read as well. But this obviously will create a big impact tomorrow.

Perfect.

Thank you. Just to clarify, in regards to the carryover of invoicing that you mentioned a bit over 30 days, this is something that is continuing to take place, right? And should therefore... Have an impact on your second key realized prices as well?

Sorry, had a problem here with the microphone.

Yes, we continue to see that taking place.

But it's important to state that, as I mentioned, all our price announcements have been fully reflected on our order intake. So, It's a question of just delay in terms of price realization.

Perfect. Thank you. Thanks a lot.

Mr. Thiago Lofiego would also like to make a question. Please, you may proceed.

Thank you. Good morning, everyone. First question, Bachi, I believe you mentioned Deserrado Project CapEx was lower than expected this quarter. Can you comment a bit more on that? Are there any issues regarding suppliers, any bottlenecks at all? And the second question about the domestic paper market in Brazil. So what's the outlook for the remainder of the year, especially regarding cardboard and premium writing rates? Thank you.

Thank you, Thiago. No, there's no issues of delays related to Cerrado. It's just the work that we continuously do with the suppliers to postpone payments and to improve our working capital. But no effects coming from the physical side of the project.

Thiago, it's Fabio here. Thanks for your question. Regarding the paper markets, we continue to see demand strong. In the Q2 and moving forward into the second half of the year, as you know, we have a seasonality in the paper business, which is stronger, demand is usually stronger in the second half of the year. And this year we have election, which is usually also a driver for paper print and write on demand. As of board, as you know, last year, first quarter was very strong. So the comparison basis with first quarter last year It's not good. The market has shrunk in the first quarter of this year, but it's still 20% above what we had in 2019 before the pandemic. So it is growing above historical trends, and we believe that the market for board is going to pick up pace now in the second quarter, moving on with decisionality as well.

Very clear. Thank you, Fabio. Thank you, Bach.

The next question comes from Carlos de Alba with Morgan Stanley.

Thank you very much. Good morning, everyone. So first question, maybe continue on the paper side. Clearly very strong pricing power you have experienced. So could you comment what is the outlook for paper price hikes potentially in the different markets and our products? And then on pulp, you're Something that makes it quite difficult for us to forecast sometimes the bull price is the discounts that are embedded in different markets. So we have seen the nominal price increases at a very rapid pace. Can you comment a little bit about any trend? And I understand that you need to be vague on these, but if you can give us a little bit of color on any trends that we should be aware of regarding the discounts in the different markets.

Carlos, thanks for your question. It's Fabio here. On the paper side, regarding prices, we have implemented the prices that we have announced during the last Q4 that were supposed to be implemented in Q1. In Q1, we have announced new price increases that we start implementing now in Q2 here in Brazil. For unquoted and also for cut size. And we have a recently announced price increase for board, 13% price increase for board, which is also 13% for unquoted and cut size. And for board, we start to implement that as of June. And also, we have announced price increases in all the markets that we serve internationally, an order of $100 per tonne. Marcos Moreno Chagas Thank you Fabio. Just one clarification, the uncoated and cut-sized increases are also, 13% are also to be implemented in June, starting in June?

The uncoated and cut-sized implementation started in April and for paper boards, June. Thank you.

Okay, Carlos, this is Leo here, jumping into your question on Pope regarding discounts so that there's a better clarity in terms of net prices. So first of all, starting with Asia and China, our view is that the discounts on the index is anywhere from 3% to 5%, but on average 3%, that's what we consider to be a A good indication of net prices in the market. And in the rest of the world, meaning excluding Asian markets, we see a consolidated discount of roughly 33%. This is our view on how to better translate to net prices globally.

Thank you very much.

And I'm talking about hardwood, obviously, right?

Right. Yeah, correct. Okay. Thank you. And have they been increasing a little bit or relatively stable?

We saw last year an increase of roughly 1%, mainly on the western world, but stable in the Asian markets.

Great, thank you.

The next question comes from Marcio Fadidio with Goldman Sachs.

Thank you. Good morning, everyone.

Thanks for the opportunity.

I have a couple of questions and sorry to go back on the cost discussion again. I just wanted to understand from you what would be the driver of the flat dish cost because we see diesel prices in Brazil increased by about 25% in March. Our analysts at least are saying that Petrobras diesel prices in Brazil are still 20% below what it should be if the company decides to increase prices again. So it's obviously a major cost inflation driver. and we saw wood costs being flat in the quarter probably because you produced less so you had to use less further away wood as well so I would expect that wood costs could go up as well but then you're going for flattish costs which is quite good so just trying to understand what are the offsetting factors and my second question maybe to Walter Walter, from time to time we see commodities companies being very and many more. Thank you. Can we expect the company to continue to do this, or is it just a punctual and, you know, opportunities that you didn't want to miss, like the acquisition of Parsec, for example, or the buybacks? Is it punctual, or is it a new trend in terms of capital allocation strategies? Thanks, everyone.

Thank you, Márcio. Let's try to explain. For our falling quarters, We will increase our volume of production in our best performance mills. In the first quarter, we stopped it. Tres Lagos was line one, Tres Lagos was line two, Imperatriz. That's our mills that will have our best performance in terms of cash cost. When we increase the volumes in these mills, the mix of costs will be better. The second reason, with bigger volumes in the following quarters, will dilute better the fixed costs and will produce more energy surplus to sell in the open market that will affect and underline the cash flow. And the third important impact that we had The shutdowns in the first quarter that will reduce our expense in maintenance for the next quarter. Normally, when we have general shutdowns, we take the opportunity to do a lot of small maintenance that will have a program to the next quarter. You are correct. There will be costs. have a benefit of a reduction in the average distance from forest to the mills that offsets the impact of diesel. Our current forecast is in the regular scenario that we have until now could see that our cash cost has a possibility of reduction. But we must be prepared to the worst scenario and hoping to the best. That's the reason that I say that we may flourish in terms of cash costs.

Marcio, thank you very much for your question. Just remembering that when we merged Zeno and Fibria, at that time, our net debt was $13.7 billion. We announced to the market that our target would be to have $800 per tonne Thank you very much. We have the capital allocation. regarding buybacks or higher dividends in the future. And we have the possibility as well to reinvest on projects that we have in the company that could deliver a very good return to our shareholders. I think our track records on investments on retrofitting our facilities or our forests, as we are doing right now, We are bringing more than 200,000 hectares of land to our system. In addition to that, we are going to avoid the payment of more than $50 million on biological assets every year. And I think it's a very positive combination of value creation to our shareholders. Then our possibilities in terms of avenues to invest in the near future in capital allocation are much higher since we reached our net target on that that we announced the market. With this, I think we can create the possibility of combining higher cash returns to our shareholders in a combination of capital allocation on projects that can create value as well in terms of growth.

Thank you very much, Walter.

The next question comes from Cadu Schmidt with UBS.

Good morning, everyone, and thanks for the opportunity. Two questions on my side. Leo, can you please share some views on Suzano's inventory position? Can we expect production to surpass sales this year considering low inventories at the moment and another massive concentration of downtimes in the second quarter of next year? And my second question to Valter. Valter, can you please comment on the law proposal that would allow private companies the right to have the concession of public forests in Brazil and explore carbon credits from these assets? Is Suzano interested in acquiring any of these concessions assuming that the law is approved? And do you have any initial estimates on the benefits and costs for a transaction like this? Thank you.

Good morning. So regarding inventory, for obvious reasons, we cannot disclose our forward strategy as it is very linked to our commercial strategy. What I can tell you is that we have been running for several quarters in a row with suboptimal stock levels, inventory levels, which is putting a lot of pressure on all our operations team to be able to maintain the Thank you, Kaidu, for your question.

We believe that we need to impact all the stakeholders. And one of the stakeholders that we need to impact is the society. And we believe that regeneration is part of the solution for the future in our society. Thank you very much. We are welcoming the fact that the government is thinking about this situation, and we are incentivizing Thank you very much. I think with that, we are asking your question. Thank you. Thanks, Walter.

As there are no more questions, I would like to turn the floor over to the company's CEO for final considerations. Please, Mr. Walter Schalke, you may proceed.

Thank you very much for joining us for this session. I think it's very clear that the Suzano is in the right track to create value and share value with all the stakeholders. This is part of our culture, part of our aiming. We believe that and we have a very good track record on delivering value to our shareholders. We would like to show to the society that we can deliver even better value to all the remaining stakeholders. We believe we are on the right track and the right speed to do it, and we are committed to do it even better. Thank you very much, and let's keep in touch.

Thank you. Suzano, first quarter results. Conference call is finished. Have a nice day.