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 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 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 the company's CEO. Please, Mr. Walter Schalke, you may proceed.

Good morning, good afternoon, good evening to our colleagues all over the world. Welcome to the second part of the results discussions of Suzano. I'm pleased to have with us here all the C-level of the organization in the T&A session. Feel free to ask us about everything on the company. I learned in the past that happiness is equal to results, less expectations. I would like to, despite of the reviews of the sell side analysts that we are in line with the results, we are very pleased to announce an outstanding results of the company. I'm very pleased to announce that to everyone. We had, and I'm going to highlight several KPIs of the organization of the last quarter. First, in terms of the pulp volumes, we had almost 2.7 million tons of sales on pulp. Leo is going to address this issue with you in his part of the presentation. On the paper side, we have extremely good volumes, around 290,000 tons on paper, and Fabio will share with you. We'd like to tell you that we reached 6.3 billion We have operating cash flow of $5.1 billion. Aires is going to share with you as well our efforts to, despite of the inflation that we are facing, we have keep the cash cost in line with the previous quarter. Our liquidity position is $5.2 billion at this point of time for a very robust balance sheet. and our net debt, despite of the fact that we had dividends, we had cash returns on buyback program, we had parque, there is 1.7 billion reais, we had Cerrado, we were able to keep, to cap the net debt at the same level of the previous quarter with 10.5 billion dollars. Our leverage right now is 2.3 times. And We are not going to share any further detail on the Cerrado project today, but the good news is that we are on time, on budget with the project, with the physical progress on 21% in line with the expectations in defense. That we have right now, we are developing on a very good pace at this point of time, keeping the same previous projection that we forecast that we are going to have our commissioning period on the second half of 2024. Now I'm going to pass to Fabio that is going to share our view on paper and packaging business.

Thanks, Walter. Good morning, everyone. Let's turn to the next stage on the presentation. Today, I'm glad to share with you that the paper and packaging business unit, through a combination of operational excellence and assertive pricing management, has had its best quarter ever. As we have seen in previous quarters, demand for print and writing papers and carton board has continued to be solid in the domestic and international markets served by Suzano. Paper supply has been limited by logistics bottlenecks, which has continuously imposed operational challenges in shipping, terminal operations, and inland logistics. In most markets, demand recovery has been capped by limited supply for certain paper grades. Moving forward, we continue to see inflationary pressures over paper producers' cash costs. Figures for the whole Q2 from IBA related to print and write in domestic demand are yet not published. Considering the first two months of the second quarter when compared to the same period of 2021, the available data shows a 4.6% decline, mainly due to an impact of 29% drop of imported paper, as well as a reduction of sales of paper directed to the container board market. When looking only into print and write applications, we estimate that local sales have increased 11% year over year. EBA's public data on paper board demand shows a 3% shrunk in the first two months up to the second quarter of 2022, given the strong comparison period in 2021. Focusing on Susano sales volumes, the Q2 performance was 9% higher than the same period of last year. and as seen in the graphic, a record volume for the second quarter. Domestic sales reached 68% of our total sales in the quarter, totaling 198,000 tons, also a 90% increase on a year-over-year basis. Inflation has continued to cause negative impact on paper costs during the quarter. Still, we are able to manage our prices effectively to more than offset inflation impact during the period. Our margins have expanded 2% points on a year-over-year and a quarter-over-quarter basis. Our average net price during the quarter was 11% higher than our average price in Q1 and 34% higher than this quarter last year. As a result of strong volumes in prices, revenue management, and operational stability, our EBITDA has reached R633 million, a 52% increase on a year-over-year basis and a 20% increase compared to last quarter. Our Q2 EBITDA and EBITDA Porton are new all-time highs for the paper and packaging business unit. Due to strong sales in the first half of 2022, our paper inventories have been reduced and we are running below our optimal level and should continue to do so for the remainder of this year. Looking ahead, our major short-term challenge still resides in minimizing the exogenous pressure of inflation while overcoming the continuous logistics disruptions in maritime shipments and ports. On the demand side, the second half of the year is the strongest season for paper demand in Brazil, and we continue to see supportive demand for our products in the export markets. Last but not least, sales of products from our innovation pipeline have progressed well in the first half of 2022, and we are on track to deliver on our goals for this year. Now, I will turn over to Leo, who will be presenting our pop-up business results.

Thanks, Fabio, and good morning, everyone. Let's move to page five of our presentation so that we can address the results of our full business unit for the second quarter of 22, marked by a record EBITDA for a second quarter. As you can note on the left graph, our sales performance was very strong, as mentioned by Walter, and totaled 2.7 million tons in the second quarter of 22. Despite persisting logistic challenges, not only affecting international shipping, but also internal logistics in key regions and markets, our strong performance shows Suzana's ability to navigate in this adverse scenario, taking advantage of our differentiated supply chain setups, ensuring effective supply fulfillment to our customers. Since our inventories are still below optimum operational levels, we keep withdrawing from offering volumes to spot markets. The second quarter was marked by the continuity of the tightness of the supply and demand balance, mainly as a consequence of supply disruptions all over the world, such as new unplanned downtime events and the initial effects of the sanctions on Russian wood impacting European hardwood pulp production, as well as the persisting logistics constraints, which consequently resulted in low hardwood pulp stocks. Pulp inventories throughout the chain are trending at low levels, and in our view, they are imminently concentrated on softwood pulp, which translates in a tighter availability scenario for hardwood grades. This scenario keeps placing challenges to paper and paperboard producers globally, our customers, as they are also running with low hardwood inventories, while their production figures continue during the quarter quite strong and steady, even with COVID-related lockdowns in China. The continued tightness of the S&D balance has led us to announce new rounds of price increases in all markets throughout the quarter. which were fully implemented with absolutely no concessions and with no reductions to our order intake levels. Coming back to the slide of my presentation, you can note that our average price for export markets has increased to $732 per ton during the second Q, which is 15% higher than the first quarter of 22. This price basis still does not reflect all our price increases during the quarter due mainly to the lagging of invoicing of our order books. As we have been reporting, our order intake has been strong during these past months, and our lower production figures in the first quarter, due to a concentration of our planned maintenance downtimes, has generated backlogs, and the current tight logistics scenario is not allowing us, up to now, to recover timely deliveries, making us run approximately 60 days late on invoicing to Asia. Our EBITDA of 5.6 billion reais, a new record for our second quarter, was mainly a result of higher inverse volumes and higher prices despite FX appreciation and cost pressures. Now, looking forward, I would like to highlight the following points. We continue seeing a scenario of low hardwood inventories throughout the chain as a consequence of logistic constraints, lower European hardwood pole production due to war-related sanctions affecting hardwood inventories, in which we should more intensely impact supply on upcoming quarters, as well as no major volumes from new projects coming into markets in 2022. On top of these factors, there are always the upside risks related to new unplanned downtimes. Diving deeper into unplanned downtimes and how they have been increasing during past years, our year-to-date estimates have now reached 1.9 million tons of bleached chemical pulp losses. 1.9 million tons. This is almost equivalent to the historic full annual figures for 2020 and 2021 when unplanned downtimes reached their all-time highs. We recognize a lower visibility and greater uncertainty for future mid-term demand due to macroeconomic developments, most of which related to the Russia and Ukraine war. But we can state that the demand for pulp continues strong in Europe and in North America, where our customers are reporting solid order books for the quarter, with pulp purchases and forecasts trending at high or even high set points of their contractual volumes with us. In China, paper production of segments which are more linked to BHKP are expected to continue to pull solid figures as paper producers are planning for a higher seasonality period of the year, as well as the continuity of the recovering of their paper and board exports. Order intake is expected to continue to come at these high levels which we have been reporting. What we're seeing on the ground is that the main current concern of paper producers globally is still the guarantee of the raw material supply chains despite higher costs. With that said, I would now like to invite Aires to present our cash cost performance for the quarter.

Thank you, Léo. Good morning, everyone. We are in the slide number six. Cash costs, excluding downtime in the second quarter, stood at 854 reais per ton, Decreasing 2% in relation to the first quarter, performing as expected and shared with you on the last earnings call. The main positive highlight was the higher deletion of fixed costs, backed by the production increase of meals under maintenance down times in the first quarter. The average FX appreciation in the period also contributed to the cash cost performance. Energy sales increased in the second quarter linked to the higher operation rate of the industrial assets, including the fuel capacity reach of a turbo generator at Imperial Trees Mill. Looking now to the factors that pressure cash cost up, the wood cost increase was mostly related to the higher forestry mill distance in the quarter and the increase in the branch price. which affects harvest and transportation operations. The input costs also took a toll due to higher chemical price, especially classic soda, and branch price impact on energy consumption, mainly natural gas. It's worth mentioning that the commodities price pressure of 44 reais per ton was partially mitigated by the higher operational performance. On the year-over-year comparison, the cash production cost X downtime was 26% higher than the second quarter of 2021, due to the well-known and unforeseen inflationary pressure mostly on commodities, meaning by relevance Brent on industrial and forest operations and caustic soda. Wood cost hit was particularly offset by the shorter average forest through yield distance and lower share of third-party wood in the period. The increase on fixed costs is explained by higher costs with labor and maintenance. Looking ahead to the second half of 2022, We still see cash cost production costs being pressured by exogenous factors of inflation, mostly on commodities as described above, also related to some lagging effects on inventories turnover. In other words, it means that our performance going forward Consider the information currently available on the microeconomics scenario would be hovering low single-digit over on the first half of the year average. Now I pass the floor to Marcelo Batti to continue the presentation.

Thank you, Aires, and good morning, everyone. Moving to slide seven, we showed that we managed to keep our net debt at $10.5 billion despite the significant capex acquisitions, dividends, and share buybacks that we had during the quarter. That's a result, of course, of our very strong cash generation. With that, our leverage came down to 2.3 times, and our liquidity keeps very solid with $5.2 billion between cash and RCFs. Our debt schedule continues to be very light in the next three years. And we have seven years of average standard and above 90% of our debt at fixed rate, which protects us from the rising global interest rates. Moving to page eight, we see how much we have advanced in our effects protection strategy. The curve today is a lot steeper than last year, providing us with the hedging opportunities at very interesting levels. We now carry more than $4 billion of operational hedges with an average put of $5.53 and an average call of $6.55. In addition to that, we have a portfolio of Cerrado Project hedges that is approaching, at the end of the quarter, $700 million with an average put at $5.98 and an average call at $7.43. This strategy has yielded for us a cash flow of 400 million reais during the second quarter, since the FX was below five most of the time during the quarter. Moving to page nine, we are announcing a revised capex guidance to 16.1 billion for 2022. That already incorporates the already announced Parke and Caravella acquisitions, which respond for most of the change. and a small change in sustaining capex that we will allow us to make some payments in advance to take advantage of our sizable cash position and to reduce financial costs. This is a lot discretionary to take advantage of our current situation. We have executed 7.1 billion year to date and we expect to execute 9 billion of total capex in the second half of 2022. On page 10, we intend to show how much we are advancing in our strategic avenues, taking advantage of this excess cash generation that we have according to the positive market scenario. We had the land acquisitions that will enhance our cash competitiveness over time. We had the share buyback now increased to 40 million shares. We had a very good execution of the Cerrado project on time and on budget and already with 21% completion. So important to keep our leadership involved. The potential new tissue plant in Aracruz monetizing tax credits and helping us advance in vertical integration. The launch of Suzano Ventures that will support and potentialize our expansion into new markets. And many other initiatives we have been pushing forward, always respecting our financial distance. Finally, we wanted on slide 11 to make some relevant points related to the pulp market. We believe pulp significantly differs from other commodities in four main aspects. First, there is structural demand growth. Second, most of our pulp goes to tissue producers, which have a growing and very inelastic market, resilient to economic cycles, as we saw during the COVID crisis. Third, the marginal cost producer of pulp is under significant cost pressure due to inflation, limiting for the future the price downside. And fourth, the Pope volatility has been a lot lower than other commodities as we can see on the chart. Therefore, our decision to increase the share buyback program is based exactly on this set of fundamentals. With that, we close the presentation and open the floor to Q&A.

The floor is now open for questions. If you have a question, please press star 1. And our first question comes from Daniel Sasson from Itaú BBA.

Hello. Good morning, everyone. Congrats on the strong results. Thanks for taking my questions. My first question is on Pope Demand, mainly in Europe. Leo, you mentioned that the backlog for which you have visibility is strong, which is great, but how concerned With potential paper capacity shutdowns in the regions, are you? Given that we've read about some tissue producers having to shut down and maybe already being affected by rising energy costs in Europe, right? And that's the region where we've seen more resilient demand. So I'd like to know if you are concerned at all or if you see potentially And my second question, maybe on the same lines, I mean, we've been talking to many investors who are more concerned with a synchronized global deceleration, right? The U.S. just reported negative GDP for the second quarter. Europe could suffer with rising energy prices China is trying to beat GDP growth target that is looking more challenging by the day Do you think that we could see a second half that is maybe slightly weaker than seasonality would suggest? Thank you

Hi, Daniel. This is Leo here. Thank you for your questions. Before obviously touching demand, let me tell you a little bit about how we were forecasting and planning our second semester of 22. Obviously, we always do that considering not only demand, but also the supply side of the equation. Initially, During the first months of the year, while we were planning, supply was one of the key aspects that we were following and points of attention. But as of today, this is no longer a A point of attention to us. I mean, Pope Supply, right? So what's the reason behind that? Because as this first month of the year have been going on, we have seen so many unprecedented and unexpected downtimes, which, as I mentioned in my speech, are adding almost already 2 million tons of losses during the year that markets are tight. And when we add on top of that the effect of the hardwood Marcos Moreno Chagas They will tend to see how to even maximize more than historically the hardwood consumption. In this sense, S&D scenario has changed completely to us and demand is now the greatest point to be watched and its uncertainty in some regions and paperweights is the main variable that we are monitoring for the upcoming months, especially due to war-related energy restriction events going on and discussions going on in Europe. As well as an eventual and uncertain possible recession looking forward. But in this sense, I'd like to point out two things. First of all, it's important to say that the demand, as we see and as we have seen in other recessionary moments in our case, are partially or mostly mitigated with the fact that tissue as well as other essential paper and packaging products are key off takers of hardwood pole. And they represent more than the 60% of the total demand for hardwood pole. And they tend to be quite resilient in difficult times. And coming into the gas curtailment discussions, obviously there is risks and we are monitoring that closely with our customers to ensure a successful reaction to any eventual plan that has or that will be announced and maybe in the future months, in the upcoming months in Europe. But it's also important to say that gas curtailments not only affects demand, but also affects the supply side of the equation. We always relate to pulp production as being able to produce energy from the pulping process. But it's important to note that gas is needed to run specific processes at the pulp mill, such as the lime kiln, as well as to control stabilities on the recovery boiler. So that will also and could also impact pulp production on upcoming months. For the short term, as I mentioned in my speech, customers are reporting full order books for this third quarter of the year and are tending and trending at historical high levels of purchases and in our case on the utmost levels of their supply agreements or purchasing agreements with Sousa. Thank you.

Our next question comes from Tiago Lufiego, Bradesco BBI.

Thank you. Thank you, gentlemen. So two questions here back to Lel. Lel, just continuing to look at downside risks here for poll prices, which are definitely, you know, very close or at the highest level ever here. Just looking into the next six to 12 months, right? So the first question is, you mentioned the 1.9 million tons of unplanned downtimes this year up until now, right? How much of that do you think will return in 2023 or in the next, let's say, 12 months? And then the second question is, with China resuming paper and board exports, do you think this may be a risk to paper production in Europe and therefore a risk to pulp demand in Europe? And then, of course, a risk to prices. Thank you.

Thiago, thanks for your question. Coming to the issue related to downtime, It's very interesting to see that, year over year, this number tends to be increasing, right? Historically, downtimes or unpenned downtimes in the pulp sector added up to 700,000 tons annually. Then in 2021, They had reached peak at 2 million tons annually, and today we already have close to that in six, seven months of the year. And it's very hard to say how much will come back to the market. What we're seeing is that as producers are getting bigger and bigger, any of these events has a much bigger impact in terms of market supply than there was when producers had a smaller production scale. Coming to the question related to China resuming exports, indeed they are, especially on printing and writing papers and on ivory board. We have been tracking that, and they have gained more exports volume month by month. But due to the still very high container rates and logistic rates, we see that most of this volume is being allocated and concentrated in other markets in Asia or in Southeast Asian markets, and we still see very little effect That's clear though.

And if I may, you also mentioned about low inventories across the board, right? We often hear about floating inventories because of the logistic situation. There's a lot of inventories that are actually not visible. What can you tell us about the inventory situation from a broader perspective when we think about pulp?

First of all, when we analyze inventories in the hand of producers or at ports, we come up to numbers which are trending at low levels or even in some markets like Europe below historic levels as well. So very tight. And when we look forward, to our customer basis or to the paper producers point of view, stocks are also low in the hands of paper and board producers. We recognize that part of a global stock should be on the waters due to the longer lead times to markets that we have, not only from South America to markets, but globally. But this is very hard to forecast, and any eventual effect of that coming into markets, in our view, is very limited because we don't expect, first of all, that logistics will be solved or improved significantly in the next months or quarters. Second, once it starts to be resolved, it's not going to be resolved at once and to all markets at the same time. So we're going to have a cadence of how these products will eventually come to market. But again, we don't see any of that coming back to markets on the short term, as our view in logistics is still of a very tight situation for coming months.

Thank you. Do you have a number for that floating inventory or maybe a range?

We don't. Consultancy companies are forecasting anywhere from 700 to 1.5 million tons, but it's very hard to count for.

Very clear. Thank you, Léo.

Our next question comes from Leonardo Correia, Banco BTG Pactual.

Yes, good morning, everyone. Thank you. My first question bringing Bacci in the discussion. Bacci on the buyback, right? I think, I mean, clearly it's small, right? I think everyone agrees with that on a comparison to some other companies in the market. But when it was announced in May, there were pretty much zero expectations on that announcement. Now, I didn't see people also expecting that this would be so quickly renewed, right? A second buyback being announced given the pace of repurchase has been accelerated, right? So my question is can we think of this buyback more as an indefinite program just given the undervaluation of the share price and can we see this potentially being renewed over the medium term or are you viewing this more as a tactical move So I just wanted to understand your logic and how the company is viewing this buyback, if it's more tactical or if it's more of a longer-term issue for the company. And my second question, moving into one of the critical points, I mean, running away from this market discussion for a second, the cash cost levels over the past quarter for Suzano and for the industry have been a key source of concern, right, Mike? My impression is that this has been one of the main sources of pushback and concern and negative revision to earnings, right? The cost inflation, which has been impacting everyone. Last quarter, you guys clearly spoke out to the market saying that we could see cash cost levels peaking and stabilizing. I think there were many doubts at the time because commodity prices are so volatile, right? I mean, looking ahead, We're already seeing a pretty severe correction in several commodities, right? Even oil prices, which you mentioned during the introduction, have corrected a bit, but some other commodities correcting even further, right? So thinking of your pulp cash costs over the second semester, how can we view the path? I mean, is there a clear path towards declines which are more aggressive than just this Thank you very much.

Leo, this is Marcelo speaking on the buybacks. We executed around 75% of the first program so far, according to published data. And we decided that... Thank you very much. have very high returns according to our view of the market and the fundamentals that we see on the pulp market, as I said, when presenting the last slide of the presentation. So it is a strategic move, and it is also a technical move, given this short-term availability of cash that we have now.

Hi, Léo. It's Iris speaking. As I mentioned, considering the information currently available on the microeconomic scenario, especially related to forecast of rent and cost of soda in international market associated with our strategy as part to preparing our food supply part in Mato Grosso do Sul that could make us We see that it will be very challenging to have any significant reduction in the cash cost. But when you see our structured cash cost to come in years, we consider a significant reduction in the forest to meal distance In the woods. And we have a perspective of reductions in the Brent and the cost of salt that could bring us a significant reduction in the coming years. But considering the second part of the year, it will be a challenge, but we are confident that we will keep the same level of cash costs.

Okay, so just to see if I understood the answer correct, you're saying that public cash costs will probably stabilize at these levels over the second semester, given that you're going to acquire more third-party wood over the upcoming months, right?

Okay, this part of third wood, we could consider maybe a lower single-duty increase in the average of second half.

Just making a summary on that, it's Walter talking level, is that on the long term, we are seeing lower structural cash costs due to the activities of retrofitting that we are doing, the improvement on the wood supply. But on the short term, it's depending on what would be the commodity prices and the brand and chemicals. And in addition to that, we are seeing some lagging effect on our costs since we have been The graph is like this.

Okay, thank you very much.

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

Yeah, thank you very much. Good morning, everyone. So just to make sure, coming back to Leo's question, so what you are saying is that you expect lower single increase in cost in the second half of the year on average versus the second quarter? Just to clarify this, please, I think for the benefit of everyone in the audience.

Over the average of the first half.

Understood. Okay, great. Thank you. And then just two questions. On selling expenses, we saw an increase. Obviously, the supply constraints continue, and I think that is pressuring your expenses. Can you comment as to how do you see the outlook for the remainder of the year in terms of selling expenses? And then on prices, a couple of questions. One is spread prices in China, softwood versus hardwood, have now come down, sorry, yeah, in China have come down quite significantly from the recent peak that we have seen. Still a little bit above the average of the last 10 years, but coming down. And in Europe, the current spread is now below the average of the last 10 years. So do you think that that move of that high spread that had benefited the consumption of hardwood is now done, given where we stand in terms of the spread and the relatively higher cost of sawwood versus hardwood and or eucalyptus? And then on prices, Sorry my ignorance, but maybe could you help us identify a period in time where hardwood or eucalyptus pulp prices, because of the exposure to tissue, didn't come down when we saw a global recession or a strong meaningful deceleration in global prices? Sorry, in global GDP. Thank you.

Hey, Carlos. This is Carlos Anibal. Good morning. The higher selling prices can basically be explained by a higher banker due to a higher prices. Just to remind you, we have a long-term contract for our breakbook shipments. And according to those contracts, the banker will back the freight rates. We have no exposure to the spot market. So basically, again, all the variation can be explained by a higher banker.

Carlos, this is Leo here. I'm going to answer your questions regarding the spread among fibers and also about why we are more, why we believe we should be, again, more resilient in recessionary moments. First of all, we recognize in the market the greatest tightness in hardware than in software, which as a consequence should mean that this gap Thank you very much. Thank you very much. All nine is that tissue demand is much more resilient in that sense. There was a slight reduction to tissue demand during that year, which recovered quickly already on the next year. And the reduction on tissue demand was even only part of what was the global GDP reduction at the time. So the fact that hardwood is so dependent on tissue We believe that that makes all our models much more resilient in case of an eventual recessionary moment.

All right. Thank you very much, Leo.

Our next question comes from Rafael Barcelos Santander.

Hey, good morning. Thanks for taking my questions. My first question is related to the new tissue plant that you announced that and which will be integrated to your operations in the state of Espirito Santo. So, should we continue to expect the company to integrate its older mills or even switch them towards more niche products such as dissolving pulp? And of course, I mean, what are the main opportunities in terms of changes in your production footprint that you see going forward? And my second question is related to pulp affordability. I mean, I'm sorry for going back to the pulp discussion again, But I would say that Pulp Affordability has been a key investment. The main question mark is whether or not the current full price level can start to destroy demand. So could you please share your thoughts on this? Do you believe that Pulp Affordability could represent a real risk to prices in the short term? Thank you.

Rafael, thank you very much for your question. It's Walter answering here. Answer to you that vertical integration is one of the pillars of our long-term strategy already announced to the market. Does not mean that we are going to do in every single plant. but meaning that we are reaching full capacity right now in the tissue business. We are considering to expand our tissue operations and we have a very good possibility of monetizing our credits in the Espiritu Santo state. At this point of time, the project is not already full approved. We have some precedent conditions. One of them is the approval of the board to that. But we are forecasting that we are going to proceed with this investment that will create value to our shareholders.

Rafael, this is Leo here on your questions related to POP pricing and eventually how that can affect demand. We see today that POP is not the only platform. Thank you very much. Thank you very much. and Europe during past months with new increases already being announced for the upcoming months with the objective to mitigate this effect from high costs. Again, not only related to bulk, mostly related to energy. And in China, despite several news related to prices or margin of producers, our view is that their margins, especially the larger paper and board producers, are still at supportive levels because due to this lagging shipping lead times, They are still receiving lower cost. And price increases are indeed taking place in the market. I'm not sure if you're aware of that, but we follow that closely with our customers. Tissue prices in China have moved up 30% versus the lows in September and even 20% over the prices in December. And printing and writing as well is moving up more than 16% over the lows in September and 10% in December. Now, relating that to an eventual demand destruction, it's very difficult to associate directly, especially, again, taking into consideration that big off-takers of hardened pulp is tissue, which is less elastic in demand in terms of their price points to markets. Maybe that will affect a bit more printing and writing rates, but we believe that Tissue grades, specialty papers, and packaging grades are resilient in that sense, and we don't expect demand destruction to them in that sense as well.

Okay, thank you. Our next question comes from Caio Ribeiro, Bank of America.

Yes, good morning, everyone. Thank you for the opportunity. So my first question is on in-transit pulp inventories. Some industry consultants, they estimate that there's around 1 to 2 million tons of pulp inventory in transit to end markets, in which once logistics normalizes, that's going to allow those inventories to reach ports and create this perception that supply has become more bountiful. So I'm just curious if you also see this as a downside risk for prices ahead. And then my second question is on forestry asset acquisitions, you know, given some of those latest transactions that you've announced with Parquia and Caravelas. Do you envision any additional transactions of this nature? And as you assess, you know, your forestry asset requirements for the Cejado project, where are you right now? Thank you. Those are my questions.

Caio, thank you for your question. This is Leo here, again, assessing this issue related to stocks in transit. We recognize a longer lead time to markets, so we obviously expect that more hope is in transit to markets, but we see that as a very small downside risk to our model. First, because If we analyze strictly the number of available breakbook vessels globally, there is no additional increase to that. So the same vessels are on the system. And second, that even in an improvement of a logistic scenario, which again, as I have stated, we do not see any or very little, not to say any chance of improvements on the upcoming months, it's very hard to see that this additional increase Thank you for your question. We have been studying and analyzing opportunities.

Thank you very much. Thank you.

But we have the opportunity now, since we merged Fibra and Suzano at the same land banking, that would be very important to us to buy back these areas. We are not seeing any major new buyback programs in the land banking, but we are foreseeing some opportunities already included on the capex of buying and expanding our land banking for the future.

Perfect, that's very clear. Thank you, gentlemen.

Our next question comes from Marcio Farigi, Goldman Sachs.

Thank you, Maria. I guess my first question is to Marcelo Bacci. Bacci, when we look at the numbers in the second quarter, pre-cash flow after expansion, maintenance, capex, and all the expenses, Plus buybacks were zero, right? So it sounds like or it looked like buyback was, you know, the excess cash was invested in the buybacks, right? Obviously, the company is a very comfortable balance sheet position to navigate this higher capex cycle. So just trying to understand, should we consider that excess cash going forward, obviously, third quarter is expected to be strong as well, right? Can be diverted into cash returns, buybacks, and maybe dividends as well in the next couple of quarters. That's the right way to look at it, Marcelo. And then my second question may be to Leo. Leo, I think we've discussed a lot about price realization in the past quarters, but I think investors are still asking us a lot about that, so I guess it's important to to get more details from you. So how should we think about price realization versus benchmark going into the next quarters? Should expect Suzano to get closer to the benchmark levels and especially to peers as well as second half approach and as we see price stabilizing as well, right? Because obviously when prices are going up, the lag effect is more pronounced. So those are my questions. Thank you.

Marcio, thank you for your questions. Marcelo speaking. Free cash flow was zero, not only because of the buybacks, but mainly because of the CAPEX program. We had an acceleration of the Cerrado project, and we had the settlement of the Parque transaction, which is 1.7 billion reais. That was an extraordinary event on the CAPEX side. And also we had the dividend payment that impacted the cash flow. Looking forward, I think most of the excess cash flow that you generate will be diverted into CapEx, as I said, 9 billion reais of CapEx in the second half of the year. And for the additional buyback program that we just announced, the dividends are to be discussed for 2023. But, you know, with the cash flow generation that is at this point, A lot guaranteed given the buyback, the backlog that we have at very good prices that will enable us to have very good results probably in the third quarter as well. We expect to generate a sizable amount of cash and to have these returns or this additional cash bulk coming back as a cash return through the buyback program and with additional investments that we're making, given the fact that we are in a growing market.

Marcio, this is Leo here. I'm going to talk about our price realization a bit later. recovering what I have mentioned in my presentation and bringing some additional information as well. As I have mentioned in my presentation, our prices in the second quarter still do not reflect all our price increases during the quarter. The main reason, obviously, is the lagging of the invoicing of our order books. And before coming forward with that, it's important, again, to restate that we have Thank you very much. Thank you. has generated backlogs which we are now managing to better make them in the orders which our customer base. The tight logistic scenario, challenging logistic scenario is placing obviously even more challenges on us as we are not being able to timely recover these deliveries and we are running approximately 60 days late on invoicing Asian customers. On top of that, which I had not mentioned in my speech, we have been advocating for several years, and we believe that reducing volatility in pool pricing is positive in general to the sector. And in some of our contracts, we already have been incorporating different price mechanisms, which obviously then will impact our price realization in moments of price spikes like the ones that we're seeing now. Last but not least, when comparing to our peers, obviously I cannot comment on their price strategy or in the regional mix or what they're doing, but we expect much higher price realization during the third quarter due to the fact that I have, due to these facts that I have mentioned before.

Thank you very much. Thanks so much.

Our next question comes from John Braint with HSBC.

Hi, good morning. Thanks for taking my questions. Marcelo, first, and sorry if this was already discussed, I joined a bit late, but I'm just curious about the 2.6 billion reais tax benefit that was recorded this quarter. Is that exclusively or predominantly due to the exchange rate losses during the quarter or was there something else going on? Assuming no Significant exchange rate losses going forward. How should we think about tax rates in future quarters? And then my second question, and maybe just kind of picking up, Leo, where you left off, you know, we talked about the 13% volatility of pulp. But if I remember correctly, you know, going back eight, ten years ago, that was probably around 6% or 7%. So volatility, while it's still low compared to other commodities, has certainly increased versus where it's been historically. So I'm just wondering how you see that in the future given that Asia is growing market share and pulp and consuming more than other markets. Certainly we've seen more volatility over the past eight years than I can remember. One, if you could comment on that, and then two, if you could just comment a little bit about, you know, would you consider trying to lock in longer term prices, maybe 12 to 18 months with certain customers that you have longstanding relationships with in order to reduce the volatility? If you could, you know, I know it's a sensitive topic, but if you could shed any light on that, that would be great. Thank you.

Hi, John, this is Marcelo speaking. The 2.6 billion is not exactly a tax benefit. It is a deferred tax asset, which is due to the time difference between the FX variation and the realization of the FX variation in transactions that are settled during the period. So it is a time difference that is recorded as a deferred tax asset.

Okay. Thank you. John, this is Leo here. We recognize this increasing volatility in pulp, but we also see that going on in other commodities. And just in addition to what Bachi had said before, we see pulp, and we have noticed that in several other downturn cycles as well, that pulp is more resilient. And in our view, a big part of that is due to the fact of its close relationship to downstream consumption and end-user demand. as tissue and packaging rates are of huge relevance to pulp demand. When we look at the future markets in China on the Sheffy and what's going on, we recognize there's a lot of volatility and there's a lot of speculative action going on. A lot of or most of the trade that's going on is not truly related to actors in the pulp and paper market. And again, that's a future trend. And absolutely today, if customers need pulp, they obviously cannot buy at those price levels. They will have to rely on resale prices, which are all trending much higher than what we see on Chaffee. And last but not least, also related to Chaffee, which obviously is softwood pulp rather than hardwood pulp. We see that current prices or market prices, as our customers have been reported, that are being announced by North American producers, European producers, and also South American producers, are not pegged to what we see on Chaffee. And the price difference exceeds $150 per ton compared to what we track daily on the Chaffee future markets as well. So we see that of Small relevance to the day-to-day dynamics of the pork markets in China and globally.

Okay, thank you very much.

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

Thank you very much for joining us for the session. I would like to thank you as well, the 17,000 team members of the company and 20,000 indirect team members that is helping the company to be better every single day. We are very pleased with the results, but very humbled that we continue to work to deliver shareholder and stakeholder value to everyone. Thank you very much and have a good day.

This is Susana's conference call for the second quarter results. It's finished. Have a nice day.