Suzano S.A.

Ladies and gentlemen, thank you for holding and welcome to Suzano's conference call to discuss the results for the fourth quarter of 2023. We would like to inform that all participants will be in listen-only mode during the presentation that will be addressed by the CEO Mr. Rival Teixalca and other executive officers. This call will be presented in English with simultaneous translation to Portuguese. To change the audio, you can press the globe icon on the lower right side of your Zoom screen and then choose to enter the Portuguese room. After that, you can select Mute Original Audio. 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 that general economic conditions, industry conditions and other operating factors could also affect the future results of SUSANO and could cause results to differ materially from those expressed in such forelooking statements. Now, I'll turn the conference over to Mr. Valter Schalka. Please, you may begin your presentation.

Good morning, good afternoon, good evening to everyone that is joining us for the session of the results of SUSDANO. It's a great pleasure to be with you. Guys, today is a very emotional day for me. As you know, yesterday we announced the transition of Suzano Rowe as a CEO to be part of the board of directors and to be on several committees. Of course, I'm very proud from the 11 years contribution that I have been delivering to the company and being part of the transformation of this company for the last 11 years. I'd like to start some issues. First, to welcome Beto Abreu. I think it's a person that is going to have important contribution to the company in the next coming years. I think and I recognize that he has the right skills to continue, and the word is like that, is continuing the transformation of Suzano. I'd like as well to thank you, the 20,000 people that is working every single day on Suzano, to be transforming Suzano on a better company that is impacting the society. Of course, I would like to thank you, the leaders in the management team, our C-level that have been with me for the last many years. and being part of this transformational journey that have been very positive to all stakeholders. As you may know, one of our main points on our culture is to create value and sharing with all the stakeholders, and they have been amazing on this process. I'd like to thank you, the board of directors for the support that I got from all period that we have been here and the reference shareholder as well, that we implement a very good governance where was the roles of everyone was very clear during the process. I'm very positive about our future, about Suzano. I'm going to be part of that. And it's very clear that capital allocation is quite important issue for us. And I'm going to be on the board of directors to help to continue to look for alternative that would create value for everyone. Our policy of looking for new investments in one side, but we have a very financial discipline in one side and very discipline on capital allocation will continue on the next coming years. This is not related with me, it's related with all the governance system of the company. Now I'm going to turn to the results of the fourth quarter and 2023 results. I'm very pleased to announce a very good year for Suzano and a very good fourth quarter. I think we had an extremely good operational performance on the fourth quarter, but it's very important to bring to your attention the main strategic achievements that we had last year. First, related with expanding our role in different verticals. We increased the addressable market on the fiber-to-fiber, on the fluff market, announcing an expansion with a swing line in the Lemera plant. On the other hand, it's very important to mention that our tissue business last year had the major additional volumes with the acquisition of the tissue business of Kimberly-Clark in Brazil, and we announced a new plant in Aracruz that is going to be commissioned on 2025. Regarding growth and modernization, and competitiveness. We have been working to retrofit Aracruz and Jacareí, extremely important projects for us. We never had in our history so much expansion in terms of land banking and forest base. We were close to 300,000 additional, sorry, 300,000 hectares of planted areas last year, and we are going to have the same amount for this year. Heidi is going to share with us today good news about the Cerrado project. And I think this is a transformational project for our history. We are going to increase volumes on a very competitive base for the future. And we continue to have shareholder compensation. We concluded the third buyback program and we had now the fourth program that we announced a few weeks ago. that is going to show to the market that we believe that we are undervalued and the best capital allocation for us would be to buy back shares and show to the market that we can keep creating value to our shareholders. And we announced last year, we pay in January the interest of equity payment of one and a half billion reais. In terms of results on the page number four, we had last year 10.2 million tons of pulp, 1.1 million tons of paper. We had the lowest ever inventory in the company, showing that the market is demanding volumes for us. Leo is going to explain in detail what is the market conditions for us right now. We had one adjusted EBITDA of 18.3 billion reais. The cash cost for the last quarter of last year was 816 reais per ton. We have been decreasing every single quarter our cash cost on the last year. And now a very robust balance position. Marcelo is going to go in more details about that. but we have a very good liquidity. Our net debt is not growing even at a very high pace, even considering the largest capex on our history, showing that we are able to deliver new projects without expanding our net debt on a very high level. And our leverage was 3.1 times that of EBITDA. Of course, this is regarding a lower EBITDA due to the lower prices that we had last year. Now I'm going to turn to Fabio, who is going to explain a little bit more about the paper business. Fabio, the floor is yours.

Thank you, Walter. Good morning, everyone. Please, let's turn to the next page on the presentation. 2023 was a challenging year for paper and packaging markets globally. Excess of inventories led to a much lower level of demand in most markets. Normalized supply chains coupled with excess capacity on print and writing and paper board mailing in Asia increased competition, which turned into higher pressure over paper price in international markets. Despite these challenging conditions, we were able to deliver solid results, full operational flexibility and revenue discipline, achieving the second best EBITDA in our history. On the domestic market, according to IBA, print and write demand decreased 13% on a quarter-over-quarter basis. In a full year comparison, we see 11% decrease in print and write demand, quite above its secular trend caused by destocking from 2022 levels and paper substitution, mainly in promotional advertisement segments. Our core markets, unquote wood-free and cut-sized products, performed better than our paper grades and demand was more resilient. On international markets, print and write demand was also hampered by the destocking cycle, but also by macroeconomic uncertainties that limit economic activity and a faster advancement of digitalization. Print and write demand has shrunk above 20% in the mature markets, such as US and Europe, forcing adjustments in capacity to match new demand levels. Regarding paper board, we have seen inventory adjustments as supply normalized, mainly in the pharmaceuticals and domestic segments, which start early in the third quarter and continue through the end of the year. As a result of that, eBus public data shows an 8% reduction in domestic demand on quarter over quarter. When you look at the full year, we see that paper board demand almost flat compared to 2022, on a stronger first half of the year. Susano's total sales volumes in Q4 were 17% higher than last quarter due to seasonality. Compared year-over-year, sales volume increased 5%, driven by higher volumes for the external market. Our annual sales volume compared to 2022 decreased 6% due to lower sales in the domestic market, which represents 67% of total sales. The average net price during the quarter was 7% lower than our average price in Q3 and 50% lower than Q4 on 2022. But when looking at 2023 versus 2022, our average net price remained 3% higher. It is important to mention that lower net price in the second half of the year reflect lower price in international markets. Susano domestic prices were more resilient and were only 1.4% lower year over year due to seasonal product mix. Looking at now at EBITDA, the 11% decrease quarter over quarter and 29% year over year were both driven by lower price despite higher sales volumes. The same factors led to lower EBITDA per ton. Our full year EBITDA was 2.6 billion, a 90% decrease versus 2022, but still much higher versus pre-pandemic levels, as it can be seen in this slide. Looking ahead for 2024, we expect to see normalized levels of demand, as inventory levels seem healthier compared to 2023. The structural trend of digitalization, permanent shifts in consumption behavior will continue to impact demand, but we expect purchase trends to go back to its historical pattern. Cost inflation over the past year have eased and settled, and we should expect flat cost for paper products in 2024, albeit stressed global geopolitics, which could impact supply and demand balance in the future. Now I will turn over to Leo, who will be presenting our business results.

Thanks, Fabio, and good morning, everyone. Let's move to the next slide of our presentation in order to address with you our Pope Business Unit's results for the fourth quarter and full year 2023. I would like to begin by sharing with you some facts from the supply side of the Pope Fundamentals Despite incoming volumes from the main 2023 projects in the stream, hope inventories in major markets reached low levels along the fourth quarter of 2023, coming to even more critical set points at some key port terminals in Europe. We have also noticed that permanent capacity closures in Bleach chemical pole reached almost 2 million tons during 2023, with a substantial share of this volume curtailment already affecting markets during the second half of the year. When considering the supply factors and adding demand drivers, such as the recovery of paper production and pulp demand in Europe, and the healthy demand and order intake in Asia, S&D fundamentals have triggered new rounds of pull price increases in all markets. As you can note on the upper left graph, our fourth quarter sales were quite strong, much aligned with Q4 2022, despite the fact that we had lower production availability. Our pulp inventories, as Walter mentioned, have now reached the lowest, the lowest levels ever, which have demanded us to push and stress our operations to the limit in order to ensure the maintenance of the supply chain excellence and the established commitments in our contracts with our customers. The combination of strong volumes with price recovery, FX and lower cash costs have resulted in a higher EBITDA margin for the quarter, reaching 3.8 billion reais or a 48% margin. Now looking forward, I would like to highlight the following points. Both printing and writing and specialty paper producers operating rates have been recovering in Europe at a stronger pace than expected. As a consequence, most of our customers have been revising up their pulp demand for the next months and quarters. In order to best serve our customers in Western markets, our business setup is different than those for Asian markets, meaning that we have to build up and carry more pulp inventories close to or even within the customers' facilities in Europe and North America, stressing further our current logistics constraints. As we speak, we are in the process of reestablishing inventories in Europe and North America, but this effort should take a few months, especially because we have to combine this initiative with ongoing invoicings to other markets like Asia, Africa, and Middle East, for which today we have significant backlogs. This has been further intensified by logistic headwinds due to the Red Sea conflict and challenges also in other routes. For the upcoming months, we are limiting our offers to Asia, to Middle East and to Africa in order to better manage our inventories globally and to recover the backlogs caused by late shipments. This means that we have been fully booked in January and we also have been fully booked in February and expect that this scenario will last some more months before the whole system is re-stabilized. Talking about the demand side of the S&D equation, in China, January paper and board production has positively surprised both market participants. And now, post-Chinese New Year, initial signals show that demand for pulp has been recovering over expectations, as market contenders are preparing for higher seasonality and consequently higher paper production months. led by increasing commercial printing and spring publishing season in China. Such positive dynamics is also being benefited by the implementation of several price increases for paper, specialty papers and packaging grades in Asia and in other key markets of the world. Demand in Europe continue to positively surprise our forecast with an additional short-term upside coming from the lower paper imports from other markets, due mainly to logistic constraints. As you already know, considering all of the above, we have announced earlier this week a new round of price increases to all global markets and expect that they are successfully implemented during the next weeks. Our market sources indicate that Chinese BHKP resale prices, as well as Chinese local hardwood prices, are turning up with conditions to close the gap to imported pulp in the very short term, reinforcing the tighter than expected market environment. With that said, I would now like to invite Iris to move forward with our presentation.

Thank you, Léo. Good morning, everyone. We are in slide seven. Look to our cash cost performance in the fourth quarter compared to previous quarter. The middle single-digit decline was driving by. Lower wood costs mostly due to shorter from forest to mill distance. Improved wood consumption per ton of pulp and supply mix. Lower chemical price, being caustic soda the highlight. Lower input consumption on the back of greater operational efficiency of our mills. And reduction of fixed costs with increased production volume. On a year-over-year comparison, The 13% improvement was benefited by lower input costs with a fall in commodity price, lower consumption of inputs leveraged by energy efficiency project carried out at Jacare-Emil, and several improvements in wood KPIs, such as lower GSO price, better efficiency in the harvest and the logistics, Lower average distance as well as a lower wood consumption per ton of pulp produced. Looking forward, we expected a flat cash cost performance throughout 2024 compared to 2024-2023. The benefit of Cerrado project should start to be seen in the end of the year as the ramp up progress. Moving to the next slide, As you can see, Cerrado project has evolved as planned in 2023, and we are very confident for its startup by June this year. Now I turn the floor to Marcelo Bott to continue the presentation.

Thank you, Iris. Moving to page nine, I'd like to start by giving a retrospective view of our indebtedness. As you can see on the top of this slide, we have gone through, during the years of 20 and 21, through a deleveraging cycle right after the merger with FIBRA. And since the end of 21, we have been generating a significant amount of capital through our operations and gone through a very relevant investment cycle with $4.6 billion being invested in modernization and growth. But on top of that, we have been able to return to our shareholders $1.4 billion, which was a significant return when compared to previous years. And if you look at the behavior of our net debt over the years, we now stand at $11.5 billion, which is more or less the same level that we had three years ago, and $2 billion below the year of 2019. with that we have been able to keep our leverage ratio under control we now stand at 3.1 times that that will be die in dollar terms and we expect this ratio to go up in the first half of this year before we start the ferrado project and then start to decrease after we start the new meal and and then see the revenues coming from the new view affecting positively our revenues In terms of liquidity and amortization schedule, we have been improving this number constantly. We now have, between cash at hand, standby facilities, and signed contracts that are still to be drawn, $6.8 billion of liquidity, which correspond to four and a half years. to the next four and a half years of maturities. This is a very comfortable position that we keep improving all the time, seeking for opportunities of new transactions. We, as we had said before, we have a significant amount of our debt at fixed rate and constantly, and we are starting to move back to some floating rates to benefit from the expected reduction in interest rates that we will probably see in the coming years. Moving to the following page, which is the last page of the presentation, we'd like to touch on the guidance for total operational disbursement that we gave last year. At the end of last year, we signaled to the market that we expect the total operational disbursement to reach 1.75 thousand reais at the end of 27. And we are now reaffirming the same number, 1.753 for the end of 27 in 2023 currency, which means that we have been offsetting the inflation of the last year of 23 into the number and keeping the same guidance with the slightly different split between the three components, sustaining CapEx, SG&A, freight and cash costs. With that, we conclude the presentation and we can move to the Q&A session. Thank you.

Thank you. We'll now begin the Q&A session for investors and analysts. If you wish to ask a question, please press the button Raise Hand on the lower part of your screen. If your question has already been answered, you can leave the queue by clicking on Put Hand Down. Please wait while we pull for questions. Our first question comes from Mr. Rodolfo Angeli from JP Morgan. Mr. Angeli, the floor is yours.

Thanks, everyone. Of course, I just wanted to start by saying that you'll be missed, Walter. It's very big shoes to kind of feel looking forward. And it's great to hear that you're going to be around and the focus is on continuity. But let's move to my questions. First of all, very impressed from the words from Leo. It seems very bullish for the market outlook. So, Leo, can you comment a little bit more on what you mentioned? How are things particularly in Asia? And you mentioned that you'll have to limit some of the output to the region. Share, please, some more light on this. And the second question I have is, given that demand seems to be, or the business environment seems to be quite tight, we've been asked a lot about the 4% capacity that was closed. Is that coming back? We've been asked a lot about this, so if you could comment that, it would be great. Thank you very much.

Thanks, Rodolfo. Good morning. Thanks for your question. Yes, I'm going to start with the first part, talking about what we're seeing happening in Asia and also about how we are managing our system to reshuffle these inventories throughout the world, as I mentioned in my speech. China had a very strong January production month. This was quite surprising. I think it exceeded the expectation of both market contenders. And after Chinese New Year, the sentiment of optimism is on the streets. Obviously, we all know that there is a higher seasonality period of the year due especially to commercial printing and to publishing season. But also the paper producers and packaging producers were able to implement price increases right after Chinese New Year and already announced new rounds of price increases for March. And this obviously creates an additional optimism in the market. And we see immediate reflection and we see resale prices going up. They have been going up since last week. Our market sources even report higher numbers on the streets today as we speak than those reported yesterday night. So we see resale already catching up to imported pull prices. And we see also local Chinese hardwood producers following imported pull prices. So this more speculative part of the markets is reacting quick to translate the same scenario that we see in short term. What I mentioned regarding limiting volumes to Asia, and also the fact that we have been oversold for the last two months, is because as europe is coming back on tracks and also north america and our business model in these markets demand local inventories either in outpost terminals or even inside our customers we need to reshuffle all these volumes back from other markets in asia middle east or africa to europe and the united states in order to comply with our supply agreements and contracts And then by doing that, and our customers keep revising up also their forecast. Obviously, they don't expect that it is as strong as it was in 21 and 22, but there is a significant recovery based on 23 levels. And they keep revising it up. We are constantly trying to reshuffle vessels outside Europe in order to establish these local inventories, and the same is taking place in the USA. So that is why we're having to limit the volumes that we are offering to markets like China, like Asia, like Africa, like Middle East, so that we're able to return quickly to a prompt supply chain system and efficient supply chain system that we guarantee to our customers.

This is Marcelo speaking. In relation to the production for this year, we continue to analyze the situation and the market on a marginal basis. And we will make the necessary decisions throughout the year, reflecting the market conditions. We are not ready to disclose more than that at this point. Thank you.

Our next question comes from Mr. John Brand from HSBC. Mr. Brand, the floor is yours.

Hi, good morning, Walter. I just wanted to congratulate you on a great 11 years. Certainly, you're leaving Susano in a much better place than when you started. So congratulations and best of luck in your new role. I guess my first question is related to to one of your customers, and I know generally you don't really like to discuss that, but, you know, I understand Vinda in China is in the process of being acquired by, I guess, one of your competitors, and presumably they would want to use their own internal pulp when that acquisition is completed. So I guess I'm wondering, what does that mean for you? Is that sort of another issue that you have to deal with in terms of moving those volumes away from Vinda towards a bunch of smaller customers. Is there any concern about how that might go? I guess that's my first question. And my second question just relates to some of the logistic issues that you were discussing, Panama Canal and the Red Sea. If you could maybe elaborate a little bit more on sort of the issues that you're seeing. Is it costing you more to ship? Is it taking more time? I guess, how big of a concern are these logistics issues? Thank you.

Thanks, John. This is Leo here. I'm going to answer both of your questions. First one related to a very important customer of ours, indeed, Vinda in China. We are following the latest developments. We have been a very close partner to them for quite a long time. And our obviously first initiative is to support this transition with so many friends who have been supporting Suzano for such a long time. So how do we make this as smooth as possible for all of those in this company which have been supporting us and our predecessors here at Suzano for a long time? As we know, the market is interlinked. If it is the new management's decision to verticalize production downstream from their pulp mills, certainly customers where they were selling will open up and the whole system will again reshuffle itself around. So we don't see any issues on that. We are very much committed to support this transition, especially due to all the support we have gotten from the Vinda team throughout these past years. Regarding logistics for Suzano, due to our setup, we have all these long-term agreements and even vessels. Cost is not an issue. It's much more delay on shipments and to routes, right? We have a lot of shipments to the region that involves Red Sea transit. So we're having additional lead times, which can go from 10 to 15 days. And there was also an abnormal rainy season in Brazil at the end of the year and into January. affecting southern ports in Brazil, which is also affecting a bit the lead time of vessels and how they rotate in the whole system. But it's a matter of lead time, not of cost. Okay, great. Thank you.

Our next question comes from Mr. Leonardo Correia from BTG Pactual. Mr. Correia, the floor is yours.

Hello, good morning. Yeah, so I'm going to start out the same way. Valter, it was a pleasure to exchange all the ideas and to hear you over the past years. Congratulations on this amazing career so far as a CEO, and I hope you have A lot of luck on your new role at the board, and I'm sure that you're gonna be very close to the company still. So congrats on that. Moving to the couple of questions, guys. The first one is on, just on the new potential investment cycle, right? I mean, of course, everyone is thinking about that, and this is core to the investment case. and management has been talking about this new cycle, right? Even though we're still in the middle of, we're still finalizing Cejado, but we're already thinking about new investments, right? A lot has been talked about, internationalizing the company. You've clearly have talked about trying to reduce exposure to pulp and to Chinese markets and to perhaps reduce volatility of earnings. So I just wanted to hear you on how this mindset is evolving and what are your considerations for the new incoming CEO voted on? What he should look for? What regions? Do joint ventures make sense? Would you be looking to expand further in Mato Grosso? So, I mean, if you can give us any intelligence and any of your views on what you're going to pass along to the incoming CEO, that would be great. The second question... is regarding costs, right? I mean, we've seen quite a lot of progress. All of that inflationary environment, right, on the pulp cash cost seems to be behind us, right? I mean, you reached 900 reais per ton at peaks. We're now closer to 800. It's a 13% drop year over year. I just wanted to see what you're thinking on in terms of the continued evolution of this cost reduction into 2024. I mean, can we expect similar single-digit drops? Or perhaps you're still thinking more of a stability scenario is making more sense. I'd love to get your thoughts on how you think costs are moving forward. Thank you very much.

Well, it's well to talk and thank you very much for the opportunity and to answer your question. First of all, I'd like to thank you, Rodolfo and John and you for your considerations. Thank you very much. I'm very pleased to hear that. And I will continue to be very close to you in the next coming month and after as a board member as well. I think it's very clear that the company has been working in order to maximize returns to our shareholders. This is an important issue for us. It's part of the value creation process that we want to generate to distribute among all the stakeholders. And this is critical. We are very disciplined on that. Leo, we are very agnostic about geographies. We could look for opportunities in Brazil or in other regions. But we are very clear with the target that we want to have products and projects that create at the same time differentiation Could be in cost, could be on product or service, but we do not want to be in the mid-pack. But in addition to that, projects that could be on scale. The company will generate higher cash flow operations after the commissioning of the Cerrado project. It's very clear on that. Cerrado has a very good cash cost, and we are very pleased with the impact Cerrado is going to create for us. And we will look for alternatives for value creation to the shareholders that could be cash returns if we do not have good projects. But if we have projects that would bring value to our shareholders, we consider that. I think it's very clear and like to bring to your attention the fact that the company is moving and having the benefit of higher volumes to the short fiber markets. This fiber to fiber program that we have been in place for several years, it's every year bringing new volumes to the industry, to the short fiber markets, replacing long fiber. So, of course, we want to replace fossil as well, plastics as well. And the combination of both is expanding the pie and we are having benefits on that. It's very clear right now that the long fiber market is not very competitive. We are going to see a lot of permanent closures on this industry, and this allows us to have even more volumes coming from long to short fiber. Suzano could have another different verticals that we have been looking for. The textile market, it's one of them. We are looking for opportunities as well on packaging, on tissue, and this could create new opportunities for the future. uh we just to reinforce the point that discipline is a very critical issue for us and i'm going to be one of the guardians of that in the in the board of directors i'm going to pass to itis hello thank you for your question uh we believe that there are two ways main ways to reduce

cash cost in our facilities. The first one is increasing our efficiency and productivity in our facilities. We have done this with our retrofits in Jacareí, Aracruz, and of course with Cerrado project. And another one important one is reducing the distance between forest and mills. And I'll have it done with our highest program of plantation and the land banking, you know, the history of the Suzanne. These impacts will reflect closely with the Cerrado. Then after They stopped probably in the last quarter. We noticed a reduction in cash costs after the ramp-up. And in terms of forest, as Marcelo showed, we are remaining our GTO to 2027. That represents an important reduction in this part of costs. Then I answer directly our question. We believe that we have the hopefully cash cost performance in the first three quarters this year and probably a reduction in the last one after the ramp up of Sehab.

Our next question comes from Mr. Márcio Farid from Goldman Sachs. Mr. Farid, the floor is yours.

Good morning. First of all, Walter, obviously very much congrats on your journey with Susano. I know it's not goodbye yet. You'll be around for a few months, but also on the board. So hopefully continue to hear from you as well. Congrats on the journey so far and good luck. All the best on the future in the hours. um a couple of questions on my side please the first one uh leo obviously china very strong gear probably four or five times um you know the usual volume you see growing to china uh europe very very weak obviously 20 down versus last year uh us also very weak so i know you talked about how the mark how you see the market today uh in terms of uh expectations and pricing but trying to understand how should they think about um you know the whole balance for the year right um I think, you know, what are the main trends you're observing, especially as you progress your commercial strategy for the Cerrado volumes that are probably going to be placed in the second half of the year, right? And then second question, Fabio, on the paper business, you briefly talked about the challenges that the markets saw last year, and yet earnings were quite strong, right? Mostly flat versus 2022. So just can you please give us an update in terms of how you're seeing the packaging and graph paper markets, obviously in the key benchmark regions, which tends to be Europe, but also how you see the situation in terms of competition with imported volumes that were very high coming out of Asia, especially China, Indonesia last year. Thank you.

Thank you, Márcio. This is Leo here. I'm going to answer the first part of your question. And you're completely right. For last year, China and Asia were the highlights of bulk consumption to our markets, right? The consumption in China exceeded by far, I think, any expectation since mid-year with additional or higher production rates in almost all product lines or paper product lines in China. When we look at the four product lines that affect hardwood production or consumption the most, which are uncoated papers, coated tissue and every board production last year grew 11% compared to Chinese production grew 11% compared to 22. And that's massive, right? That's a huge additional demand for pulp, which had offset it, especially in the second part of the year, the downside of consumption that we were seeing in Europe. Now we are in the moment of returning these inventories and all the system back to support a recovering European and North American market, as I mentioned. Inventories are low in these markets. They have fallen over 40% against peaks from last year, and they are trending all below historic levels as well. So we have a double challenge. First is to recover this historic pattern, and then is to maintain that. And that's why we are reducing allocations to other markets, because this involves a lot of efforts and volumes to be redirected to this market. So that's why. And obviously, the volumes are not one-to-one, right? Since the business models are different, one ton of growth in Europe demands from Europe From us, a diversion of much more than one ton from other markets, as the business models and the setups are different and demand local inventories, sometimes even inside our customers. Regarding Cerrado volumes, as I have mentioned during Suzano Day, We are expecting that most of these 700,000 tons, which is our estimation for 2024, will reach markets by the very most end of the year. We have finalized all the strategic allocation discussions and analysis for this volume, and we are very confident on that. As Walter mentioned in a previous question here that you guys made to him, we are obviously tackling not only organic demand in our traditional hardwood markets, but also several fiber-to-fiber opportunities for which our teams globally are already deploying so that we are very successful on Cerrado Cups.

Arcelor, good morning. Fabio here. Thanks for your question. Regarding paper markets, let's start first with international markets. Last year, we saw a big correction of the excess that we saw also in 2022, excess of demand, excess of inventory built. And so in the second, especially in the second half of last year, was very challenging for most mature markets, Europe, North America. uh why oil demand was quite uh uh much lower than historical trend uh you mentioned the you know the 20 percent correction in demand over the year and at the same time we saw capacity going up uh in in china and the chinese uh exporting more paper products which put put uh you know, some challenge on the paper prices internationally. Since then, things start to improve in the end of the year with poll price increases that end up affecting also paper prices in China. We see paper prices in China increasing and some announcements in the end of last year, beginning of this year, which is supporting healthier paper prices in the international markets. We're also seeing some announcements in Europe and in North America lately in paperboard and also in print and writing. which is supporting better paper prices internationally than we saw mostly in the third quarter, fourth quarter of last year. And that should continue. Leo mentioned here about the logistics issues in pulp. In paper, you know, paper's logistics is done by containers, and containers are much more affected by the Red Sea crisis than brick pulp. And we see additional challenge for Asian players to export in the eastern-western trade. But we see that has not affected us in the southern-northern trade of export. So we see favorable scenarios in international markets. As we speak about domestic markets, it's very stable. Prices in the domestic markets haven't changed year over year. And we have announced price increases for uncoated wood free and also cut size starting early January this year in the domestic markets, which we are fully implementing. and we should collect that. And we see that imports have stabilized, although at high level, but they have stabilized, stopped growing, mainly because of the challenge scenario for logistics on the Chinese, and also higher export prices that we're seeing from Asia. So overall, it's a more optimistic scenario at the beginning of 2024 than we have seen the second part of 2023. Thanks a lot, Leo and Fabio. Great details.

Our next question comes from Mr. Guilherme Rosito from Bank of America. Mr. Rosito, the floor is yours.

Hi. Good morning, everyone. Can you guys hear me? Yeah. Yeah, perfect. So first I'd like to congratulate Valter on his journey at Suzano as well and wish you the best of luck on the board. And so I have two questions from our side. First is on Cerrado. Just to understand, what is Cerrado's breakeven volume? So at which point should we start seeing the fixed cost being diluted? And then we see the full benefits of the Cerrado costs. And then my second question is just considering the recent movements in land acquisition and current prices you guys are seeing, What do you understand to be the current incentive price for Pope? If you could give any details on that, it would be great. Thank you.

Hi, Guilherme. This is Marcelo speaking. As you know, Cerrado project is a very low cost asset in terms of its production cost. And if you look at the guidance that we gave on production evolution for this year, where we're going to be producing at growing volumes to the end of the year, we should be very fast approaching the level of breakeven. We are not disclosing the exact amount, the level of the breakeven, but we will be above that still this year. In terms of the second question, of course, the incentive price of pulp for new projects has been growing over the years as a result of an increasing cost of CAPEX plus the land costs, plus the wood costs. So there's a series of factors that are impacting the attractiveness of new projects. The obvious projects have been more and more already executed. So it is growing. We are not ready at this point to tell you exactly what is the incentive price for a project. But for sure, this is a number that has been growing over the last years. That's perfect. Thanks a lot.

Our next question comes from Mr. Rafael Barcelos from Bradesco BBI. Mr. Barcelos, the floor is yours.

Hello, can you hear me? Yes. Okay, good morning. Firstly, of course, I just wanted to congratulate Walter on all his value creation and accomplishments over the years at Suzano. Walter, I must say that it was a pleasure to interact with you. during these years. And my first question is really to Walter, and it's a follow-up on capital allocation. Walter, you gave more color on what we could expect in terms of Suzano's next growth cycle, but I just wanted to focus more on the cash return side. I mean, what are your thoughts on the potential combination of growth initiatives and cash returns through dividends and buybacks going forward? I mean, with Seharadu, Suzano will be able to generate much more cash going forward. And I just wanted to understand whether the company could think about a new payout policy or be even more focused on cash returns after Cerrado. And my second question is about pulp supply. We all know that Mato Grosso do Sul has potential for more projects, right? I mean, but I just wanted to understand, in your view, what are the main challenges for new projects or new players in the region? I mean, if you could elaborate further on logistic challenges and, of course, on the wood supply would be very helpful as well. Thanks again.

Thank you very much, Rafael. I'd like to thank you as well, Márcio and Guilherme, for the words. Thank you very much for that. Regarding the first question, I think it's very important how we think, Rafael. I think it's very important to define that we have a spread over walk there is the minimum requirement for every single new project. Of course, we are going not to become public this spread over WOC that is required, and it's not the same for different projects. When we are going for a retrofit project, we are requiring a smaller spread because the risk, implementation risk are much lower on that. When we are entering a new market, we exceed, we increase the spread of the work that is required to approve a new project. If we do not have a very good pipeline of projects in terms of implementing, then we are going to see higher cash returns for our shareholders. But we are always checking as well how much is our share price comparing with our expected share price for the future. And this could be an opportunity as well. And this is the reason that we are right now the fourth buyback program in the company because we believe that our shares is undervalued. And this is the reason that we opened a new project, a new buyback program. In terms of pulp supply, first of all, I think it's always feasible to have a new project in terms of implementation on the land side. We'll take some time. We are not seeing available forest at this point of time. in any part of Brazil and South America that could allow for the next project to come in place. As you know, new projects will take higher capex, as Marcelo mentioned. A higher wood cost and higher capex will require higher pole prices and with higher interest costs as well. It's very difficult to justify a new project at this point of time. When somebody will start a new construction, this is going to take at least 30 to 32 months. Then we are not seeing new projects coming to be commissioned on the next three years. Of course, we are seeing a lot of announcements in place, and this project perhaps will happen, but it's very clear to us that we are going to see a period in the next years without further expansion of new capacity coming on stream. And then we believe that the price conditions are going to be much more benign, much more positive for the industry in the coming years.

Excellent.

Our next question comes from Mr. James Spice from Morgan Stanley. Mr. Spice, the floor is yours.

Yes, thank you. I would also like to congratulate Belter, of course, for your tenure as CEO and also second the comments that it's staying in the company that you helped shape over the past decade. So congrats on the past and the best of wishes in the future. I would like to ask, yeah, most of my questions have been asked. Just one based on... the Cerrado cost and cost progression. If I understood it correctly, I mean, we should be obviously assuming costs maybe to go up a bit at the very beginning of the ramp up, but very quickly then break even maybe as soon as the fourth quarter. So, which would be quite impressive in my view. What sort of capacity utilization are you assuming to reach by year end? And particularly considering that you mentioned that most of the 700,000 tons will come at the end of this year. Thank you.

Hi, Zair speaking. We gave a guide some months ago that after one pop, Cerrado produce cash cost will be around 500 reais per ton. And after, when you achieve the first base in the radius average that you have in the produce, 66%. kilometers from the forest to the mill. This cash cost will decrease to around 400 reais per ton. Our guidance in production was that we delivered 2 million tons in the first year. We are very confident with the learning curve and the ramp up of this project. That's after six months, we have a planned short shutdown to adjust these equipments. That will be close to the end of the year. That's the reason that we are able to see these results in the cash flow only in the last quarter because we have this small interruption in the production. But when we return, we preview to run and denominate capacity of the plants and you bring all benefits of the cash cost of the project to consolidate. And we're not, that's important to say, that's the first six months, we will not impact the total cash cost performance of Suzano when we are giving our guys that we are in the same line and we are considering this Impacts in the beginning.

Jen, this is Leo here. You mentioned 700,000 tons. I just want to clarify that these are 2 different things, right? 1st of all, we have ideas and all his teams ramp up production figures and numbers. And the 700,000 tons that we have mentioned, that's our sales plan. for Cerrado 2024, which are different, right? We have a long cycle and lead time from Mato Grosso do Sul to Santosport. We will be operating these huge vessels, you know, innovative vessels that are being built for Suzano, which are now 77,000 metric tons vessels. and having to load them, and then we obviously have the lead time to market. So that's why, based on Iris and his team's expectations of production and ramp-up, and our lead times to markets, and also system build-up in terms of inventory, we are planning for 700,000 tons of sales, and the bulk of this volume will reach markets by year-end 2024. Just wanted to clarify that.

Okay, perfect. Yes, very clear. And how much inventories will you build up? Is it around 100,000 tons or how much should we bake in?

We don't disclose inventory numbers, but obviously you guys know the cycle times from our meals to some support, and this is the minimum that we have to have in our systems in order to run this export operations and these new vessels. But we're not disclosing the inventory of and build up of Cerrado. Understood.

Okay, thank you.

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

I would like to thank all of you to join us on this session. I'd like as well to reinforce the point that we are looking for the future for a better Suzano. Suzano just completed a few weeks ago our 100th anniversary, and we are very pleased with that. with a major celebration, and we are looking for the legacy that we can implement for the society in the coming years. I think this is a very important issue for us. We announced a very important program regarding sustainability and education with two major universities in the world. And we will continue this process of thinking how we can impact the society. Right now, we are reaching 2 billion people every month with our products, but we believe that we can have even more alternatives to impact better the society for the future. Thank you very much for your support on the last 11 years. I would like not to lose the opportunity to have a teasing and joke that I will hope that Beto Abreu will have a more successful journey in order to convince you that seven and a half times multiple EBITDA is not the right time to make the evaluation of Suzanne. I was not able to do it in the last 11 years, but I hope he would have this opportunity to do it in the coming years. Thank you very much, guys. All the best, and let's keep in touch.

The Suzano SA Firth Quarter of 2023 conference call is concluded. The Investor Relations Department is available to answer any further questions you may have. Thank you, and have a good afternoon.