Suzano S.A. (SUZB3) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for holding, and welcome to Suzano's conference call to discuss the results for the fourth quarter of 2022. [Operator Instructions] Before proceeding, please be aware that any forward-looking statements are based on the beliefs and assumptions of Suzano'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 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 Schalka, you may proceed.

Good morning. Welcome, everyone, to the year results meeting that we are presenting here. We have with us here a large part of our C level that would be able to answer your further questions in the end of the presentation here. I'm very pleased today to announce and to present to you the best ever results of our company. We are very pleased with several developments that we had with you that I'm going to share right now. In the operational side, we have flat volumes on the paper and pulp despite the fact that we have additional annual shutdowns and a retrofit in our Aracruz plant. This keeps us with inventory levels below our optimal operational levels. Leo is going to share more information with you regarding this point. And the combination of good volumes in terms of sales and better prices lead us to a situation that we have the best EBITDA ever in the company with BRL 28.2 billion. We had an operational cash generation of BRL 22.6 billion despite the fact that we have short-term impact on our cash cost due to inflation on commodities and other things and other services that Aires is going to share with you additional information. Our financial situation, it's a very strong balance sheet. We have a potential liquidity of BRL 6 billion right now. Our net debt is at BRL 10.9 billion with several initiatives that we had this year. We had a minor increase from BRL 10.4 billion to BRL 10.9 billion. And Bacci is going to share with you additional information on that. Our leverage is at 2x net debt over EBITDA right now. And we have the performance of our CapEx once again, 1 additional year in line with our guidance, then we are very pleased with that. We are a highly intensive capital company, and we need to perform on our CapEx. I'm very pleased as well to announce our best-ever results on safety performance as well and a major improvement on our culture development, mainly showing that we are preparing the company for our future. We are not only think on the short-term results, but we are preparing our future. At the end of the presentation, I'm going to share with you how we have been performing on all the strategic avenues that we announced to you. Now I'm going to pass the floor to Fabio that is going to share the information regarding our Paper and Packaging division.

Thanks, Walter, and good morning, everyone. Let's turn to the next page of the presentation. We are glad to announce that with solid results of the fourth quarter, we wrapped 2022 as the best year ever for the Paper & Packaging business unit. Demand for print and writing papers in carton bar has been strong in the domestic market, led by seasonal customer demand in paper packaging and the editorial segments. In the international markets, demand although solid in the quarter, has shown some signs of pulling down with much improved supply chain, leading to end on inventory replenishing in all major markets we serve. On the domestic market, according to IBA, print and write demand slipped 2.2% in the quarter when compared to fourth quarter 2021. This decrease is due to a strong comparison period last year and the reduction of print and writing papers sold into the containerboard segment, which has been minimal at the end of 2022. When we look at full figures for the year, print and write demand remained at the same levels of 2021, a positive indicator given strong reading in 2021. Robust performance of the publishing sector, office and school paper segments sustained the demand, supported by the review of previous depleted inventories, a trend that was particularly strong in the quarter. For paperboard, IBA's public data on demand shows a strong 11% increase versus fourth quarter of 2021 due to continuous consumption of essential goods and strong seasonality at this time of the year with holiday shopping. Consolidating 2022, there is a 3% increase in demand, sustaining the post-pandemic growth trends. On the international markets, as already mentioned, supply imbalances are fading, and demand has returned to historical trend, albeit still sustained a favorable price trends. Suzano's sales volumes in Q4 were 2% higher than the previous quarter and 10% below when compared to fourth quarter last year. The decrease in sales volume when compared to fourth quarter 2021 is explained by our decision to operate with lower inventory levels in order to serve the market demand, which diluted sales volumes throughout the year. When we look for annual volume 2022 sales, we're at the same level of 2021 and domestic sales represent 70% of our total sales. Our average net price during the quarter was 2% higher than our average price in Q3 and 40% higher than the same quarter last year. When looking year-over-year, our average net price increased 36%. As a result of revenue management and operations stability, our EBITDA has reached BRL 810 million, a 47% increase on a year-over-year basis. On a quarter-over-quarter comparison, the EBITDA performance was mainly impacted by G&A costs, as explained in our earnings release. If we look at the annual EBITDA of 2022, there's a sound 50% increase when compared to 2021. During the year of 2021, we have grown the sales of our innovation pipeline by almost 2x, delivered on our target set in our last Suzano Day event. We have also surpassed the milestone of 43,000 customers directly served by Suzano, strengthening our Suzano [indiscernible] business model, achieving record numbers in sales throughout our e-commerce platform. Looking ahead, in terms of demand, we expect to see markets returning to their secular trends for print and write papers and continue to grow above historical trends for paperboards. We expect more challenged market conditions in the international markets with the shrinking demand for print and write papers and more availability of supply. Domestic market seems more balanced and should be more resilient. It's worth to mention that the structural competitiveness of Suzano Paper & Package business provides a solid ground to navigate on the unforeseen market dynamics. Cost inflation in the last 2 years has altered the marginal cost of paper producers. And moving forward, we should expect prices to remain higher than historical levels in most markets. Now I'll turn it over to Leo, who will be presenting our business results.

Thank you, Fabio, and good morning, everyone. So let's please move to Page 5 of our presentation so that we can address the results of our pulp business unit for 2022, which was also a record year for Suzano's pulp business unit as well as sharing with you the results for Q4 '22. As you can note on the upper left graph, our 2022 sales volume was much aligned with our 2021 sales volume. Our sales volume during the fourth quarter was quite strong, also in line with the preceding quarter and with the fourth Q '21. consequently, keeping our inventories still below optimum operational levels. This sales performance was supported by a timely recovery of shipments and invoicing to Asian customers, for which we have now reestablished previous service level commitments. During this past quarter, demand for paper segment in Europe performed differently among themselves. While tissue was quite strong and resilient, print and writing as well as some specialty grades, mostly related to the labor markets, faced lower order intake as distributors have started to destock. We have noticed, however, improvements in the demand of decor paper by the end of Q4. In China, low paper producers' margins, a reestablishment of logistic lead times and a negative sentiment due to the uncertainty on how the growing COVID infection rates could affect consumption going forward despite positive messages from greater opening of the Chinese market reflected in order entry at below normalized levels. Due to this prevailing scenario, we have decided to adjust our prices in Asia for December order intake, which has stimulated our customers to reestablish purchases of pulp as hardwood inventories in China were quite balanced. Now coming back to the slide. Our average price for 2022 was 25% higher than 2021's average price in U.S. dollar terms. And during the Q4 2022, our prices for export markets further increased to $831 per ton. Our EBITDA for 2022 totaled BRL 25.1 billion, which is a new record for our pulp business unit, posting a 17% increase compared to 2021. The fourth Q '22 EBITDA performance was mainly driven by higher prices and strong invoicing performance, as I have already addressed, which led us to a 61% EBITDA margin despite cost pressures. Now looking forward, I would like to highlight the following points. In China, post-Chinese New Year, we have noticed quite an optimism from our customers with improving confidence levels and a general expectation that consumer confidence and spending will accelerate in the short term. Order intake in January was higher than November, December '22 levels, and in February, they have further improved, trending quite close to historic levels. In Europe, we expect that the distributors and customers destocking for printing, writing and specialty grades should be overseen consequently recovering purchases of paper. In the European tissue segment, we continue to see quite stable and resilient markets with positive downstream demand. In North America, focusing on tissue as other paper grades are mostly integrated, most major producers are reporting to be running at healthy production rates. Looking now at the supply side of the equation, we still haven't noticed additional volumes from upcoming projects being marketed as we speak. And we expect that these new capacities will reach markets gradually and possibly more significantly towards the second half of the year. When we add the full annual impact of decreasing Birch hardwood availability in Europe, we foresee a healthier as in this scenario in the short term. Also, increasing viscose prices are stimulating flex dissolving pulp producers to swing back their production towards this pulp rate. It is our view that unexpected downtimes will continue to put additional pressure on supply due to technical age of pulp producers, weather-related events, strikes as well as increasing cost pressure and availability of wood in several regions of the world. Looking at 2023 as a whole, we see organic demand for hardwood pulp growing close to 1 million tons, which will be further increased by a restocking movement in Asia once prices get closer to marginal costs and also supported by fiber substitutions favoring hardwood grades as well as single-use plastic substitution. Despite our positive view on the short-term fundamentals, we sense that our consumers and customers' behaviors are anticipating the sentiment of future projects, which have been influencing price curves. It is worth mentioning that inflation on production costs during this past 2 years, mainly driven by higher wood costs have changed significantly the set points of decision-making of higher-cost producers, which should anchor different price levels when compared to previous cycles. With that said, I would now like to invite Aires to address with you the cash cost performance that we had during the last quarter.

Thank you, Leo. Good morning, everyone. I'm moving to the next slide. Looking first to the 2022 cash cost performance ex downtimes, as we were already seeing on previous quarter, a new and higher level was established mostly due to the exogenous impact of commodity price on wood and input costs throughout the year. Pricing alone over BRL 100 over 2021 basis. The higher scheduled maintenance downtimes and labor costs also took a toll on fixed costs in the period. Nevertheless, the operational performance in 2022 was outstanding from the second quarter and on, with all mills reaching technical records and operational rates stability and chemical consumptions. Now looking specifically for the fourth quarter also ex downtimes. Although some commodities, mostly branch have provided some relief on the cash production cost, there was an increase of 6% due to several factors, being the most important related to some one-off events in industrial plants, impacting the specific consumption of energy and chemicals. On wood costs, our greater third-party harvest operations, trade tariffs and a higher average from forest to mill distance explains the hit. Addressing now the fixed cost increase, the pressure comes from labor costs and lower production volumes, in turn to a higher downtime in our Aracruz unit impacted fixed cost dilution. Looking forward to the first quarter 2023, cash production cost ex downtimes, we see a flattish performance over 4 quarter 2022 with a potential and gradual reduction in the cash cost production throughout the year, especially if the commodity performed better than our exceptions. In other words, different from the dynamic observed in 2022, we see a more stable cash production cost performance in 2023, considering the current operational plan. Moving to the next slide. The Cerrado project continues to evolve as planned in the both and the physical and the financial time lines. so that you can have a more complete view of the physical progress of the product. We have made available a short video that shows the evolution of the product. The link is in the presentation or in the IR website. Now I pass the floor to Marcelo Bacci to continue the presentation.

Thank you, Aires. Let's move to Page 8, where we see that our net debt moved from $10.4 billion to $10.9 billion during the year of 2022, especially because of the advanced dividend payment that we made in December regarding 2023 and despite the $3.2 billion that we made in CapEx and the $400 million in share buybacks. That allowed us to reach the lowest leverage ratio that we had since the Fibria merger in 2019 at 2 times. Our liquidity position continues to be extremely positive and comfortable with $6 billion, including $3.3 billion in cash. The level of maturities that we have for '23 and '24 is extremely low. And our debt is 95% of fixed rate with an average cost of 4.7% a year. That puts us in a very robust position in terms of financial stability. Moving to Page 9. We show that we continue to advance in our FX hedging policy, taking advantage of the BRL volatility. We now have an operational hedges close to $6 billion in notional with an average put of BRL 5.58 and another $1.8 billion of hedges related to the Cerrado project with an average put of BRL 5.78. If the real continues at the current level, we can expect to have significant positive adjustments in cash in '23 and '24. Moving to the following page, we demonstrate the significant cash returns that we had last year. We paid BRL 4.2 billion in dividends, and we bought 40 million shares in our buyback programs with a total of close to $400 million. We have just announced that 93% of the shares that we bought will be canceled, and that represents 37 million shares. Finally, moving to Page 11. We update our guidance in terms of 2027 operational disbursement. The number that was BRL 1,669 per ton in '21, reached BRL 2,022 in '22. And we show here that we expect a significant reduction in the next 5 years, moving that number from BRL 2,022 to BRL 1,750 in '27. That movement will be achieved with the contribution from more normalized commodity prices. The effect of the maturation of the competitiveness projects that we have in our portfolio, both on the industrial and the forestry side and also the contribution of the Cerrado project that will come on stream with a lower than average total cost of production. With that, I'll turn back to Walter for his final considerations.

Thank you, Marcelo. I think we are sharing with you an outstanding year and results of the company on the last year. And I'm going to share on the last slide with you, the several activities that we have on every single strategic avenue in the last year. On the first one, that the best-in-class in the total cost vision, we have been working to increase and to buy extra land for us through the acquisitions of Parkia and Caravelas. We have been going through the retrofit Aracruz. And this year, we are going to have the better fit of Jacarei. We have a new terminal in our port, Itaqui port that would allow us to be even more competitive on that specific area. We are maintaining our relevance on the pulp of global markets, and we have been working to increase our land bank with several acquisitions preparing the largest CapEx progress sustaining and expansion CapEx program on our forest division. We had last year more than 260,000 hectares of additional area that we planned. And we have been going through the largest single line CapEx in the world right now, there is Cerrado project. As Aires mentioned to you, that we are on time and on budget. We have been advancing in the supply chain. And we have the potential acquisition of Kimberly-Clark that we are waiting as a precedent condition for the antitrust regulator CADE to approve that. And we announced a potential new project in Aracruz plant. We have been working on new markets to expand our addressable market. We have the operations of Woodspin with Spinnova that we commissioned beginning of this year, and we have starting up the MFC mills in Europe and Limeira, that would create a lot of value in the textile market for us in the near future. We have the new CVC Suzano Ventures activity, and we have been working on innovation through different areas on plastic substitution that is one of our main targets. But we have been working as well on sustainability. We have been improving our ESG ratings on different entities. We have been launched the Biomas that would be a major plan of regenerating and preserving natural forest in different Biomas in Brazil, and we have been advancing on diversity and inclusion as well. We are very happy with the development that we did and very excited for our near future. Now I'm going to turn to the Q&A session where all of our C levels are going to answer.

Ladies and gentlemen, the floor is now open for questions. Our first question comes from Caio Ribeiro with Bank of America.

So my first question here is on the cash cost inflation in the industry. Clearly, there's been a lot of changes in the cash cost curve in the past years, particularly the wood cost component, which is a major cost component. I mean, that appears to be experiencing pressure from a number of different factors. So I just wanted to see if you could comment on some of the factors that you see impacting wood costs in the industry, whether you see these as more structural or cyclical, right? And where you see the cost support in the industry today for hardwood, right? And then secondly, linked to this question, given this wood cost inflation, which we see is in part related to the higher competition for forestry assets, particularly in LatAm, where there's a number of different pulp projects under development. Just curious to see whether you believe that there's still competitive forestry assets to continue to support expansions of 1.5 million, 2 million tons or above projects or whether you believe that we could be nearing that point where that lower availability of forestry assets that could start limiting expansions in the industry?

This is Carlos. Thank you for your question. On the wood inflation, that can be explained mostly by the Brent, the diesel that has gone up over the last 2 years. And the second component has to do with a higher logistic cost, a higher price for the major equipment like trucks and other forest machines. Those are the 2 major components that can explain a higher wood cost.

This is Walter answering about the second point that you raised. We have been working on tracking all the potential new areas that we have for forest in South America. And our vision is that we do not have availability of wood for a short-term project in the region. I cannot tell you that it's not available for the future. We are seeing, for example, one of the Chilean companies announcing a new project in Mato Grosso do Sul for the year 2028, that would be possible to happen, but we do not believe any other project or any project coming on stream between '25, '24, there is going to be our project in '28. We believe that we are not going to see new projects coming on stream due to the lack of wood. And it's very important, as I have been mentioning to you that wood costs have been going up at a very high speed. The new projects now will face higher CapEx since the inflation that we are seeing right now, higher interest rates that we are seeing for funding this project and lower wood availability. That would become more difficult to see new projects coming on stream.

Our next question comes from Daniel Sasson with Itau BBA.

Congratulations on the results last year. My first question is related to the CapEx for the Cerrado project. I mean given the updated figures that you provided for your total operating disbursement by 2027 and the increase that came mostly on the back of higher spending on forestry and silviculture, do you think that we can expect an increase in the total CapEx for the Cerrado project as well at some point in the future that those BRL 19 billion could be revised upwards? Is it a fair assumption? And my second question, I mean, given that you did post very strong results that your average maturity schedule for your debt is very long that your cost of debt is low and fixed and that you are already at 2x net debt-to-EBITDA. Do you think that you could take to the Board of Directors already any new projects after Cerrado or do you think that the correct timing for doing such an activity would be after the project is up and running, so we should see something only by the second half of 2024 in terms of new capital allocation decisions? Those would be the first 2 questions from my side.

This is Marcelo speaking. In relation to the Cerrado CapEx, the number for 2023 is given and it's incorporated in our 2023 guidance. We don't expect any major deviation from the initial number other than the normal monetary correction that we see in some countries. So that's why we keep the guidance of on time and on budget. The effects that we're going to see in the future in sustaining CapEx are incorporated in our total disbursement costs that we just announced. But that has nothing to do with the initial CapEx of the project. It's more related to the sustaining CapEx that we're going to have afterwards. In terms of capital allocation and new projects, this is a challenging year for us in terms of capital allocation because we have a major CapEx program already announced of BRL 18.5 billion. And we have some uncertainties in relation to cash generation, given the curve that we see in pulp prices right now. So it is not the right timing to announce new projects, but a more severe correction in the market will probably bring opportunities for companies that have a robust financial situation like ourselves, and we're going to be following that very closely and bringing new potential alternatives to the Board when it's the case.

Our next question comes from Thiago Lofiego with Bradesco BBI.

Congratulations on the all-time high results in 2022. Walter, I have a question which is similar to the one that Bacci just answered. But just looking 5 years out, right, as the Cerrado startup approaches and then looking beyond that 5 years out, what's your idea in terms of capital allocation when we think about the different business lines and potential strategies. So for instance, increasing integration through paper packaging M&A outside of Brazil or I don't know, converting lines to dissolving wood pulp. So what are the maybe the big potential ideas that we could see coming up after the Cerrado project or maybe dividends are going to be the new norm, right, higher dividends? And then the second question to Leo. Leo, you mentioned, correct me if I'm wrong, but I heard you mention that restocking will happen as prices approach marginal costs. So do you think we could see that restocking move happening already this year? Or maybe this is more of a 2024 story? And then how does your own project Cerrado play a role in this potential restocking move, there's a psychological factor there, I would say. So I just want to hear your views on that.

I think it's very clear our policy that we have been reinvesting 90% of the cash flow generation of the company into our future. The company will complete the 100th anniversary next year. And we have been investing on different scenarios of Brazil for the last many decades. I think it's very clear to us that we have the 5 different strategic avenues. Of course, I'm not going to comment any kind of future projects without a discussion and approval of our Board, but we can face organic or inorganic opportunities in the future, depending on the scenario that we are going to face. I think you mentioned many of the alternatives that we have. We have the integration into paper and packaging into tissue with higher volumes with new areas to be invested to address a new addressable market. We have been working on the textile market on the biofuels, we will look for opportunities to increase our efficiency, then we have several areas. And the base of everything is our competitiveness and our differentiation. We want always to have scale and differentiation, and we are going to pursue this basic precedent conditions for us in the future.

Thiago, this is Leo now. I'm answering your question about restocking and eventually how Cerrado can play a role in that. As I mentioned in my speech, we believe that the organic growth in terms of demand this year will be close to 1 million tons in terms of hardwood consumption, and that's very much aligned with most consultants to our businesses do as well. And we believe that once prices start falling and reaching closer to this higher cash cost of marginal producers, decisions will be made mainly from Asian producers in terms of either reducing their production rates or stopping their production levels and then buying pulp or also our customers restocking a bit based on their current inventory levels, which we consider quite balanced. We try to make a calculation on how much that could impact the market. And if we consider that in order to support China's paper production, on average, 1.8 million tons, market pulp is consumed in China. And of that 1.2 million tons are hardwood. every 15-day stock buildup would add an additional 600,000 tons demand for pulp over the 1 million tons of organic growth, which I have mentioned to you and also during my speech. We don't expect Cerrado to play a role in this decision-making for 2023 as it's very much specifically related to decision points or set points that will be made based on this higher cash cost of marginal cost producers, mainly in Asia.

If I may hear, what's your view on the marginal cost in the market right now, you had been mentioning $600 per ton recently. Does that still hold? And if you could repeat the rationale of the 600,000 tons, I would appreciate it.

Okay. So first, starting with the last part, the rationale of the 600,000 tons, the China paper production and the China paper industry requires a furnish of 1.8 million to 2 million tons a month of chemical pulp in order for them to be operating at the current capacity levels. Of this 1.8 million to 2 million tons, 1.2 million tons are hardwood. So every month, roughly and on average, 1.2 million tons are imported or consumed of hardwood market pulp in China. So if we consider a 15-day stock buildup, that would mean an additional 600,000 tons of hardwood considering this monthly consumption of 1.2 million tons. Now coming into our view on marginal cash costs, as we have been pointing since earlier last year, cost inflation for pulp producers have changed significantly at the cost levels. And we forecast that the cash cost for marginal cost producers is indeed around $600, varying from 580 to 610, 650 depending on the base scenario that we use. This all obviously on a CIF China base. And our view is quite consistent with this number. We don't see a lot of variation because as we all know, wood is the main variable in the pulp cash cost, and we expect that availability for wood will still be limited mainly on this or for this Asian producers and prices will maintain the high price points that they are being traded at today.

Our next question comes from Rafael Barcellos with Santander.

My first question is about pulp supply availability. So dissolving pulp prices have increased in recent months. So my question is, do you believe that mills could move production back to dissolving pulp in the coming months? And how much hardwood pulp could be removed from the market if these movement really materialize? And my second question is about pulp affordability. I mean, how do you see pulp affordability in China now, particularly considering that pulp prices have fallen by more than $100 over the past few months and consumer effect has also helped this equation. So is pulp affordability still a concern among market participants?

Rafael, this is Leo again here to answer both of your questions. First on the dissolving flex capacity. What we have been seeing is that viscose prices are trending up since the beginning of the year, and that is indeed stimulating some dissolving flex producers to move away from paper grade pulp and turn their assets into dissolving rates. Based on our estimates, there are around 2 million tons globally of flex capacity of paper-grade hardwood that can be converted into dissolving wood pulp production. We don't see obviously all of that being converted at once, but we see already movements in that direction taking place as well as we heard from our customers, the test from a major producer in one of their large paper lines towards this grade as well, more than 30-day production trial, which indicates more movements in this sense. Regarding affordability, as I mentioned, we don't see in the short-term fundamentals for such movements that have been taking place. Therefore, we believe that most of this is already in anticipation of future demand that our future supply that will come into place. But in our view, this is more towards the second half of the year. And obviously, falling prices are stimulating again consumption of hardwood by Chinese or Asian paper producers. As I have mentioned, January's order intake, at least for Suzano already higher than November, December levels. February were higher than January levels, very close to already historic levels, and we expect that during the next week, the order intake will be already reaching normalized levels.

Our next question comes from Marcio Farid with Goldman Sachs.

So a couple of questions on my side, please. The first one on the paper side, Fabio, if you can comment, how you're seeing this and especially in Europe as well, which is kind of the benchmark for graphic papers. Obviously, a very good couple of years. It feels like we are seeing some sort of normalization now in terms of prices and volumes. Can we please have some visibility on that? And then maybe to [indiscernible], Carlos you briefly mentioned about the wood inflation cost in Brazil and the reasons behind it. Can we talk a little bit about supply-demand conditions for land and the different regions? I mean an overall view of how you're seeing the wood market perform in Brazil and how it has changed, especially in the past 2 to 3 years in line of growing competition for land and for forest pretty much mostly in the southeast of Brazil, but pretty much everywhere really. And then maybe Leo, it does feel like you mentioned 1 million ton demand growth potential for this year and then potential restocking if prices go to marginal cost of around 580 to 600. So question is, what do you think, I mean, considering that you mentioned that the incremental volumes from especially [indiscernible] reaching the market. So when they do, then there is a chance that we might see those prices going down to marginal cost. My question is, what do you think would prevent prices from going there in the cycle? What are the pockets of strength on the market you're seeing today or expect to see in the next few months?

Marcio, this is Carlos. Thank you for your question. We do recognize a growing competition for land and wood in some specific regions, and that has meant higher wood prices. So that is really happening in some specific regions. As we speak, we still have some ongoing discussions and negotiations related to forest assets, related to wood and for the benefit of our shareholders, at least as we speak, we cannot share much information about that. Once we conclude our program, we can come back to this point.

Marcio, it's Fabio here. Thanks for your question on the paper side. We see different behaviors in different markets. As you know, China is coming out of Chinese New Year. So activity there is improving. We see higher consumption and operating rates from most of the paper mills. Leo was talking about linked with our higher consumption of pulp in the past weeks that we have seen. And you're right, in Europe, in North America, we have seen a little bit of cooling down. This is in reflect of higher stock levels in the chain. As you know, during the past few years, we have had some supply chain constraints that we're easing over the end of the last year. And with that, stocks are a little bit higher throughout the chains in Europe and U.S. But although we have seen stocks higher than the optimum levels, which we leave would take a few weeks to normalize a few weeks or months to normalize. We don't see prices moving downwards. Prices are quite stable in Europe and North America at a very quite a good level as you may see from the consultant companies in the market. And this is due to higher cash costs in these regions as well with inflation that has happened in the past few years. So we have seen prices being resilient in these major markets. Although stocks are at a higher level with the destocking waiting to happen in the next month or so.

To close the answers to your question addressing the positive view, right, what could possibly prevent prices from falling down to marginal cost. I think we can split the answer into first, looking at demand. Obviously, we observe a lot more optimism in China. We also observe a lot of economic stimulus plans now on province levels, which can generate further demand and also linked to paper products and packaging products and also better-than-expected European consumption post this destocking movement that's going on and that can last some more weeks ahead of us. So this could bring a positive surprise in terms of demand. I would say that the most impactful will be actually how China performs once all this optimism and stimulus plans come into play. On the supply side, what can prevent prices from going there. First, our new delays and time to market of projects, which have not been unusual as we have seen in the last months and quarters, right? So it's very unclear for us really and actually when we're going to see a good quality pulp being offered to markets and then how that's going to be ramped up. And as I mentioned, up to now, we have seen absolutely no offers from these new players or capacity coming on board. And second, which is very important, and I always like to highlight that is the impact that unplanned downtimes have been taken in our sector, right? We have seen since 2020 numbers that are almost threefold what they were on a historic basis. And we expect that this will continue to happen. This will continue to be ongoing on our markets due mainly to the fact that all plants, especially in the Northern Hemisphere are getting older and older. Then you have the new pulp capacities in the Southern Hemisphere, now at a much bigger size, meaning that any unplanned downtime in the same amount of days will result in a much higher absolute production volume loss and the unforecasted or [ exertion ] factors such as weather-related, war related, lack of wood, strikes, which will also, in our view, continue to be accounting for unexpected losses in the market. We just saw recently a study of one of the main consulting store business. And by mid-February, the current unexpected downtimes was already up to 350,000 tons. So it seems to be the same run rate, high run rates that we have seen on the previous 3 years.

Marcio, if I may, let just reinforce some remarks previously made by Walter. So we have progressed quite well in establishing our land bank needed to reach our forestry bases later in the coming years. So that was a great achievement for 2022. Also important to remind you all that we're going to have in Cerrado an average radius between the forest and the mill below 65 kilometers. That is great, a great number. And also, as Walter said, initially, 2022 was a record year in terms of forest plantation, and we expect 2023 to be another year, a record year as we are moving fast with our plantation program.

Our next question comes from Jens Spiess with Morgan Stanley.

And I really appreciate all the details you have been giving. I just wanted to ask, when do you expect the Kimberly-Clark deal to close? I guess you don't foresee any issues from CADE giving the how fragmented the market is in Brazil. And elaborating on that, do you plan to grow more inorganically in the tissue market. Do you have any target in mind as of how much integration you would like to have?

This is Walter answering here. We do not have any kind of forecast when CADE is going to approve these operations. We expect that full approved with no remedies, but we have to wait for that. And of course, as we have this as a precedent conditions, we are going to march to the closing of this transaction. Regarding our future, we announced a potential program, new project in Aracruz. And of course, we are not going to comment on inorganic growth, that could be a possibility as well.

Okay. Perfect. And maybe just one quick follow-up on the total operational disbursement, just to clarify, I think you gave a lot of details there on Slide 11, but I just wanted to make sure you're not considering any inflation beyond 2023, correct?

That's correct. The number is in 2023 currency.

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

I'd like to thank everyone to be part of this session. I think Suzano is very committed with our future. I would just like to reinforce to you our 3 pillars of our culture that we have been working various people that inspire and transforming that it's creating a sharing value with all stakeholders. And it's only good for us if it's good for the world. I think we have been performing well on the last many years, and we are humble enough to understand that we need to keep improving our operations to keep touching consumers, all the other stakeholders for our future. Thank you very much for joining us. I hope you have a very nice week.

Thank you. Suzano's fourth quarter results conference call is finished. Have a nice day.