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 2024. [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 depends on circumstances that may or may not occur in the future. You should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Suzano and could cause the results to differ materially from those expressed in such forward-looking statements. Now I'll turn the conference over to Mr. Beto Abreu. Please, you may begin your conference, sir.

Thank you very much. Hello, everyone. Welcome. Thank you for attending the first quarter call. And before going through the results, I want to say that I'm very proud about what the team has delivered in the fourth quarter and also in 2024. The name of the game in this last quarter was flawless execution. And I want to recognize the operational excellence focus and the power of the team, the power of this organization when we decide to deliver together something. We reached our record in sales for the fourth quarter and also, of course, for the year. Later, the outbound logistic team did a tremendous job. And Ribas with its impressive performance reached in 2024 900,000 tons of production and 700,000 tons of sales. And let's remember, this is fully in line with the guidance that we have shared with you after the start-up in mid-2024. Moving to cost. In the fourth quarter 2024, we were also able to set up for ourselves a new baseline of cash cost for our operation. The combination of those figures with a strong EBITDA of BRL 23.8 billion for the year, bringing our leverage in dollar terms for 2.9x. I want to highlight this one since leverage is a key metric for us and guide us our capital allocation decisions. Having said that, I want to invite Fabio, now also in charge of our Suzano Packaging business in U.S. to share his insights of our Paper and Packaging business. Fabio, I'll hand over to you. Thank you very much.

Thanks, Beto. Good morning, everyone. Please let's turn to the next page of the presentation. We have finalized 2024 with a strong operational performance from our Brazilian operations and significant advancements in North America. The assets we have acquired from Pactiv Evergreen will be referred from now on as Suzano Packaging U.S. and their results are incorporated into our Paper and Packaging business unit results. During the quarter, we happily welcome to the Suzano family around 870 colleagues that work in Pine Bluff and Waynesville. Looking to the Brazilian market, according to IBA, print and writing demand, including imports, increasing by 11.7% in the first 2 months of the fourth quarter compared of the same period of last year. Sales from domestic producers grew by 12.5%, while imports moderated and grew by 4% on the same basis. Demand for uncoated paper was bolstered by the federal government's purchase of textbooks. For coated paper, although demand is lower in the quarter with the end of the election cycle, it remains stronger when compared to the same period of last year. Markets outside Brazil performed differently. In North America and Latin America, elections and inventory rebuild positively influence demand, supporting growth demand in 2024 compared to 2023. However, in Europe, the situation has become challenging as demand positive effects have diminished and paper consumption has returned to its decline in historical rates. Demand for paperboard in Brazil remained robust, increasing by 9% in the first 2 months of the quarter compared to the same period of last year. This growth reflects the performance of the Brazilian economy and consumption levels despite some cooling in certain segments over the last quarter. In the U.S. market, a focus region for Suzano packaging operations, according to Lumera, there was a 21% recovery in SBS demand in the fourth quarter of 2024 compared with the fourth quarter of the previous year, driven by strong performance in the food service sector following a slower-than-expected performance in 2023 and the first half of 2024. Looking at Suzano figures, our total sales volume in the fourth quarter was 15% higher year-over-year and 24% higher quarter-over-quarter as a result of the incorporation of Suzano Packaging sales. Regarding our Brazilian operations, we had an increase in sales compared to the last quarter, pushed by higher sales to the Brazilian market, while export reduced to continued unfavorable logistic conditions. The 4% net price growth over the last quarter is attributed to the impact of Suzano Packaging and FX effects on pricing shown in reais. Compared to the last quarter of 2023, there's a 7% increase driven by the same factors just mentioned. Looking at EBITDA, there's a 7% reduction quarter-over-quarter and a 3% reduction versus the fourth quarter 2023. When compared to the full year, we also have a decrease in this case of 16%. Such performance reflect the impact of the incorporation of Suzano Packaging in the U.S. that you all know it's a turnaround case as well as lower prices on both the Brazilian and external markets of our operations in Brazil. Now I want to provide some color on Suzano Packaging. The integration of our new employees, assets, customers and suppliers are on track and reflect our expectations prior to the acquisition. During the fourth quarter, we have successfully renegotiated all commercial contracts, securing much better terms for Suzano in 2025 and onwards and secured synergies on raw materials and logistics. Better prices and lower costs will positively impact Suzano Packaging results in 2025. The industrial turnaround, as shared with you on the last Suzano Day as well as CapEx plan are progressing as planned and we remain optimistic about the expected future value creation. Considering only our operations in Brazil, our business unit delivered the best quarter in terms of EBITDA of 2024, a result of improved sales levels, FX impacts on prices as well as cost reduction efforts. We end 2024 with lower cash costs compared to 2023. Looking ahead, we anticipate strong demand in the Brazilian market for uncoated and paperboard lines during 2025. Outside Brazil, we anticipate the return to the structural decline in demand in developed regions and less so in Latin America. In U.S., paperboard demand is expected to remain strong throughout 2025. Pulp prices announcements early in 2025 could offer support to higher paper prices. In terms of logistics and input costs, we expect some stability on the absence of trade disruptions and geopolitical turmoil. Now I'll hand over to Leo, who will present our pulp business results.

Thanks, Fabio and good morning, everyone. So now moving to the next slide of our presentation, I would like to begin by sharing some facts related to our pulp business unit during this past quarter and as well for the full year 2024. The fourth quarter '24 was marked by lower prices as a consequence of monthly reductions in Europe and Americas, closing the gap to Asian prices, which also declined in the quarter, but presented a flattish curve as of from the end of November with low levels tagging below the marginal cash cost of pulp producers. Q4 was also marked by healthier operating rates from our Asian customers as well as their improved margins, resulting in a positive market sentiment. It is important to note that a significant unexpected event, the first partial and later a complete operation seize of a major Chinese integrated pulp and paper producer changed dynamics in the region quickly, favoring most of our nonintegrated customers. During Q4 '24, our sales, including the new volumes coming from Ribas mill were performed as planned and allow us to set an all-time high volume for a quarter. As a consequence of this record sales, our inventories became tight and this picture will bring us some challenges ahead to serve our customers, which I will share with you a bit later in my speech. Despite lower prices in Q4, the combination of higher volumes and favorable FX resulted in a resilient EBITDA of BRL 5.7 billion. For the full year 2024, higher prices in U.S. dollars, higher volumes and the FX levels resulted in a 37% increase in the EBITDA, which reached almost BRL 21 billion with a 56% EBITDA margin. Now looking forward, I would like to highlight the following points. Coming into the current first quarter of '25, let me now better explain why I see a challenging scenario to serve all markets with pulp volumes. The addition of factors such as Suzano's low inventories at year-end with a very healthy order entry during this past months, January included and our lower production volumes in turn due to a concentration of scheduled maintenance downtimes would already mean along a tough quarter for our logistics operations, but we had prepared ourselves for this scenario. However, on top of we had planned for, the occurrence of new and recent unexpected events such as the conversion of a key competitor to dissolving pulp during all of Q1, strikes in Finland and operational problems at competitors' mills, all affecting the supply side of the equation and the ongoing halt of the already mentioned major integrated player in China have all tided significantly the S&D fundamentals in the short term. Just to bring you more color, every month that such integrated player is down, the S&D fundamentals are affected in 2 ways. First and directly, there is the impact of the cease of production and the benefit that this creates to our customers, mostly Chinese customers who have been increasing their paper and board production levels and also their prices in the market. We estimate that every month that this player is down, over 200,000 tons of new hardwood demand is generated in China alone. There is also a secondary effect as quite often, this player also used to sell their excess hardwood pulp in the market, especially when paper margins were not positive enough. This has obviously ceased completely as well. I anticipate that during most, if not all of Q1, we at Suzano will struggle to recover our delivery performance to Middle East, African and Asian markets, all markets that are serviced directly out of Brazil as our sales during these past months exceeded our regional expectations, resulting in the creation of backlogs in our system. Our January price increases were all fully implemented as planned and the February hikes are also expected to come. Such positive dynamics for the first few months of the year paves a constructive sentiment for pulp prices in the upcoming months. This short-term momentum clearly is a reflection of unplanned events on pulp fundamentals, which, as I have been constantly stating in our calls and events such as the latest Suzano Day, are playing a bigger and bigger role in our markets. Last but not least, the price gap between hardwood and softwood as well as an unclear scenario in terms of softwood availability keeps favoring demand for our pulp and most importantly, are setting a new record, a new record in number of projects and engagements with our customers who are willing to deeply participate in fiber substitution projects, a game changer for ECA pulp demand growth. With that said, I would now like to invite Aires to address with you the cash cost performance of the quarter.

Thank you, Leo. Good morning, everyone. The cash production cost in the fourth quarter '24 dropped 7% versus the previous quarter, coming in line with the forecast we shared with you in the last earnings call. The lower cash cost can be explained by 3 reasons: One, the lower wood cost in turn due to a closer average distance from forest to mill; 2, the outstanding performance of Ribas, benefiting the dilution of fixed cost and energy sales; and finally, the lower cost with inputs, both in price and consumption, the latter due to the greater operational stability of some mills. Lower costs with wood and inputs as well as the positive effect of Ribas Mill also explain the better performance of the cash production costs compared to the fourth quarter '23, which was virtually offset by a FX depreciation of 18% in the period. Although a higher FX always benefits the company's cash generation, it is worth mentioning that about 23% of the cash production cost is dollar-linked. Now looking to 2025, in the first quarter, we expected the cash cost ex downtime consider here an FX level at BRL 5.8 will come with a nonrecurring increase of mid-single digit due to the concentration of scheduled maintenance downtimes in the quarter of our largest, high competitive energy exporting mills, such as Tres Lagoas and Ribas. Even with this one-off increase in the cash cost in the fourth quarter '25, the average cash cost ex downtimes for full year of 2025, here again with the same FX of at BRL 5.8, should be flattish when they compare to the fourth quarter '24. As I have already clarified, a lower FX ahead would allow us to print an even lower cash production cost for 2025. Moving to the next slide. On the last Suzano Day in the mid-December, I shared with you the company's view that Ribas ramp-up would be completed in January this year. In other words, in just 6 months and not in the 9 months initially planned for this type of project. But the outstanding performance of the new mill in its first months of operation allow us to deliver an even better result as we were able to conclude the learning curve at the end of fourth quarter '24. I would like to also share with you that in the last January, Ribas mill already had the best cash production cost in our assets portfolio. And after its scheduled downtime now in February, the operations will resume with even better performance. Regarding the caps related to Cerrado project, there is no change to Suzano's guidance. In 2025, the final balance of BRL 150 million is expected to be disbursed. Now I invite Marcos to continue the presentation.

Good morning, everyone. Thank you, Aires. I'll start on Slide #8, talking about our net debt evolution throughout 2024. We started the year with a net debt at $11.5 billion. We generated $1.8 billion in cash flow after paying our maintenance CapEx, financial expenses, taxes and working capital. We also invested $1.5 billion in growth projects, mainly at Cerrado, but also in other projects. So we would end the year following these events with a net debt of $11.2 billion. However, we also invested money in other acquisitions, mainly in the forestry assets in Brazil and also our acquisitions outside of Brazil, the Lenzing stake and also Pactiv in the U.S. and we returned to shareholders $0.8 billion or $800 million in buybacks and interest on equity. So our net debt ended the year at $12.8 billion. The good news here is that we continue our deleveraging process and we ended the year at 2.9x net debt to EBITDA when measured in dollars and that's the trend that we will continue to pursue in the coming quarters. For the amortization schedule, we continue to have a very comfortable one with an average cost of debt of 5% in dollars and an average maturity of more than 6 years with no significant maturities in the quarter. Moving to Slide #9. Our financial results came in at negative $15.6 billion, mainly an accounting issue caused by the negative FX impact on our -- FX variation impact on our debt in dollars and also the mark-to-market of our cash flow hedges. We continue to have a very solid and robust portfolio of hedges with our 0 cost collars totaling at the end of December, $6.9 billion with an average put and call at BRL 5.36 for our puts and BRL 6.16 for our calls. So we remain well protected against any risk of BRL appreciation over time. Moving to Slide #9 (sic) [ Slide #10 ]. Would like to highlight the company's strong shareholder remuneration in 2024. As I mentioned, we bought back BRL 2.8 billion in shares throughout the year and we also paid BRL 1.5 billion of interest on equity in the beginning of the year and announced it by the end of the year, another interest earned on capital payment for the beginning of 2025 of BRL 2.5 billion. So in total, for 2024, we returned to shareholders BRL 4.3 billion, which is equivalent to a dividend yield of 6% for the company. Now I'd like to pass the word back to Beto for his final remarks.

Thank you, Marcos. So looking ahead, let me start with the supply and demand balance. On the supply side, for the first quarter, we will have constraint, as Aires mentioned already of volumes availability on the back of significant concentration of maintenance downtime. On the demand side, we are seeing a favorable moment for pulp price, which reinforce the impact that unplanned events brings to our sector. It's also worth mentioning that Leo and the whole technical team will have as first priority the fiber-to-fiber projects with our customer. This is a key part of our customer value proposition and this is also part of our customer needs. The first quarter cash cost, as I mentioned, is a new reference for 2025 despite the uptick in the first quarter of 2025. At Suzano Packaging U.S., the turnaround has started and I want to congratulate Fabio and the small team that moved to Little Rock in Arkansas to lead this process and lead the whole team at Pine Bluff. So Fabio, so far, so good. And finally, as Marcos said, our plan is to keep deleveraging in 2025. Having said that, let's now proceed with the Q&A session.

[Operator Instructions] Our first question comes from Daniel Sasson from Itau BBA.

My first question for Beto or Marcos. I'd like to hear your thoughts on the new administration in the U.S. taking more protectionist measures. We've seen some news out this week on the steel and aluminum industries. Does that change at all your growth strategy in the country or the attractiveness of new potential ventures or M&A activity in the country? Do you expect any sort of tariffs related to the pulp and paper sectors? So just wondering how that changes, the new government change -- if the new government changes anything in terms of your capital allocation decisions in the country? And my second question, maybe to Leo. Leo, just to confirm, you said that the capacity that left the market in China has translated in 200,000 tons of additional demand per month, right, from these nonintegrated players that are basically taking over the room left in the market. Do you have any views or can you update us on the current situation of that specific player or the current market situation, if you think this is something more temporary and that should revert at some point? Or if do you think that this could actually become more structural in the market? And if you're feeling comfortable enough with your inventory levels that you said were -- or ended the year at low levels, if we should think about a recomposition of inventories throughout 2025?

So starting with your question regarding the U.S. and if the recent moves changes our strategy on capital allocation, I would say that it doesn't, okay? Because when we're looking to capital allocation, we're looking to the long term of that decision. We continue to see the U.S. market as a market that has a robust growth. It's a market on the paper side also that has a quite concentrated market in terms of the leading players. And also it's a market that is somehow more protected against imports and the recent news are also in that line. So this doesn't change the attractiveness of the market for us, okay? Regarding tariffs, just to give you a brief overview. First and looking to the history as a reference in the past years and mandates, we haven't seen any tariffs on pulp, which is our biggest business by far, right? There has been tariffs on the paper side and we are actually -- we actually are enforced by that as well when we export to the U.S. So that is something that you should bear in mind. We also believe that the U.S. is short in terms of hardwood pulp, right? And there is no incentives for new plants in the U.S. There has never been -- there has not been incentives for new plants in the U.S. in the previous years. So it doesn't seem to be economical for the U.S. to be implementing tariffs in the pulp industry. So I think that's it on my side.

This is Leo here. I'm going to try to answer your question on the impact of the Chinese mill, which we obviously all know I'm talking about Chenming, which is also a state-owned company. This is a very complex situation. They are a major paper and board and pulp producer in China, totalizing over 4 million tons of paper production, 2 million tons of board, over 2 million tons of hardwood pulp and then over 1 million tons of thermomechanical pulp as well. We calculate that every month that they are down, as I said, over -- it's not 200,000, it's over 200,000 tons of new demand for hardwood is created by our customers, mostly nonintegrated customers who are obviously accelerating or speeding up the operating rates and recovering this market share left by Chenming in the market. What we hear on the ground in China is that clearly, the government is eager to find a solution to the mill, but it's quite complex because it's not only about the sales of the equity of the mill, but it's related to debt, cash flow and also the quality of assets that make up this huge paper and pulp producer in China. So our estimations, obviously, we run several different scenarios on that and how we play and position ourselves in the market depends obviously in which scenario we will roll out and this is quite sensitive to our commercial strategy. So we cannot share exactly what we believe will happen. But I can say it's quite complex. And indeed, every time that we talk and get deeper and deeper into the discussion, it seems the issue is harder to be solved. Despite all of that, I believe it's temporary. I think a solution will be found. I'm not sure when, but it will be found. But it's important to mention and to say that, obviously, every month that they are down, whatever they left to our customers will not be recovered. So we are monitoring as we speak the situation in China.

Our next question comes from Leonardo Correa from BTG Pactual.

Okay. So a couple of things on my side. The first one on the cash cost. Aires, I remember the third quarter, you said that you were expecting the cash cost number for 2025 to reduce about low double digits from the level in the third quarter, right, which was about BRL 816. So at the time, we were thinking something -- assuming that math, we were thinking something in the range of, let's say, BRL 770, BRL 780 per ton as a pulp cash cost. Now to see if I understood exactly what the new, let's say, the revised guidance is, you're indicating that the levels in the first quarter for cash cost will increase a bit given some maintenance stoppages. And for the year, for the full 2025, you're expecting pulp cash cost to be on average flattish versus the fourth quarter, which is about BRL 800 per ton. So basically, over these months, we're seeing a small creep up in, let's say, the official guidance for Suzano from, let's say, BRL 770, BRL 780 to about BRL 800 based on the relevant changes in parameters over the period. So I just wanted to double-check with you if my understanding is correct or if I'm missing something. And my second question for Marcos. Again, Marcos, I mean, the level of free cash flow generation is quite substantial, right? There still is a bit of growth CapEx in the numbers. If you look at it on a maintenance perspective, I mean, the free cash flow yield is even higher, right? I mean we're talking about relevant numbers. At the same time, you stopped buying back shares, right, I think, over the past months, given the share price appreciation. Suzano stock continues trading at very de-rated levels versus global peers, right? I mean we're seeing something which seems a bit dysfunctional or it seems abnormal to see Suzano trading at the lowest multiple in the entire coverage universe, thinking regionally and thinking globally. So I just wanted to pick your brains a bit on -- I mean, how are you thinking this de-rating? How are you thinking buybacks in this context of still a very de-rated stock where the market seems to be very skeptical on capital allocation going forward? Those are my 2 questions.

Thank for your question. That gives me opportunity to clarify the information about cash cost. You are correct. When you presented the results of third quarter, I said that full year, the average to 2025 will decrease a low single digit. But at the moment -- single digit, not double digit, sorry. At this moment, we consider FX of BRL 5.35 to this year. And now I present -- predict with BRL 5.8 for FX. As I mentioned, our costs are linked 23% with dollar. What represent that every $0.10 that we increase in the FX, we have an impact of BRL 4 per ton in the cash cost. That's all the difference that we consider here in this new guidance. And now I said flattish because I'm comparing with the fourth quarter, not only more with the third quarter, will be 7%, 8% lower than the third quarter and all the difference is connected with dollar base.

Thank you for your question. Yes, I agree with you. We are running the company with a very strong level of free cash flow generation. The buyback, we always compare the buyback with the other capital allocation alternatives that the company have. And also, we also look at our leverage policy as well, right? So we will need to find the right spot between the 2 things, the 2 variables in order to do the buybacks or to be more active on the buybacks. As you know, we have an open program until the beginning of next year. So we could do that if we find the right moment to do that. Again, comparing the other alternatives that we have for capital allocation and also aiming at continuing deleveraging the company, okay? Regarding the de-rating that you mentioned, we also agree with that. We believe that this is something that is not only for Suzano that is happening. I think this is probably also related to the -- to interest rate levels, not only in Brazil, but also in the world and at some point in time should revert.

Our next question comes from Marcio Farid from Goldman Sachs.

I want to follow up on the capital allocation strategy. Obviously, a lot of news recently and I wouldn't ask you to comment on any of the ones that have been ventilated. But I'm just trying to understand if you can provide some details for us. I mean, when you think about the strategy, I wanted to understand, I mean, where the company focus is in terms of grades, in terms of geographies? You mentioned in the previous calls that there is not -- well, in the previous conversations, actually, there is nothing transformational on the pipeline. But given just the recent headlines, I wanted to understand what do you consider as a concept, transformational and not? And again, how should we think about focus in terms of geographies and grades as well when you think about downstream? And also a follow-up on the deleverage side, Marcos, I remember at least on -- your predecessor used to talk about $800 per ton as kind of a target for leverage. That would imply around $11.5 billion of net debt today. Is that still the target? There has been any change in terms of that understanding on where you want to be in terms of balance sheet leverage?

Thank you, Marcio, for the call. Let me start talking about your first question related to capital allocation and strategy. As you know, we do not comment any specific M&A initiative, but I want to reinforce what I said in the last call and what you just mentioned that we are not considering any transformational deal. Maybe your next question to me would be, okay, what you mean about transformational deal? And I think a good way to summarize this is that we are not planning and we do not have in our screen anything that could impact our deleverage plan. I think that's the best way to summarize this. The strategy is the same. We're going to keep looking opportunities in the downstream, but it's -- since it's generating value for us and since we can differentiate ourselves against any other opportunity. So we are keeping the same strategy as mentioned before. Let me hand over here to Marcos to go over the other question, Marcio.

You mentioned about $800 per ton target for our net debt. That continues to be the case. If you do the math with our full capacity, including our pulp capacity that is integrated into our paper capacity, that number will be closer to -- it will be between $11.5 billion and $12 billion. That's a good reference.

Our next question comes from Rafael Barcellos from Bradesco BBI.

My first question is about Ribas operations. So I just wanted to understand if you have already identified any debottlenecking opportunities in the asset. If not, when you'll be able to have more visibility on that? And other than that, I mean, how do you see its cost evolution and whether there's any other opportunities to improve its performance, okay? And then my second question, just a follow-up on the capital allocation. So I know that you released your M&A guidelines during Suzano Day, but I just wanted to better understand which business line you have referenced, right? I mean Suzano has now a packaging operation in the U.S., so whether Suzano should focus more on the packaging side or really be open to other opportunities in tissue or even pulp? So I just wanted to understand in more detail which type of business you would prefer?

Rafael, let me start with the second question and I'll hand over here to Aires. But on the -- regarding the preference of where to allocate the CapEx or any specific line of business, we are agnostic about that. It's -- the drivers are really doing something that we can scale up in the future, doing something that we can differentiate ourselves, again, adding all the competence and knowledge that we have in the business and also doing something that we can fit completely with our strategy. So we are really thinking about generating value. So there's no preference for a specific line of business on the capital allocation strategy. Let me hand over to Aires.

Rafael, thanks for your question. I believe it's so early to talk about any bottlenecking in Ribas. Of course, that we are very optimistic with how robust our assets are presenting performance. When I said that we achieved the total line curve at the end of December, it means that we performed for 30 consecutive days in average that should deliver us a nominal capacity. And you've got to do this, we see only 5 months and 10 days. Then the perspective is good, but we are finishing our previous shutdown in the Ribas to check if everything is okay. And probably in the coming quarters, we will be able to talk about any bottleneck that we would identify at the mill.

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

So my first question is on the CapEx front. One of the constant debates that we have here is which line items from the CapEx guidance are recurring, which ones are not in the sense that every year, there are line items related to land and forest acquisitions and expansion and modernization of facilities. So I wanted to ask you, I mean, how should we think about this going forward, right? And also what effect should Cerrado have on the level of maintenance CapEx of the company over the coming years? And then secondly, on the capital allocation theme, as you assess opportunities for growth ahead, would you consider another pulp expansion, right, particularly if the opportunity arises to acquire a significant amount of forestry assets from one player in locations where you already have existing infrastructure and logistics?

So as you know, we have guided the CapEx for the full year 2025 at BRL 12.4 billion and our maintenance CapEx at BRL 7.8 billion, which is a number that you should bear in mind as a regular CapEx for the company going forward for existing operations. The additional CapEx or the discretionary CapEx will also depend on the deleveraging process of the company and also depends on the returns that these projects would have, right? All minor projects that we have approved recently at the company such as the expansion of the tissue business at Espirito Santo State and also the new fluff capacity at Limeira, for example, are projects that yield very good returns for the company.

Caio, regarding your second question, if we are considering pulp extension as part of our strategy, as you know, we own today 1/3 of the market pulp for hardwood and it's also a key part of our strategy, keeping the level of relevance that we have in this market. So that's the way that we will analyze pulp extension, mainly in the mid- and long-term.

Our next question comes from Alfonso Salazar from Scotiabank.

Excellent. The question that I have is regarding China. And from a geographical standpoint and well, considering China situation and the risk of a trade war, the situation in Europe, where do you see growth opportunities thinking not in the next 2 or 3 years, but 5 or even longer term? Because I want to understand if -- where the pulp demand is going to be strong in the next decade in case there is a stagnant market in China or a weakening market in China? Where do you see pulp demand coming from? That would be my question.

This is Leo here to answer your question regarding where we are seeing the future demand for pulp. As you know, we are quite bearish and optimistic on that and very constructive looking forward. So first, we have been looking and analyzing trends that are not only China-related, right? So we see tissue demand growing in several markets, mainly non-developing markets and we're seeing regions like Southeast Asian markets, for example, gaining extreme relevance and rhythm of growth compared to what they were before. So we see not only a concentration of this future growth in China, but in other markets as well. Second, as I have mentioned during my Suzano Day presentation, there are markets like specialty papers, which are now already bigger than old markets that were very relevant, really relevant for pulp consumption like printing and writing papers, now representing more than 1/4 of all the furnish of hardwood pulp. And last but not least comes -- our view comes from the movement or migration of consumption trends from softwood grades or other kinds of fibers to hardwood grades like our ECA pulp. Maybe you remember in Suzano Day, we presented that in the past, despite we have a very consistent trend of hardwood gaining market share over softwood, that rhythm was roughly 0.5 percentage points a year of market share and that increased now to 1 percentage point of market share gain every year, which if you translate that into volume, that by itself as we speak is 600,000 tons a year, 700,000 tons a year of additional demand to hardwood coming from softwood. So adding all these factors, which kind of dilute the concentration of China, we are extremely bearish looking forward in terms of pulp demand.

Our next question comes from Lucas Laghi from XP.

Congratulations on the results. We have 2 questions from our side. I mean, first one regarding your FX hedging strategy, but we noticed a higher strike of the -- like the 0 cost collar options for 3Q '26 onwards, right, with the strikes of the puts even above the current BRL levels. But if you could remind us of the rationale behind your hedging strategy, especially the range of the 40% to 75% of the hedge exceeding dollars? And if it makes sense to assume that Suzano will remain at the high end of this hedging range in the upcoming quarters given this volatile FX environment? And the second question, I mean, you mentioned the renegotiations on the contracts related to Pactiv's acquired assets. How should we think of the financial improvement of these operations going forward? I mean, should we already see a significant improvement in first Q '25? Or should it be more gradual throughout the year?

Marcos here. So reminding you of our FX hedging strategy, we get all of our revenues, which are mainly in dollars because of our pulp export nature of the business. We subtract all of our expenses that we have in dollars. And as Aires mentioned, we have 23% of our costs which is linked to dollars which is a minor part of it. We also subtract from that whole amount all of our financial expenses and eventually maturities in dollars and even other payments as well. So we get to a net exposure of dollars. So the company always has a net exposure to dollars, which today is about $5 billion per year. Okay? So with that exposure, we tend to hedge between -- we have a policy to hedge between 40% of that exposure to 75% of that exposure up to 24 months. Okay? So that's why we have close to $10 billion of exposure and our hedging portfolio today is around $7 billion, as we mentioned in the press release. $7.5 billion if we add 0 cost collars plus the NDF. So that's how we structure. And then you asked about if it should remain at the higher end of the range. What we have today in the market is basically 2 things. Theoretically, we had a very quick and sudden depreciation of BRL or appreciation of the dollar, right, in the market, which was clearly seen in our quarterly results as we -- at the end of the third quarter, we were at BRL 5.45. At the end of the year, we were at BRL 6.19. So this -- whenever we had a weaker BRL, it's better for you to hedge, right, because you're hedging at a higher level. And besides that, we also have a unique combination, which is we have a very strong interest rate differential between Brazil today and the U.S. rates. So that also impacts the forward level that we can hedge in the future. So given these 2 conditions existing in the market, I would say that they are good for you to continue being at the higher end of the range. I'm not giving -- I cannot give you a guidance how we will operate in the future, but that explains why we ended the fourth quarter at the top of the range, okay?

Lucas, thank you for your question. This is Fabio here. I'm going to address your second question regarding Pactiv. My comments during my speech, we were able to renegotiate the commercial contracts. We got double-digit price increases with our major contracts. This will come into effect -- half of this impact is going to come into effect in the beginning of the year and the second -- and we have half of the impact in the second half of the year. So it's spread out through the year. But we also were able to renegotiate our major raw material contracts and logistics and the impact of that is already seen in our costs as we renew our inventory levels from the raw materials. We have a major annual maintenance that's going to happen in April this year. So we're preparing for that. It's an old mill, as you know. So I would say that you should see more impact on the turnaround in the second half of the year.

Our next question comes from Ricardo Monegaglia from Safra.

I have 2 quick ones. So first -- I think both to Leo. How do you see consumers' pulp inventories today? Do you think they are prone to restock in the near future or there are any factors that could prevent such move? And my second question is on wood chip prices. Are you optimistic on price inflation in the near future? Do you think that supply -- do you see any difference or change in supply that could stimulate such movement?

This is Leo and I'm going to answer both of your questions. First on wood chip prices starting with the last one. We follow all the prices going into this nonintegrated producers, especially Asian producers who are verticalizing into pulp as well. And what we see is that prices are not upticking as they were 2 years ago. So I believe they are competitive in that sense. Also, this effect that Chenming has, which is a positive effect on the paper side of the business and the consumption of pulp has obviously a negative effect on wood, right, because there is more wood availability in the region as they are not running neither their hardwood pulp mills or their mechanical pulp mills as well. So there's a little bit of, I would say, oversupply of wood chips. As I have mentioned in other calls, we also have been monitoring -- there's a bit more wood available in China due to the housing market effect. Plus this is the final year where we see the government stimulating that some of the woodland with hardwood trees to be converted to farmland. So we should see that over by the end of '25. So in the short-term, I would say I wouldn't expect unless something unexpected happens as well any uptick in the wood prices to China, meaning that this competitive level that they have today should be kept unchanged. Regarding your question on consumer pulp inventories, we see that there is not really a stock formation at this time. We are monitoring the inventories in China ports and they have been trending below what we believe is a completely balanced view. I personally believe that Chinese customers specifically have stopped pulp in the 2023 cycle. And a lot of this reduction in consumption of pulp in China in '24 despite a strong year in paper production comes from a destocking of the chain in general. So I think that the base point in terms of pulp stocks, either in ports or in the hand of the customers, is either balanced or below a balanced level, which brings a challenge in the short-term, right, because as you can believe, every customer is trying to quickly increase their operating rates to get part of this market share left in the market by Chenming. But obviously the pulp is not there at the speed that they would like the pulp to be. I mentioned my case in my -- our case in my speech that we are running with backlogs here and I don't expect this to be resolved before the end of the first quarter. So I see a tight scenario in the short-term, obviously, created by unexpected factors. But the fact is that the market, as we speak, is quite tight and positive for our short-term numbers and commercial [ tariff ] as well.

I'd like to thank you for being here with us.

I'm sorry, Beto. The Q&A session is over. I would like to hand the floor back to Mr. Beto Abreu for his final remarks. Please, Beto, now you can proceed.

Thank you. I'd like to thank you for being here with us today and for your interest in Suzano. And as always, our IR team remains available for any additional questions you may have. And I wish you all a great day. Thank you very much.

The Suzano S.A. fourth quarter of 2024 conference call is now concluded. The Investor Relations department is available to answer further questions you may have. Thank you and have a good afternoon.