Suzano S.A. ($SUZB3)

Ladies and gentlemen, thank you for holding, and welcome to Suzano's conference call to discuss the results for the first quarter of 2026. [Operator Instructions] This call will be presented in English with simultaneous translation to Portuguese. [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 will turn the conference over to Mr. Beto Abreu. Please, you may begin your presentation.

Thank you. Thank you, everyone, for attending our first quarter 2026 results. Let me kick off our call highlighting that Suzano's business model has distinct attributes that set it apart in the pulp and paper industry and provide greater resiliency in the current global environment. Our consistent long-term focus and conservative financial management reduce the company exposure to risk associated with the current geopolitical landscape. For example, in international logistics, Suzano operates under long-term contracts with dedicated vessels. We have more than 50 vessels and 10 of them fully dedicated to our operations, which protects the company against increases in freight rates and ensures reliable services to customers worldwide. Additionally, the company has inside the fence production of critical inputs for its manufacturing process, mitigating supply risk and also cost pressures. Finally, to reduce the impact of energy cost pressure linked to higher international oil price, Suzano maintains a hedge portfolio that mitigates its exposure to Brent-related volatility. During our presentation, Marcos Assumpcao will give you further details about that. Turning to our results. Let me start with the EBITDA of the first quarter. In our view, the numbers reflect a solid performance with volumes above first quarter 2025, given historical seasonality compared with fourth quarter 2025, supported by higher pricing and G&A expenses that fully offset year-over-year inflation. These results are starting to show the management's clear focus on strengthening the company's structural competitiveness. As a highlight, I also would like to share with you that we are currently running our operation with 10% less headcount when compared with a year ago. So besides that cash production, cost delivery in the first quarter of 2026 was 100% aligned with our operational plan and also aligned with what we mentioned in the previous call. So despite cost pressures arising from the current geopolitical environment and based on the visibility we have today, we continue to expect our average cash cost in 2026 to be below 2025 levels. Let me move for free cash flow. And the free cash flow in the first quarter of 2026 reflects specific cash flow items in the quarter, as we know dividend payments, also the timing of interest payments under our debt schedule and also a one-off CapEx related to the wood swap with Eldorado last year. Therefore, our capital allocation priority remains focused on further strengthening Suzano's capital structure with a clear emphasis on reducing net debt. And before handing the call to Fabio Almeida, I also would like to note that we are encouraged by the efficiency gains already mapped in our JV with Kimberly-Clark, which reinforce our expectation of value creation going forward and confirm the quality of the capital allocation decision underlying this partnership. Having said that, let me hand over to Fabio that will cover paper and packaging business.

Thanks, Beto. Good morning, everyone. Looking at our markets in Brazil, paper-wide demand according to IBA increased by 3% in the first 2 months of the first quarter compared to the same period of last year, led by stronger coated paper demand and higher volumes of imported uncoated wood-free. International markets continued to face a challenging environment with a weaker demand and excess capacity for papers. According to PPPC, demand in mature markets declined by approximately 7%. In contrast, Latin America posted demand growth of 5% year-over-year. However, prices remain under pressure, giving very low prices to Asian producers across major markets. In paperboard, Brazilian demand grew 6% in the first 2 months of the first quarter when compared to the same period of last year, supported by improved economic activity. In the U.S., AF&PA data shows that SPS shipments and production were broadly stable year-over-year, albeit at a lower operating rate around 82%. Production of liquid packaging board grades dropped 20% year-over-year, reflecting softer end consumer demand and inventory reduction by packaging converters during the quarter. In this context, during the first quarter, we experienced different dynamics across our Brazilian U.S. operations. While all Brazil operations delivered stable volumes when compared to first quarter 2025, we have seen lower volumes from Suzano Packaging as a result of lower demand and LPB inventory reduction at the converters end. Turning to price performance. In Q1 2026, we continued to see sequential improvements at Suzano Packaging on a dollar basis, while our prices in our Brazilian operations suffered from lower export prices and FX impacts. Our export prices were further affected by reduced shipments to the U.S. market, which used to be one of our strongest combinations of prices and volumes abroad prior to the position of tariffs. At the EBITDA level, the 8% year-over-year decline was mainly driven by lower export prices from Brazil together with FX appreciation. Meanwhile, Suzano Packaging EBITDA delivered a strong EBITDA increase of 167% year-over-year, reflecting our turnaround effects. I would like to highlight the cost improvements achieved in our Brazilian operations, which delivered a 8% lower COGS per tonne on a year-over-year basis and a 6% reduction quarter-over-quarter. These gains were driven by lower cash costs across all mills and lower logistics costs, supported by our continuous focus on operational excellence. At Suzano Packaging, costs in first quarter were impacted by higher natural gas consumption and prices during the severe winter storm in major parts of the United States at the end of January. Total weather-related costs were estimated around $5 million. Looking ahead to the performance of Suzano's Paper and Packaging business, sales volumes and prices from our Brazilian and U.S. operations will improve in Q2, following the usual seasonality and with the implementation of price increases and the pass-through of cost indexes in our U.S. contracts. Market conditions are expected to lead paper producers to increase prices since higher raw materials, energy and logistics costs are expected to hit paper producers hard as a result of the ongoing conflict in the Middle East. We expect our industrial cash costs from our Brazilian operations to be stable in Q2 versus Q1, while logistics costs should trend slightly higher with increased diesel prices and container rates. At Suzano Packaging, our annual maintenance is scheduled for early May, which will temporarily impact production costs in the quarter, in line with our business plan. We don't expect any sales impact from the annual maintenance shutdown and we are fully committed in delivering full year results for Suzano Packaging, better than what we did last year. Now I will hand it over to Leo, who will present our Pulp business results.

Thanks, Fabio. Good morning, everyone. Let's now turn to our Pulp business unit, where I'd like to share with you the highlights of the first quarter of 2026 as well as my view for the upcoming months. This past quarter was marked by more balanced market fundamentals as a consequence of healthy paper production in key markets and supply side events reducing short-term availability of hardwood pulp. In China, paper and board production according to SCI posted a 15% increase compared to Q1 '25, with growth across all paper segments and January and March production levels in line with the highest and record production months of 2025. Recent supply side developments, notably pulp production curtailments in Indonesia following the revocation of forestry licenses and a greater clarity on the delay of APP's OQ 2 project start-up to year-end, meaning that no new market pulp volume will reach the market in 2026. This all has supported hardwood pulp price increases during the quarter to all markets with strong order intake levels and slightly above our forecast, resulting in continued delivery backlogs, particularly for Asian markets, including China. In this context, Suzano sold 2.84 million tonnes of pulp in Q1 '26, representing almost 200,000 tonnes increase compared to Q1 '25, which was fully consistent with our sales plan designed accordingly to market seasonality. Pulp production volumes during the quarter came in below budgeted levels due to some nonrecurrent events during planned maintenance and the ramp-up following the scheduled downtimes. As a result, we were unable to rebuild inventories throughout the quarter and our inventory levels ended Q1 '26 quite low and flattish like year-end 2025. Our industrial teams are fully committed to gradually recover these lost volumes, mostly on the second half of this year as demand picks up towards year-end. With the unfolding of the Iran war affecting logistics to key markets where we have important customers, our unique and irreplicable logistics, as Beto has said, enabled us to keep delivering pulp to our customers in the region, being able to surpass any eventual additional war-related surcharges to ensure pulp supply chain continuity. Now looking to the right side of our slide, the BRL 4.1 billion in EBITDA was a result on a year-over-year basis of higher volumes, lower costs and better prices in U.S. dollar terms, however, facing a toll from FX appreciation during the period. Compared to the previous quarter, EBITDA declined despite higher pulp prices in U.S. dollars, primarily due to seasonality, a stronger Brazilian real and a more intensive maintenance schedule. Now looking ahead, I would like to highlight a few key points. The conflict involving Iran war has unfolded so far and even implications across regions and markets. In Europe and North America, demand has exceeded our expectations with paper producers increasing their operating rates to capture temporary market opportunities amid reduced competition or longer and more expensive logistics affecting prices as well as a surge in these markets to build up finished goods inventory on the whole value chain. This dynamic has led us to announce a new round of price increases for May, specifically directed to Europe and North America. The war has also been affecting cost structures of different pulp players in different regions as energy matrixes vary, while also raising imported wood delivery costs to key markets and impacting logistic costs and flows. Overall, supply and demand dynamics have diverged meaningfully between hardwood and softwood grades. Hardwood pulp fundamentals remain quite balanced and healthy, a backdrop that contrasts with the current situation faced by softwood producers. In softwood, we continue to observe high inventory levels in China, which combined to declining prices throughout the past months, result in an increasingly unsustainable environment in our view. According to a recently updated report from a well-known industry consultant, roughly 11 million tonnes of softwood, which is equivalent to 40% of global softwood capacity, is currently operating at loss. Again, 40% of total softwood production is currently operating at loss. And the situation is further aggravated by higher war-related cost pressures still to impact their cost structures. These dynamics point out to a higher likelihood of commercial downtimes or permanent closures of softwood mills, especially in the Northern Hemisphere, while also incentivizing projects of de-verticalization of integrated pulp and paper producers in the western part of the world as we have been stating before. The ongoing convergence of hardwood and softwood pricing with different dynamics in Western and Eastern markets has increasingly shaped recent discussions with our customers as softwood market imbalances intensify competitive pressure. Our commercial strategy is structurally focused on maximizing our sales, also taking into account seasonality and regional dynamics, while reinforcing the fiber substitution and expanding the addressable market for hardwood. Fostering fiber to fiber and increasing the addressable market for hardwood is totally key for us. Looking specifically into Suzano's Q2 2026 sales volumes performance compared with Q2 '25, our production output will be constrained by previously announced planned maintenance downtimes at major pulp lines such as Tres Lagoas 1 and 2, Mucuri 1, 2 and Jacarei as well as by the lower operating rates at some of our mills, resulting in almost 300,000 tonnes of production reduction year-over-year. In addition, some inventory rebuild will definitely occur in Q2 '26 as we were unable to increase inventory levels in Q1. We plan to keep this rebuild in minimum possible levels. However, it is critical to ensure our high service level standards to our global customer base as well as operational efficiency. To conclude, I would like to reinforce that Suzano's unmatched business platform, supported by our best-in-class assets and the unique logistics structure provide us agility and resilience across our supply chain. This enables us to respond quickly to changing market conditions, capture commercial opportunities and consistently maximize value, even in an increasingly volatile and uncertain global environment. We are very well prepared to navigate these rougher seas. With that said, I would like to invite Aires to address our cash cost performance during this past quarter.

Thank you, Leo. Good morning, everyone. Turning to cash costs in the first quarter '26. Excluding stoppage, it reached BRL 802 per tonne, up 3% quarter-on-quarter. The increase was mainly driven by temporary operational factors, including higher input consumption, especially auxiliary materials, reflecting the scheduled replacement calendar associated with planned shutdowns. In addition, purchased energy costs were higher due to a nonrecurring event at mills. We also saw temporary pressure from wood costs, driven by higher specific consumption as well as a lower fixed cost dilution following the reduction of production volumes in the quarter. These effects were partially offset by a lower input price and by the 3% average depreciation of U.S. dollar versus the real, which reduced costs in local currency for items such as caustic soda and natural gas. Finally, energy sales performance improved, supported by a higher average price and the start of volumes contracted in the auction for surplus energy from the Ribas do Rio power mill. Importantly, there was no impact from the Middle East conflict on our cash cost in the first quarter '26. Year-over-year, cash cost excluding stoppage decreased 7% in the first quarter '26, driven by a combination of several factors. The main driver was the 10% average depreciation of the U.S. dollar against the Brazilian real, which reduced the cost of key dollar linking inputs, particularly caustic soda, natural gas, chlorine dioxide. We also benefit from the lower wood costs, reflecting a shorter average from forest to the mill distance, lower diesel prices in the harvest and transportation and a favorable mix effect related to wood sourcing and new allocation. In addition, input price excluding FX came down, especially caustic soda and natural gas, while fixed costs were also lower following reduced spending on the labor and service. Finally, energy sales delivered a strong result, supported by a higher average energy price, including a contribution from the previous mentioned energy option. Looking ahead to the second quarter '26, our initial expectation was for cash costs to be closer to the first quarter '26, reflecting the high intensity of scheduled maintenance shutdowns according to our operation plan for the year. However, we now anticipate some pressure on the cash cost in the quarter related to the impacts from Middle East conflict, particularly through energy and the other input markets. As a result, our current expectation is for our cash cost in the second quarter '26 to increase by a low single digit versus first quarter '26. This headwind is partially mitigated by our Brent hedge portfolio, which our CFO will now address in more details. But first, additionally, even with this conflict scenario, based on our assumptions that we have today, we expect to close 2026 with average cash cost lower than compared to 2025, even on a nominal basis. Again, as a disclaimer, this forecast is based on the assumptions for Brent, and here, say, a year to go, at $85 Brent and inputs that we have today. Marcos, the floor is yours.

Thank you, Aires, and good morning, everyone. I'll start my presentation explaining Suzano's exposure related to oil and also detailing our hedge portfolio, which offers us a clear competitive advantage in the current volatile environment. On the left part of the slide, we show a sensitivity to the variation of Brent prices, assuming a full pass-through of all the impact of Brent to local prices, which have not occurred yet. In that case, for every $1 per barrel increase in Brent, our EBITDA will decline by BRL 47 million. However, our current net cash impact of the event of $1 per barrel increase in Brent prices is only BRL 12 million, less than 25% of the full impact that we showed in this table. The diminished impact is explained mainly by long-term diesel contracts, which have not been impacted by higher oil prices yet, and most importantly by our portfolio of hedges on oil that we built over the past 2 years, which will likely compensate higher costs with positive derivatives and financial results. Moving to the right part of the slide, we show our current portfolio of oil hedges due to our exposure to shipping costs and also natural gas prices. We also use 0 cost collars for our hedges. But in this case, we buy [ call ] options and we're selling put options with the same premium. Our current portfolio ranges between $57 to $69 per barrel on average, which means that our cost of oil for the hedges that we made is capped at $69 per barrel. Of course, we gave away the possibility of having lower than $57 per barrel cost as we did the 0 cost collar. We are nearly 90% covered for our 2026 exposure. And as we made in the sensitivity, if Brent prices stays at $104 per barrel, which was the level that we closed by the end of first quarter 2026, we will receive a cash adjustment of BRL 810 million over the upcoming 2 years. In the first quarter of 2026, we already benefited from our hedges and we had a positive cash impact of BRL 48 million in our results due to our oil hedges. Moving to the next slide. I'd also would like to reinforce our FX hedge portfolio, which is already offsetting the impact of BRL appreciation. As you can see, our current portfolio stays at $5.6 billion, which means more than 60% of our FX exposure with an average put option of $5.97 and a call option of $6.90. And in the chart on the right, we show our full portfolio and also the impact -- the cash expected impact if the currency remains at 5.22, which was the same level that we closed the first quarter of 2022. So if that was the case, we will receive more than BRL 4 billion in positive cash adjustments over the upcoming quarters as well. Moving to the next slide. On the top part of the slide, we can see that our net debt increased slightly to $13 billion in this quarter, mainly impacted by the dividend payment in the beginning of the year, also higher CapEx payouts and a concentration of interest payments in the period. Our leverage remained relatively stable at 3.3x when measured in U.S. dollars. Regarding our amortization schedule, we continue to have a healthy average maturity of more than 6 years, while we maintain our average cost at 5%, which is also a clear competitive advantage for the company. I would also like to highlight that following the end of the quarter in April, we concluded 2 other very important transactions in the local market. We issued a CPR of BRL 2.5 billion, nearly $500 million, with an average term of 11 years, and we swapped that into CDI and we stayed at 96% of all-in swapped cost of CDI. So a very, very competitive instrument. We were also able to issue an additional BRL 180 million in incentivized debentures with a 15-year average maturity and with even more competitive costs. So now I would like to hand it over to Beto for his final remarks.

Thank you very much, Marcos. I think the summary of what you just said, I would say that we should have a unique portfolio -- hedging portfolio for FX and Brent in the industry. I would say at least one of the most robust hedging portfolio to face the current business environment. I think this is the first thing. The second one, going back to Fabio's presentation, let me highlight one of his point, which is he is expecting sales and pricing in U.S. and Brazil improving already in the Q2. On the pulp cost, we, as we mentioned, continue to improve. Our performance is showing the commitment of this management on this line of our business, not only on cash costs, but many other line of costs. On the JV, as I mentioned, we are moving fast and the closing is estimated to be on the third quarter of 2026, 100% aligned of what we planned. And this management will keep the focus on strengthening our balance sheet, competitiveness and also reducing our net debt. Having said that, we will open for questions. Thank you very much.

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

My first question for Leo. I mean, since the last call, the price drivers seem broadly unchanged, Leo. I'd like to know if you agree with that, restrictions in Indonesia, reasonably healthy Chinese demand, still somewhat tight supply. But the announced price hikes have been harder to implement, right? Or I'd like to know if that's also your view. So digging deeper into that, what explains the main increase being focused on Europe rather than in China? How do you see the continuation of land revocations in Indonesia, the impact on cost in China? So if you could give us some color on that, it would be great. And my second question is actually more of a follow-up in your -- from your initial speech. You haven't been able to replenish inventory levels because of the maintenance stoppages you mentioned. You also mentioned logistic challenges in the quarter. Can you please elaborate a bit more? I mean, did the logistic challenges translated into lower revenues in the first quarter that were pushed to the second quarter? Or did you have any one-offs in terms of production that didn't allow you to replenish investments in inventories as quickly as you thought you would? Those would be my questions.

Daniel, this is Leo here. On the first one, you are correct. The price drivers that I mentioned in the last call related to hardwood are unchanged. We still see a positive demand and actually a positive surprise coming from Europe and U.S. tissue, where we see even stronger demand than we had originally forecasted. And on the supply side of the equation, again, you are correct. The factors that we have pointed out are confirmed or even further confirmed being the revocation of forestry licenses in Indonesia affecting pulp -- market pulp production and availability in Q1 and also the postponement now very clear of OQ 2 to year-end and maybe even beginning of 2027. So that is really unchanged. Regarding implementation of price hikes, I think we have to separate the world in 2. We have Eastern markets and we have Western markets. Eastern markets, our prices have been increasing continuously since mid last year, while softwood prices have been declining continuously since mid last year. And now this price differences have reached a point where all our negotiations are much harder with our customers if we want to sustain this fiber-to-fiber agenda, which, as I have mentioned in my speech, is a priority to us. So at this time, in Asia, we are being cautious. We are waiting. We understand that something has to happen in softwood. As I mentioned, 40% of the global production is bleeding as we speak. And we are not in a position to make moves that will jeopardize our overall strategy of supporting a much bigger market and addressable market for hardwood and not only in short term, but mid and long term. In Western markets, different than that, still the price gap between fibers allow us to keep increasing our pricing, our prices, and that's why I can confirm to you all now that we have managed to implement full the $50 increase in all Western markets as we had announced. And now we are getting prepared for this new implementation of the recently announced $50 for May. So different market conditions depending not only on regional demand, but also in how we are positioned against softwood pulp with the strategy of maintaining this fiber-to-fiber agenda. Our lower sales in Q1 is not related to logistics impact. It's really related to our plan. We had a very strong Q4 last year we understand and our customer base has a seasonality where we have a lower Q1 traditionally to Q4 of the previous year. Despite that, we were able to sell 200,000 tonnes above last year or Q1 2025. So in terms of our plan, we were completely aligned with our sales plan, but some one-off events in the maintenance downtimes and their ramp-ups, as I have mentioned, did not allow us to make this replenishment of inventories, which was our original plan. I have also confirmed in my speech, Aires and his team are fully devoted and aligned to recover this production, mainly on the second half of the year, which is actually good for us because that's when we have demand pickup. So that would be a perfect match for us as well. That all said, we will have to do some inventory replenishment in Q2 2026. We're going to try to keep it to a minimum possible, not to affect our overall figures, but it is necessary and we have to do it now.

Our next question comes from Marcio Farid with Goldman Sachs.

Well, I think we spoke last time in China and you mentioned the plan to try and create a business outside of China and especially with the integrated mills pushing for a potential disintegration as well. It caught our attention. It seems like there is potential there. Just wanted to understand what is the latest there? And if you have any updates and more details you can disclose to us? And maybe second question to Beto. Beto, obviously, share price performance has been a disappointment. We look at the last -- whatever window you want to look, 1 year, year-to-date, 5 years, share price is basically below where -- even before Cerrado startup, which was a $5 billion investment, right? And we speak to investors. Obviously, capital allocation and the leverage levels, it's 2 main points of attention. Obviously, the sector has derated with all the structural change that we have been observing as well. But I wanted to hear from you and from management, from the Board side, is there a level of discomfort with the recent trend? And if there is anything that can be done or you think it's a matter of market understanding that Suzano's strategy might take longer to be reflected on share price and on investors' perception to what value generation is. And I think it's inevitable that we discuss that given the recent trends. And it would be great to hear from you.

This is Leo here. I would just, to answer your question, do a step back so that we have all stakeholders aligned in terms of what we talked about in China. Suzano's strategy in leading the fiber-to-fiber agenda consists in very -- in 2 very clear avenues. The first one is fiber substitution itself throughout education projects, refining pilot plants and then applying our knowledge in our customers' machines and mills to be able to substitute not only softwood grades, but also other kinds of fibers like U.S. mix hardwood or bamboo or any other alternative fiber as well. And that's one of the avenues. But the second avenue is a very important one, a bit more complex in terms of timing, which is how to de-verticalize integrated pulp-to-paper producers, right? We all know that globally now we are reaching almost 120 million tonnes of pulp to paper or packaging verticalized producers. A big part of that is on western markets and a big part of that are old mills, very old mills or old mills which are being pressured for quite a while now in terms of their cost structures, in terms of pulp production, and I would say that even further pressured now with war-related cost pressure. So this is a key part of our strategy. We have been engaging with several of these players, very known in their markets. And the idea is to, together with them, discuss an alternative route where they are becoming more asset-light, shutting down their pulp production and Suzano being able to virtually integrate with them as their solution in terms of pulp supply, making them more competitive in this challenging and competitive world ahead of us and ahead of them. Projects are ongoing. These are longer maturity projects than the first avenue of fiber to fiber. We are in the imminence of confirm the first project, and we are going to give full visibility, obviously, when that happens because I personally believe that this case will show not only to the customers that we have already engaged with, but several others that there is a possibility -- there is an alternative to verticalization, which is happening in Asia.

A couple of things regarding your question. The first one, of course, the management is not comfortable with the share price. I think there's a couple of things that's related to that. Firstly, we don't think it's aligned with the robustness of the business. That's the first thing. There is not a single reason, of course. For sure, the FX situation and geopolitical moment, it's something that for sure affects. We see here in the management when we look at the base that we have in terms of assets, in terms of asset portfolio, in terms of logistics, in terms of the trend of our cost. Let's look for the trend and how do we see this in the mid, long term. And not only about cash costs, but also all the other line of cost. We see a very robust and resilient business to face the moment. And in the very -- and I would say, in the mid- to long term, we see a positive trend for the business despite the current situation. But based on that, regarding capital allocation, of course, on those moments, despite our focus on deleveraging the business that I have been saying and also reducing our net debt, buybacks is always an alternative. And in a moment like that, of course, we are analyzing right now that possibility since it's reaching a level that we have to consider this kind of alternative. But we also must take into account our track record on capital allocation. And this is the way that we should be moving with the discipline and concentrated again on the elements that I just mentioned and attracting value from the investment that we made. And also -- so having said that, I do not foresee, just to clarify, any kind of movement that can impact our cash, I would say, inorganic move that can impact our cash in the next coming years. So again, to keep very disciplined and maintain the track record that we have been seeing on capital allocation.

Maybe a quick follow-up to Leo. Leo, you mentioned you want to replace inventories. In our calculation, you should have been losing about 160,000 tonnes of production from capacity, already considering the 400,000 tonnes that you lost. But by the numbers reported, it seems like you've lost 400,000 tonnes and you have not recovered any inventories, which might suggest that the downtimes were much longer than expected. And you're talking about replacing inventories on even more aggressive downtime in the second quarter, which means sales are going to be even weaker. Is that the right way to think about it? Was the downtime more aggressive than expected in the first quarter?

Marcio, thanks for your analysis and question. But unfortunately, we do not disclose our production figures nor our inventory figures for the past quarter and also not looking and going forward. What I can tell you is that despite the maintenance -- the concentrated maintenance downtime seasons that we have now even further in Q2 '26, which we had 0, by the way, in Q2 '25, and the need to reestablish inventories, and we will push that to the minimum possible levels. The sales output in Q2 tends to be above what we have performed now in Q1 2026. And again, this is not a guidance. It's just to show the trend that we are seeing here at Suzano. And obviously, due to the implementation of the price increase rounds that I have mentioned previously in our backlogs, we see a much better also pricing in Q2 compared to Q1 2026, all this in U.S. dollar terms, obviously.

Our next question comes from Rafael Barcellos with Bradesco BBI.

Beto, Marcos, in recent months, you announced the buyback program, right? I understand that the company is now running with a leverage level which is above of where you feel comfortable. And other than that, you have the K-C disbursements in the third Q. But when do you think that you'll be ready to start accelerating the execution of the program? I mean you just discussed how low the shares are at the moment and so on. So I just wanted to understand, I mean, when you believe you'll be ready to accelerate the program? And given -- and that said, I would say that there's any sort of asset sales that you could use to accelerate the deleveraging process? And ultimately, just going back to the dividend policy question, I mean, if you see any room for a discussion of a more robust dividend policy in the company. And then my second question -- sorry for one more question on pulp markets. But last quarter marked a big change in your tone about pulp markets, right? I mean you were clearly much more positive versus the previous quarters. And so I just wanted to -- wrapping up everything that you just said here in the call, I mean you mentioned that western markets are going up, prices are going up. eastern markets then you've seen more challenges, but you're still not seeing any sort of downward pressure on prices in Eastern markets, right? So I just wanted to -- if you can wrap up. I'm understanding that in western markets, you're still seeing good trends. Eastern markets kind of mixed, but so far, stable prices in the eastern markets. So if you can just wrap up your views, it could be helpful.

Marcos here. Regarding buybacks, I think Beto already mentioned, we are already analyzing. For sure, it's an interesting capital allocation for the company. We always look at that considering our leverage levels, but we also consider the valuation levels of the company as well. We would like to highlight and reemphasize that we continue to be one of the companies in our sector with the highest free cash flow yields with nearly 14%, as we included in our report. We also look at our valuation levels. We're trading well below our historical valuation levels. So definitely, this is an option for us. Regarding dividends, we would rather have a lower and more normalized leverage level before changing our dividend policy. But we see room in the future as we deleverage to improve dividend payout. But that's not being discussed at the moment.

Okay. Rafa, this is Leo here. First, you really don't need to be sorry for sending us questions. We are well prepared, and you guys can keep coming and keep sending us the pulp questions at all means. I think, Rafa, that the big change compared to our last quarter's call is really the trend that's going on, on softwood, which has been deteriorating further than what we had already been seeing 3 months ago. It's impressive to say, as I have mentioned in my speech, that 40% of this industry of the softwood pulp producers today have cash costs above current market prices, 40%. So this is a big change to the model. And as we want to be supportive to the fiber-to-fiber strategy, as I mentioned, this changes a bit our short-term tactic in order how to navigate, especially in China, right? Because in Europe, the situation and also in the U.S. is different, as I have mentioned. But just a quick sum up then as you asked. So the war has been, in fact, resulting in different dynamics in different markets. Softwood scenario is unsustainable and has been an increasing headwind to our pricing strategy, especially in China and in Asia. In China, we are cautious to be able to support our commercial strategy and keep pushing this fiber-to-fiber agenda. And in western markets, we have a heated up demand a bit over what we had expected or over what we have expected originally, right? And market dynamics have been changing quickly and now further challenged by the Iran war. But I am really confident that we at Suzano are at the best position, the best position to navigate any scenario ahead of us.

Okay. Just a quick follow-up, Marcos. Would you consider any sort of asset sales to accelerate the deleveraging process?

Yes, we are analyzing, as we mentioned even in our Suzano Day last year, a couple of divestitures, mainly for noncore assets. I would say that land plots that could be measured or valued at square meter, not at hectares, for example, is a first option for us. So the high best use for our land. This is one of the things that we have been considering. But there could be other options as well that we have been analyzing in order to reduce our leverage even quicker.

Our next question comes from Leo Correa with BTG.

So a couple of pending -- more numerical questions for me. Just first, reverting back to the cost discussion, right, Aires. You talked about a bit of a guidance, right, for the second quarter, which is of an increase mid-single digits vis-a-vis the first quarter, right, which is probably going to put things above BRL 900 per tonne pulp cash cost. I remember some months ago that you guys gave like some -- let's say, some indications of cash cost levels for 2026 of about BRL 800. And since then, of course, a lot has changed. I think as Marcos explained, the hedges have been working very well and very well executed. So clearly a lot of protection there. But still many moving parts. And of course, the base is very high. So my question is, can that -- let's say, can that indication of BRL 800 still be maintained? Or you would say the numbers for 2026 are up for some discussions and probably higher levels? The second question -- again, sorry for the detail. I know this is something that you already said in the introduction was a one-off, right? But the CapEx at Suzano specifically has been an issue for investors over many years, right? The still high number and above maintenance levels. The BRL 3 billion here is above, let's say, the guidance for the year of BRL 10.9 billion. So I can assume the guidance is still maintained and that the levels going forward will drop and things will normalize. So I just wanted to double check on that.

Leo, this is Beto. Let me take the second question, and then I will hand over to [ Beto ]. Very simple. I just want to mention that the CapEx guidance is completely maintained. So there's no change on that. And by the way, we also, as I mentioned before, see a trend of lower CapEx in the next coming years. So this is absolutely aligned with our plan, okay? On the cash cost for the second quarter, let me hand over to Aires.

First of all, I said that they're low, in the middle, single digits to the second quarter ex downtimes. That was in my speech. And we remain our target, our focus on keep our cash cost close to BRL 800 per tonne ex downtimes for full year. As I mentioned, our assumptions at this moment in the cash cost, especially to Brent, is $85 per barrel a year to go. And that's important. Note that our hedge don't enter in this line in our balance sheet, coming in other line that Marcos presented. Then I am considering here this level of BRL (sic) [$] 85 per Brent. If you have more, could impact negatively the cash costs.

Our next question comes from Caio Greiner with UBS.

Leo, just going back to the point on the current pulp backdrop and more specifically about the China and western markets and western markets divergence. I wanted to explore a little bit more of the weakness in China specifically because I think it's a little bit hard to understand considering that we're seeing strong level of paper demand, we're seeing wood chip prices on the rise. I think the only point that I caught from your speech that was the main source of weakness was the war impact. Is that right? Is that the main point as to why you're seeing such weakness in China? So in other words, if we were to see the war to end shortly, with that will we be able to see a reason for pulp to go back on the rise? And then specifically on softwood, again, why do you think that we're seeing such weakness on softwood markets versus hardwood, specifically in China, again, considering that we're even seeing cost inflation, we're even seeing pine wood chip prices on the rise? I think maybe something a little bit more specific to China would be really helpful to us. And then the second point on wood chips. Again, not only pine chips, but wood chip prices in general have been on the rise, already $30 to $40 per tonne higher versus 2025 lows. Again, we understand the slightly tighter operating environment in China with some capacity restarts, new capacity starting up, lower exports out of Indonesia. So I wanted you to explore 2 points here on wood chip markets for us. How do you see this backdrop impacting pulp fundamentals and prices going forward? And if you see this upward trend as something more structural or more of a short-term impact?

Okay, Caio. Leo here. I'm going to answer both questions. So first, regarding China and what's going on there. You're right, the demand is positive. Paper production has been performing very well, as I mentioned, 15% over what happened in Q1 2025. Domestic consumption is good. Exports have actually even been increasing as well. So all these indexes or KPIs related to paper production and consequently pulp demand are positive. Now I will have to split the answer in 2, first analyzing hardwood and then softwood. On hardwood, we have balanced inventories even trending a bit low. We are seeing a lower trend of imports going into China, meaning that these balanced inventories could even tighten up a bit. And we had on the supply side of the equation, these 2 major events, being the Indonesian curtailment and also the postponement of OKI taking place. So that gives a very favorable condition of which -- or for which we have been exploring month by month in Q1 and increasing prices in China inclusive. Now when we look at softwood, the situation is different. First, looking at the supply side, despite there obviously were not any new projects in the pipeline, we still have not seen an accelerated amount of commercial downtimes or planned or permanent downtimes. Numbers are trending still very low. It seems that producers are still keeping decisions in terms of what to do looking forward despite, again, 40% of them are losing money as we speak. So there were no supply adjustments. And on the demand side, you had 2 effects directly hitting softwood. First is fiber-to-fiber and the successful execution of our plan and other plans as our competitors as well. It's not only an exclusive to Suzano. So definitely hardwood has been gaining throughout this year's space that was previously occupied by softwood. And second is the fact that with the softwood chips now available in China since approximately beginning of last year, we have also been observing roughly 1.6 million, 1.8 million tonnes of annual softwood now being produced in China with costs very similar to hardwood pulp cost as well. And this obviously occupies space that was previously being supplied by softwood. So the big difference to the model is coming from the softwood side of the equation. And obviously, if we were the only fiber, fundamentals would lead us to keep pushing prices up as per our plan. But as we are not the only ones and softwood keeps declining and approaching our prices, it is obviously a headwind that we have to pay attention, especially if we want to foster the fiber-to-fiber agenda, which we will foster. So meaning that we have to be cautious, and how can I say, and hold the anxiety of trying to make moves that will further compromise or that could further compromise us in the midterm. I'm going to move to your wood-related question. As we have been mentioning since Suzano Day on December 11 last year, we at Suzano see that there is enough wood in China to support the new projects up going in this country, the upstream verticalization projects. However, the big question mark is that the prices of this wood to be able to supply not only the new projects, but also now with a further pressure from the full restart of Chenming's operation and pulp production obviously integrated as well. So that will keep putting pressure on the market. We have been seeing wood prices going up. Even before what we see are impacts of the Iran war and logistic costs, wood in China -- domestic wood has been increasing $10 to $20 of bone-dry metric tonne and imported wood has been increasing anywhere from $25 to $35, $40 per metric tonne. So obviously, that puts a pressure and brings their cost structure up. And it is our view that this will be further incentivized as more and more of these projects are -- have their go live. So it's important to say that when we analyze what's going on today, based on 2024 production, our numbers point out that now pulp producers occupy roughly 15% to 18% of the wood basket today available in China. And as I have been saying before, just with the confirmed projects, that would move up to 40-ish percent level. And with the unconfirmed projects, that would move up to almost 80% of the wood basket. Obviously, this analysis does not consider that they are going to import more and more volumes of wood chips as well. So all based on 100% China-based wood supply. But on the other side of the equation, it's important that other uses -- other sectors also use Chinese wood. When we add up the furniture, the packaging and logistics, the forms work or directly linked to construction segments, these segments traditionally use almost 90% of this wood basket available. And we see, obviously, as a result of the lower real estate market that they now use roughly 70%. That's our number in terms of this wood basket available. So clearly, there's going to be a shock in the short term, right, as these projects in pulp continue to be deployed. Again, they are roughly at 20% now. And as they keep increasing, this will put a lot of pressure on this wood supply and demand scenario in China, and we expect that this will keep moving up. And then obviously, their cash costs will keep moving up consequently as well.

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

So I have another question on the pulp market, which is a little bit more longer-term structural in nature, touching on some of the topics that you mentioned in your previous response, Leo, but maybe to dive a little bit deeper, right? I mean you mentioned that 40% of the softwood production right now is underwater. So clearly, something has got to give there. But looking at the hardwood side of things and downstream side of the market, right, we continue to see potential new hardwood market pulp projects contemplated, other projects already confirmed and being built up even at lower pulp prices, which you can argue that maybe the returns aren't there to justify those projects, but they're happening anyway. Meanwhile, there's integrated capacity additions in China that also keep coming and which generate implications for organic demand growth for market pulp, as Suzano has been flagging, right, in recent presentations. And it also hampers downstream pricing power as well in China, right? So my question to you is what in your view would be the main catalyst? I mean, what really needs to change in the market that could alter this trend, right, and reverse this recurring wave of supply additions, both on the market pulp side of things and integrated side of things in China? And then secondly, a different topic here. But as you look at your operations today, do you see any additional opportunities in your current assets to repurpose some of those assets, right, to shift diversifying into other grades, perhaps reducing your exposure to hardwood market pulp that way, and adding products that have less correlation with drivers for paper-grade pulp like dissolving wood pulp, for example? Those would be my 2 questions.

Looking long term, as we have been presenting, we see an oversupply scenario in the pulp markets despite a constructive view on the increasing demand for pulp. But obviously, due to the fact that we have a headwind coming from verticalization in Asia as well as for the moment 2 projects by OKI and Arauco confirmed in the pipeline going forward. But these 2 by themselves already creates a scenario of oversupply as I have mentioned. So we see that, that rebalancing factors can come, as I also have already said, in one of these 4 dimensions. First is a recovery of permanent closures as we had seen 3, 4, 5 years ago happening, especially in softwood assets. Again, as we have mentioned, it seems unsustainable that this much percentage of the global production is bleeding as we speak. And the returning to previous patterns of permanent closures will certainly be one of the key parts to rebalance the total market. The second is a higher amount of commercial related or unexpected downtimes. We are tracking that weekly. We see that growing over 2025, but still not to the levels of 2023 and 2024. But as I have mentioned in one of the previous questions, most of this still is hardwood, believe it or not. So we have to see -- or it's reasonable to understand that this kind of decisions will have to be seen on softwood assets as well. Third is the time to market of projects. So on this more challenging market scenario, projects and their time to markets which were previously announced can be reviewed. And this is the case that we have seen for OQ 2. And that can happen to other pulp projects, but also to other verticalization projects in China, which are very much concentrated now. We have a big cycle in the fourth quarter of '26, but it is very unclear and grayish to say when they are actually going to go live and come to market. And fourth, which was Marcio's question, is the unverticalization trend. This is something that we really believe that's going to happen. It's a huge amount, millions and millions of tonnes of the industry, which is verticalized pulp into paper packaging. And it doesn't make sense. Their production costs are way higher than average historic pulp prices. So we really believe that in the western markets, we are going to see this wave of de-verticalization happening in the months to come. And I hope that Suzano is the one that will be able to confirm the first of this project. So again, 1 of the 4, 2 of the 4, 3 of the 4 or these 4 factors can add up and change market dynamics to rebalance markets going forward. And again -- sorry, you asked about repurposing assets. Yes, we can do that. We're actually doing that as we speak. We have just confirmed the -- started the fluff production at our Limeira Sao Paulo site. That used to be solely a paper-grade pulp line and it's now producing fluff pulp. And we could do that in other locations as well and as well as other alternative kind of pulp fibers like unbleached kraft and other grades as well. So yes, it is an alternative and we're always looking how to tackle this kind of opportunities.

The Q&A section is over. We would like to hand the floor back to Mr. Beto Abreu for his final remarks.

Thank you very much for all of you. I actually will take the opportunity of final remarks and to complement a few things on the Caio's question to Leo regarding a little bit more about the mid-, long-term view. So besides what Leo said, Caio, regarding permanent closing that might happen, shutdowns, even de-integration in the western part of the world, we had to share with you that in moments with the level of volatility that we have on the FX side, also on the geopolitical side, the level of confidence that the management has regarding how resilience and the level of robustness of our business increase. So when we look about the mid, long term, besides those things, we also have to consider that consolidation might happen. So relatively, we'll have to analyze and see who will be prepared -- more prepared in the situation like that because that's a natural consequence of a scenario that might happen. So we have different scenario. We don't -- we have optimist, middle and more, let's say, worst-case scenario, and we have to be prepared for any one of them. Just to add those comments on the final remarks. Thank you very much for all of you. And any question -- any further questions, the RI team will be fully available. Thank you very much.

The Suzano S.A. first quarter of the 2026 conference call is concluded. The Investor Relations department is available to answer further questions you may have. Thank you and have a good day.