Suzano's Q3 2025 Earnings Call: Contradictions in Pulp Pricing, International Expansion, and Production Adjustments Highlight Market Uncertainties

Guidance:

• CapEx 2025 reaffirmed at BRL 13.3bn; Q4 disbursement ~BRL 2.9bn.
• Q4 Paper & Packaging: Limeira and Suzano outages to affect costs; ex‑outage costs expected stable, volumes seasonally higher, prices stable and mix to improve; Packaging EBITDA to continue improving.
• Management priority: reduce cash production costs over next 2 years and target average cash cost below BRL 800/t.
• Implement remaining price increases (announced $20 net; $10 already confirmed in China).
• Deleveraging/liability management prioritized (leverage 3.3x; $1bn 10y bond issued).

Business Commentary:

* Cash Cost Reduction and Efficiency: - Suzano achieved a 4% decrease in cash costs in Q3, reaching BRL 801 per ton. - This was driven by lower wood costs due to improved wood quality and operational efficiencies, reduced energy costs, and FX appreciation.

• Pulp Business Performance:
• The pulp business unit reported a BRL 4.5 billion EBITDA with a 49% margin.

• The performance was supported by strong order intake in China and a combination of lower prices and favorable FX.

• Paper and Packaging Division Improvement:

• Suzano's Paper and Packaging division achieved its first positive quarterly EBITDA, reaching BRL 542 million.

• This was due to strong domestic sales volumes, stable operations, and lower export prices.

• Financial Leverage and Debt Management:

• Suzano's leverage in dollar terms increased to 3.3x, but net debt remained stable.
• This was impacted by lower pulp prices and non-recurring events like the Eldorado deal and bond repurchases, but the company maintained positive free cash flow.
  
  

  Sentiment Analysis:

  Overall Tone: Positive

  • CEO: "first positive EBITDA result for the quarter for Pine Bluff"; "keep the trend of reducing our cash cost" and "deleveraging the company...is absolutely a priority." Pulp: "BRL 4.5 billion EBITDA...49% EBITDA margin." CFO: issued "$1 billion new 10‑year bond...lowest corporate spread ever" and net debt remained stable while generating positive free cash flow.

Q&A:

• Question from Caio Ribeiro (BofA Securities): Questions on Chinese wood‑chip and softwood dynamics — have domestic chip prices moved meaningfully given additions from Huatai, Nine Dragons and Chenming resumption, and has that changed marginal pulp costs in China? Also, has softwood output been reduced and is the incentive to switch from softwood to hardwood still present given the narrowing spread?
  Response: Wood‑chip prices have risen materially (imports ~+$10 BDMT; Chinese chips +$25–$40), increasing Chinese pulp cash costs; softwood is weaker due to abundant low‑cost/infected wood (pressure to last ~2–3 quarters), but fiber substitution toward hardwood remains a strong incentive.

• Question from Daniel Sasson (Itaú): To Aires — given the Eldorado deal and TOD, is there room for additional cash‑cost improvements toward 2027? Will the trajectory be linear or tied to specific events in 2027?
  Response: Eldorado deal reduces wood consumption per tonne by roughly 4% in Mato Grosso do Sul; management expects to run and plan averages below BRL 800/t with continued operational improvements.

• Question from Daniel Sasson (Itaú): To Grimaldi — heading into London Pulp Week, has anything changed that makes you more optimistic about price increases succeeding after recent unsuccessful attempts?
  Response: Slightly more optimistic: market remains unsustainable and recent Chinese dynamics (higher wood‑chip costs, tighter recycled imports) and strong Chinese order inflows support gradual price recoveries, though gains will be limited without major supply reductions.

• Question from Rafael Barcellos (Banco Bradesco BBI): On U.S. Packaging — what EBITDA contribution can be expected next year and long‑term potential? And on Lenzing — can you share updated views on the investment and option to acquire more stake?
  Response: Suzano Packaging delivered its first positive quarterly EBITDA and management expects continued improvement but provided no numeric guidance; regarding Lenzing, Suzano will keep its 15% stake and is not planning to exercise the option in the short term while continuing analysis.

• Question from Caio Greiner (UBS): Any update on the structural view since Investor Day (China's capacity additions/verticalization) — more or less concerned? And on the Kimberly‑Clark assets, any clarity on performance, synergies or disposals after deeper diligence?
  Response: Structural view remains cautiously neutral—verticalization persists but Chinese pulp production hasn't yet expanded materially; on the K‑C assets, due diligence impressions are positive and Suzano will produce a 2‑year business plan to extract value post‑close.

• Question from Yuri Pereira (Santander): Any impacts from recent Southeast Asia floods on Chinese wood prices? And on dissolving pulp, will more producers shift to dissolving like Bracell's move next year — what's driving that shift?
  Response: Floods have had short‑term upward effects on chip prices; higher DWP spreads (DWP > historical delta) are incentivizing flex capacity to swing toward dissolving pulp, so further shifts are possible.

• Question from Lucas Laghi (XP): On expansion CapEx — excluding BRL 935m from three main projects and BRL 1.6bn guidance, should we expect this expansion line to decline next year as projects conclude or will Suzano approve new competitive projects in 2026?
  Response: CapEx is expected to decline in 2026 as major 2025 projects (Cerrado, Limeira fluff, Aracruz tissue/biomass) conclude; full 2026 CapEx guidance will be provided by month‑end.

• Question from Henrique Tavian Marques (Goldman Sachs): Given the gradual nature of recent price hikes and upcoming Chinese projects (e.g., APP OKI), where do you see pulp price ranges going forward — might the cycle derate such that prior $700+ peaks are less likely?
  Response: Future price range depends on supply adjustments (permanent closures, unexpected downtimes, project timing); without significant supply cuts or slower ramp‑ups, a return to prior $700+ peaks is uncertain — recovery likely gradual and supply‑driven.

• Question from Eugenia Cavalheiro (Morgan Stanley): What growth opportunities do you see in the U.S. paper market and what profitability level is reasonable to target — how far are you from that?
  Response: U.S. business is still relatively small with room to grow (management cited ~45% of the SDS market), focus is on expanding foodservice and extracting cost/opportunity improvements in existing assets; no specific profitability targets were disclosed.

Contradiction Point 1

Pulp Price Dynamics and Market Sustainability

It involves differing perspectives on the sustainability of current pulp prices and the potential for producers to adjust their operations in response, which can impact investor trust and stock price volatility.

What are the dynamics of wood chips and softwood in the Chinese market? Have domestic wood chip prices changed due to capacity additions? Have softwood production levels changed due to weaker dynamics compared to hardwood? - Caio Ribeiro (BofA Securities)

2025Q3: Current prices are below producers' marginal costs, potentially unsustainable. Producers are burning cash, and we expect production adjustments, particularly from European producers. - Leonardo Grimaldi(Executive VP of Pulp Commercial & Logistics)

Are there opportunities for further cash cost improvements, particularly with the Eldorado deal? What are your expectations for pulp pricing discussions at London Pulp Week? - Daniel Sasson (Itau BBA)

2025Q3: Despite our intention to raise prices in April, customers' uncertainty led them to pause negotiations. - Leonardo Grimaldi(Executive VP of Pulp Commercial & Logistics)

Contradiction Point 2

Internationalization Strategy and Growth Opportunities

It involves a shift in the company's strategic approach to international expansion and growth opportunities, which can impact shareholder value and investment decisions.

On capital allocation, is Suzano considering larger international expansion, and why? Are there plans for a share buyback? - Leonardo Correa(BTG)

2025Q1: The industry is bleeding, and various factors could change pulp dynamics, including closures, downtime rhythms, project timelines, and verticalization trends. A complete overhaul is needed. - Leonardo Grimaldi(Executive VP of Pulp Commercial)

Suzano has another growth project coming up. What are the next potential growth avenues and the rationale for international expansion? - Daniel Sasson(Itau BBA)

2025Q3: We are not commenting on market speculation. Our strategy is clear from Suzano Days, focusing on value creation and differentiation. We are open to share buybacks, given the current share price level, but no decision made yet. - Walter Schalka(CEO), Marcelo Bacci(CFO)

Contradiction Point 3

Production Adjustments and Global Market Impact

It involves differing perspectives on the expected adjustments in pulp production and how these adjustments may impact the global pulp market.

How confident is Suzano in its production adjustments outside China, and how will it allocate volumes in a challenging market? - Marcio Farid (Goldman Sachs)

2024Q1: We are long-term viewers, focusing on shareholder value creation. Capital allocation discipline and financial policy remain crucial. Suzano aims for growth through organic or inorganic means, prioritizing value creation over size. The company is considering internationalization, but remains disciplined, seeking competitiveness, and differentiation. - Walter Schalka(CEO)

Would Suzano consider production cuts? What differentiates this downturn from previous ones? - Caio Ribeiro (Bank of America)

2025Q3: European producers are expected to react to lower prices, impacting the market. Suzano will sell all available pulp volumes. - Leonardo Grimaldi(Executive VP of Pulp Commercial & Logistics)

Contradiction Point 4

Capital Allocation and Financial Policy

It involves the company's stated financial policy and flexibility in leveraging, which can impact investor confidence and financial decision-making.

Can you discuss the potential deal size and equity considerations under Suzano's leverage policy? - Jonathan Brandt(HSBC)

2025Q1: We analyze marginal variable costs to assess production cuts. Decisions are event-driven, considering wood costs and logistics. - Marcos Assumpcao(CFO)

What is your ramp-up strategy for Cerrado, given current pricing and supply conditions? - Rodolfo Angele(JP Morgan)

2025Q3: Our financial policy remains unchanged. We aim to be between 2 to 3 times debt-to-equity, but we can exceed to 3.5 times during expansion, with remedies. We are flexible with cash or shares for potential opportunities, prioritizing value creation. - Walter Schalka(CEO)

Contradiction Point 5

Paper Market Demand and Supply Dynamics

It involves the company's assessment of paper market demand and supply dynamics, which can impact pricing strategies and market positioning.

Have concerns about China's pulp production dominance increased or decreased since last year? What's the latest on the K-C joint venture? - Caio Ribeiro(UBS)

2024Q1: We are flexible with cash or shares for potential opportunities, prioritizing value creation. - Walter Schalka(CEO)

What is causing the decline in Brazil's paper market, and will it affect prices? - Caio Ribeiro(Bank of America)

2025Q3: Demand was weaker due to government program delays and consumer spending slowdown. We implemented price increases for uncoated wood free and cut-size products. - Fabio Oliveira(Executive Officer, Paper and Packaging)