Operator: Ladies and gentlemen, thank you for holding, and welcome to Suzano's conference call to discuss the results for the first quarter of 2022. [Operator Instructions] Before proceeding, please be aware that any forward-looking statements are based on the beliefs and assumptions of Suzano's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur in the future. You should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Suzano and could cause results to differ materially from those expressed in such forward-looking statements. Now I will turn the floor over to the company's CEO, Mr.

Walter Schalka. You may proceed. Walter Schalka : Good morning, good afternoon, and good evening to everyone. It's a great pleasure to have you all joining us for the first quarter section of discussions of our results. It's a great pleasure to be with you.

I think the main highlight that we have on the first quarter is related with the strong cash generation that we have despite the cost pressures that we have in lower volumes regarding the annual shutdowns on several of our facilities in the first quarter of this year. We in the pulp business had lower volumes since our inventory is quite low. We are not able to increase our sales, then we have to sell just the amount that we have producing that was around 2.4 million tons. We -- in the paper business, we had a very good quarter in terms of production and sales comparing with the previous quarters. And in this scenario, we had BRL 5.1 billion on adjusted EBITDA.

Even considering the cost pressures of the -- in the cash cost that was over BRL 860 on cash costs, we are able to generate cash on a scenario that we invest almost BRL 1.2 billion on our Cerrado Project. And with dividends of BRL 1 billion, we kept our net debt almost at the same level than the previous quarter. It's very important as well to mention our developments on the ESG. On the governance, now we have more than 50% of our Board with independent members and with 3 women out of 9 members that representing more than 30% on gender diversity. Now I'm going to pass to Fabio who is going to tell us a little bit more about our Paper and Packaging business.

Fabio Oliveira : Thanks, Walter, and good morning, everyone. Let's move to Page number 4. We have had the best Q1 results of our Paper and Packaging business unit. Strong volumes and prices have led to record Q1 EBITDA and the highest EBITDA per ton for a given quarter. Demand for paper-grade products continue to be strong, both in the domestic and international markets served by Suzano.

The return to presential activities and the rebound in commercial printing have been positive drivers for take demand in most markets. Additionally, production disruptions in major mills coupled with logistics bottlenecks and geopolitical tensions contribute to the tightening of supply. Raw materials, logistics and notably energy inflation continue to pressure production costs globally, elevating cash costs and pushing for higher price energy surcharges. According to IBA, print and writing demand in Brazil has grown 1% in the first 2 months of 2022 and compared to the same period of 2021, mainly due to an impact of 27% reduction of imported papers. Sales by domestic players have grown a solid 4.6%.

Paperboard demand has shrunk 9% in the first 2 months of 2022 on a year-over-year basis, given the strong comparison period in 2021. Our Q1 sales volumes were 6% higher than Q1 of 2021. Domestic sales represented 67% of our total sales in the quarter, totaling 187,000 tons, a 6% increase compared to the same quarter of last year. Our average net price during the quarter was 10% higher than our average price in Q4 and 28% higher than Q1 last year. As a result of strong volume prices, revenue management and operations stability, our EBITDA has reached BRL 525 million in the first quarter, a 41% increase compared to the first quarter of 2021.

Our EBITDA per ton has reached a new time high. Looking ahead, our major short-term challenges reside in minimize the pressure of inflation while overcoming the continuous logistics disruptions of maritime shipments and ports and by passing event or disruptions caused by geopolitical tensions. Our e-commerce platform accounted for 24% of our total revenues and 54% when considered medium and small-sized customers in last quarter. We're also on track to deliver on sales from our innovation pipeline, as we have shared during our Suzano Day presentation. Strong demand for our products has led to a reduction of our paper inventories, which are currently running below optimal levels.

Now I will turn over to Leo, who will be presenting our pulp business results.

Leonardo Grimaldi: Thank you, Fabio. Good morning, everyone. So let's -- please move to Page 5 of our presentation so that we can address the results of our pulp business unit for the first quarter of 2022. As you will note on the left graph, our sales performance totaled 2.4 million tons in the first Q '22.

During this quarter, we had a concentration of several planned maintenance downtimes in our pulp mills as well as some one-off events, the resuming of production on a few of our pulp lines after their planned downtimes. Production rhythm is now fully recovered and our annual production will be delivered as planned. Since our inventories were and still are below optimum levels, we did not have room to compensate the lower production availability, which pose therefore, additional pressure to our global supply chains to serve our customers. As I have mentioned during our Suzano Day presentation, we have withdrawn from all spot markets and are focusing our maximum efforts to fulfill our customers' needs. This first quarter was marked by increasing tightening of the supply-demand balance, mainly as a consequence of supply disruptions all over the world due to factors such as planned and unplanned downtimes, sanctions on Russian hardwood, European pulp production as well as the persistent logistics constraints, which consequently resulted in low pulp stocks throughout the chain.

Pulp inventories in European ports closed the quarter 2% below the fourth Q '21 and 26% below historic monthly averages since 2018. In China, March pulp inventories posted a 17% reduction when compared to February and were equivalent to the low levels of December '21. This scenario place challenges to pulp paper and paperboard producers globally as they were running with low inventories, while their production figures and order books were quite strong during the quarter. The tightening of the S&D balance has favored the floor price increases in all markets. Our average price for exports -- for export markets for the quarter has increased to $639 per ton.

Since we had the concentration of sales volumes in the end of the quarter, when FX appreciated significantly, the translation of our effective price in U.S. dollar terms using the average FX for the first quarter does not represent precisely our invoice prices to customers, which was approximately $655 per ton in the first quarter '21. And this base price still does not reflect the full implementation of our price increases due mainly to invoicing carryover from past quarters orders. I can confirm that our order intake and sales during the quarter were then completely in line with our announced price increases. Our EBITDA of BRL 4.6 billion being 2% over the first Q '21 and was mainly a result of higher prices despite lower in-force volumes, FX depreciation and cost pressure.

Now looking forward, I would like to highlight the following points. We have been openly calling your attention to unexpected downtimes in the overall pulp market and how it has been increasing during the past years, impacting to a larger extent to market dynamics. According to our estimates, just between January and April '22, over 1.5 million tons of production has been out of the market unexpectedly. And you will remember that the historical number was close to 700,000 tons a year. So we are already adding up 1.5 million tons.

And this figure still does not include recent news about production limitations from a relevant Russian producer for April and May as reported last week by RISI. When we add up this effect to our planned downtimes, to project delays and to the challenging logistics globally, we foresee the continuity of a significant restriction in supply of market pulp for the next months. We are also watchful for the magnitude of the effect of the restriction on Russian wood for European pulp producers and the additional risks that this can pose for the reduction of BHKP supply. Demand has been strong in Europe and North America and segments like packaging and specialty papers are reporting order books that exceed 90 days. In China, it has a lower visibility during the past weeks due to measures to contain COVID.

In the tissue business, we did identify up to now evidence that show a retraction in downstream demand, but it is important to point out that the paper industry has a low operating rate and that a possible regional restriction to production due to lockdowns can be compensated by producers located in other regions. This similar trend was observed during the end of 2021 when energy restriction measures were adopted in some regions in China. In packaging, our customers in the ivory board segment for which, as per my Suzano's Day presentation, BHKP represents 35% in their fiber furnish. They report solid production levels benefited by the recovery of the exports since the beginning of the year while greater uncertainty is being posed on the print and writing segment. We expect that hardwood inventory should remain low and our sources in the ground in China indicate that the flow of imports of BHKP to China should persist at below historic levels during the next months.

In our view, the current main concern of paper producers globally is the guarantee of their raw material supply chains, which we can translate by the fact that our customers in all regions are increasing their order books with us operating at the highest possible limits of their contracts and agreements. More specifically in China, the risk of lockdowns being short-lived, and coupled with an expected governmental stimulus program has been incentivizing customers to strongly push for volumes translating into a healthy order intake. With that said, I would now like to invite Aires to present our cash cost performance for the quarter. Aires Galhardo : Thank you, Leo. Good morning, everyone.

We are on Slide #6. Cash costs, excluding downtime in the first quarter 2022, came to BRL 868 per ton, 16% higher than in the fourth quarter '21 and both of our expectations on the last quarter earnings call in the beginning of February when the Russia and Ukraine war was not foreseen. The main drivers of cash cost pressure were pretty much similar when compared to previous quarters, being commodities in the first quarter is stressed by the war. As you can see, high input cost took a main toll mainly due to higher price of chemicals, especially caustic soda followed by chlorine dioxide and Brent price, especially in natural gas and fuel. The increase in the fixed cost was linked to higher scale downtime season, which in turn also impacted the energy export sales.

Wood costs remained flattish since the negative impact of the higher diesel costs was offset by lower average forest ranges and a lower share of third-party wood in the period. Despite the appreciation of the average Brazilian real against U.S. dollars during the quarter, there was no impact from the exchange rate valuation on the cash cost due to the effect of inventory turnover of inputs, which results in a delay of about 1 month between acquisition and consumption. Looking on to year-over-year performance. Cash production costs excluding downtime in the first quarter 2022, was 39% higher than in the first quarter '21 due to the same most relevant inflationary pressures just mentioned when comparing quarter-over-quarter figures.

Higher wood costs reflect the increase in diesel price on the harvest and in transportation with no offset by forest operations. The increase in fixed costs and lower energy sales were due to the absence of downtimes in the first quarter 2021. Looking forward to the remaining quarters of 2022. Although endogenous factors would guide us to a lower cash protection cost, the commodity scenarios is to represent a challenger. So I would say that our latest forecast shows cash costs flattish going forward.

As presented recently at the Suzano Day in the end of March -- moving to the next slide -- the Cerrado Project is progressing precisely as scheduled, closing the first quarter of 2022 with the "inside the fence" execution, which corresponds to industrial and infrastructure investments, reaching fiscal progress of 10%, which is in line with the respective financial disbursements. The overall progress is also evolving as expected, with no new or major risk identified to deliver the product as promised in the second half 2024. Now I pass the floor to Marcelo Bacci to continue the presentation. Marcelo Bacci : Thank you, Aires. Moving to Page 8.

Our net debt and our average -- our leverage ratio in dollars remained stable during the quarter. Despite the acceleration of the Cerrado Project disbursements and the business in [indiscernible]. We have now a sizable liquidity position of $5.3 billion and a very light amortization schedule for the next 3 years, with an average cost of debt at 4.4% a year and 87 months of average tenor. 90% of our debt is at fixed rate. Important to emphasize that.

Moving to Page 9. It was a quarter of significant FX volatility and the relevant appreciation of the BRL at the end of the quarter. We continue to run our hedging portfolio according to our policy. And at the end of Q1, the mark-to-market of our portfolio turned positive when we started to receive positive cash adjustment on the cash flow hedge portfolio. We have now a cash flow hedge portfolio of $3.7 billion.

That gives us a significant downside protection at 5.52 on average and has an elevated cost strength. For the Cerrado Project hedging portfolio of $600 million, we have even higher average protocol levels because it's longer term, as you can see on the graph. Moving to Page 10. We made during Q1, BRL 2.6 billion of CapEx, BRL 1.2 billion was related to the Cerrado Project. That was a bit below what we expected, but we keep the guidance for the year at BRL 13.6 billion, the same number that we discussed before.

We are not including yet the disbursement of the Parkia acquisition that we will talk about in the next slide. On Slide 11, we have just announced the agreement to buy the Parkia vehicles for a total of $667 million in two installments. The deal depends on the approval of the general shareholders' meeting and also CADE. The general shareholders' meeting will be called in the coming days. As we don't control the timing, we cannot precise at this point when this disbursement will be made, but we expect it to be in the coming months.

And that acquisition will allow us to reduce our annual CapEx by $51 million per year in the next 16 years, and that would be even increased by PPI over time. So the acquisition has a very positive effect in terms of net present value, reflecting our lower cost of capital. And this will also enhance our land base by 260,000 hectares in the main states where we operate. Finally, moving to Page 12. Our favorable cycle is enabling Suzano to pay additional dividends of BRL 800 million that was approved in the general shareholder meeting.

And also through all of the approximately BRL 1 billion in a share buyback program that we have just announced. Those initiatives will be implemented in strict respect to our financial policy, maintaining our robust financial discipline. With that, I'll turn back to Walter for the conclusion. Walter Schalka : Thank you very much. I think the takeaways that we have on this quarter is that we have been -- we have a very good and solid strong cash generation and capital allocation, it's critical for us.

We are highly intensive capital company. And then we have been investing on Cerrado Project. Now we have a very clear program, a dividend policy. We have now this capital allocation on the buyback program that we have right now and many other areas that we are investing. The company is preparing ourselves for the future in many different areas.

It's very important now after 2 years that the cash flow hedging policy is very consistent with us. We are not here on the speculation on currency. We are here to prepare our cash flow for our needs in the near future. In terms of the price environment that we have, we are going to see prices going up on the next month since we are not yet reflected all of them in the results. Very pleased that our Cerrado Project, it's on time, on budget, and it's very pleased that our ESG agenda continue to do it on the right track and the right speed for the future.

With that, I would like to invite all of you to our second ESG call on June 23 here in Sao Paulo. Thank you very much. Now let's go for the Q&A session.

Operator: [Operator Instructions] Mr. Leonardo Correa with BTG Pactual would like to make a question.

Leonardo Correa: My first question for Leo. Leo, we were waiting for Suzano to announce this $30 price increase into China, right? Maybe some days, some would consider this maybe a bit more atypical, right, for the industry leader to wait a bit more. So I just wanted to hear you, Leo, on what you're seeing on the ground in China and whether some of the recent issues like lockdowns and as you mentioned, some pressures on the paper segment in China. I just wanted to hear you on exactly what made you guys pause perhaps and wait a bit more to announce the price hike in China? And whether you see conditions ripe for implementation, right, given all the risks and all the uncertainties surrounding the supply chains and the lockdowns, and we're still in an environment of pressured paper margins in China. And now we're seeing the reselling price in China also drop a bit, right? So it's a tricky market.

I understand a lot of volatility, but perhaps we were a bit confused on why you paused to announce this price increase in Asia. And the second question for Walter. I mean Suzano was in perhaps a group -- has been compared with a group of companies, and I know the comparison is not valid and perhaps not ideal, but at many times, Suzano is compared with several other basic resources companies, which have very strong cash-return policies. And at times, the impression we have, speaking to investors, is that perhaps Suzano has been criticized for embarking in full out growth and perhaps lower cash returns and lower dividends. And the sensation is that the company -- the stock price is penalized for that issue, right? I mean the stock has been underperforming pulp prices and perhaps investors have been looking to other names that have higher cash return potential in the short term, right, Walter? So I know that this is a difficult balance.

And we've been advocates of Suzano on the project side, given that these are high-return projects and accretive projects. But I understand that maybe the company is suffering some pressure from shareholders to strike a balance, right, between cash returns and growth. So given the buyback, and I know that nothing is completely out of the blue, right? These things are all connected. I just wanted to understand what exactly is behind the move and a bit more of the thought process behind this. Again, unexpected buyback, which one was really indicating, right, inside the company for the markets, at least over the past months.

Just wanted to hear you more on how you're viewing this balance between buybacks and growth. That's it guys.

Leonardo Grimaldi: Thank you for your question. The first part of it regarding the timing of our announcement. Obviously, we have -- we had already decided the price increase prior to yesterday night.

It was just a question of timing of the announcement, the profile of our customers, the large paper producers in China, we didn't expect that any of them would make any decisions regarding the order intake during Labor Day holiday, so we thought it was, and we spoke to announce price increases before them. So that's how we put together our strategy and our decision and making regarding timing of the announcement. Regarding conditions to implementation, we see market as supportive as it has been up to now from Jan to April, S&D fundamentals are very strong. There's a big supply constraints citing the 2 main factors which are all these unexpected downtimes, which I mentioned just in 4 months already exceed 1.5 million tons. This is absolutely impressive and also the logistics constraints.

It only seems to be getting worse and worse as we speak. Addition to that, in China, our market sources on the ground report that the risks that lockdown are short-lived, as I mentioned in my speech, together with a plan from the governments to stimulus or to reach out for stimulus program has been making our customers be very bullish in a sense that they want to guarantee they're going to have raw material which is once again challenging supply chain and for their third quarter production and sales. Just remembering what we sell in April and May will arrive in China in the third quarter, so they're getting prepared from that. In recent news right after the end of the Labor Day, our office and our market sources again, report a much better sentiment than before the holidays. While the region, which had a little bit of issues with lockdowns in the previous week is now fully operational.

So the lockdowns are completely over in that region as well as the internal logistics scenario has been improving and we see a spike in exports of printing, writing and also paperboard from Chinese producers mainly to the Southeast and Asian markets. So these conditions is making the sentiment on the street to be much better than what has been thought of.

Walter Schalka: Leo, thank you very much. It's a very important question. Thank you to give us the opportunity to tackle one thing that is very sensitive to our shareholders, how we create value to them.

And we believe that we are in the industry that is growing at a much faster pace than any other materials company in the stock market. Then our industry is growing through different dimensions that we are gaining market share on the hardwood. We are expanding our addressable market and gaining market share, what we call fiber-to-fiber to gain market share over long fiber. We are gaining market share comparing other materials, but we go faster to fiber, expanding our addressable markets to replace plastics and other materials. And as we are in a growth industry, we are able to have a very good project to present to the market that is delivering extremely good returns.

Just remembering what we present several times to our investors in the different moments is that this project is going to be the lowest cost -- cash cost on our system. There is the lowest in the world that we are going to be extremely competitive, even more competitive in the near future on a very good project that we are going to deliver to the market in a little bit more than 2 years from now. On the other side, we will understand how important is the cash returns to our shareholders, and we have been improving the cash returns. Now with a higher dividend this year, there's BRL 1.8 billion in dividends. In the other hand, we are -- we have been announced this buyback program, but we have financial discipline as well.

We are very aware that we cannot increase our net debt in the next coming years, then we have to balance everything. I have, I think, our track record in terms of delivering value to our shareholders is very critical. We have the merge with Fibria. We have the Imperatriz project. We had the Três Lagoas project.

The industry is performing value to our shareholders. And we expect that this is going to be more clear in the near future when we are going to show the results after the Cerrado Project. Thank you for the question.

Operator: Mr. Rafael Barcellos with Santander would like to make a question.

Rafael Barcellos: So my first question is about cost. I mean could you please comment a little bit more about your expectations in terms of pulp cash cost in the coming quarters? I mean would it make sense to believe that the worst thing in terms of cost pressure is already behind us? And my second question is related to pulp production. Could you please elaborate further on your production run rate in the second Q? Also, do you believe that the ongoing logistical bottlenecks can significantly affect your pulp sales volumes in the second Q?

Aires Galhardo: Thank you, Rafael. Aires speaking. Regarding cash production costs, our best part was the most challenging quarter represented that because we had 5 important plant shutdowns in our most competitive mills in terms of cash cost.

Then in a normal scenario, we could expect dilution of fixed costs, the surplus in increase line -- and woods costs could be in the same line. But how the commodity scenario is so uncertain in the future, we are considered deliver a flattish level of cash cost to the next quarters. In terms of production, as I mentioned, we have 5 important shutdowns in this last part. It's not simple to have this stoppage in our mills. And normally, we have a learning curve to restart the pace in the operations that we like to have before the stoppage.

And we had some occurrence that you have to start it again, just the maintenance and restart it. But when you consider that the second half, we have only 2 plant shutdowns in our cruise lines, and we believe that we are enough room to recover any considerable loss that we had in the first quarter and deliver the same level of volumes that we had last year.

Leonardo Grimaldi: Let me tag along to Aires' explanation on production and getting to your question, Rafael, regarding how logistics can or will affect Suzano in the second quarter. And we don't see that for some reasons. First of all, we own our terminals in Brazil.

We have dedicated vessels to Suzano and all our production volume is already planned for in terms of how it's going to be delivered to our customers globally. So we do not see any risks of not delivering our volumes, our increased production volumes, as Aires said, to our customers in the second quarter.

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

Caio Ribeiro: So my first question is on fluff markets. I just wanted to see if you could talk a little bit about current supply and demand conditions in this market, which seems very tight with prices continuing to move up and whether you would consider an expansion in capacity here? And then second question, more specific to some of the risks in pulp markets right now, with refill prices dropping in China, seasonally weaker demand in the coming months, the impact of the lockdowns.

I know you already talked a little bit about this, but the impact of the war in Europe as well. I just wanted to hear from you whether you believe that these current prices, which are migrating to $810 per ton, whether you see them as sustainable and if you expect a drop in prices at some point in the coming months or not?

Leonardo Grimaldi: Okay, Caio. So I will -- this is Leo here. I'm going to take both of your questions. First of all, regarding fluff, our Eucafluff is going extremely well.

We have actually been oversold for more than 18 months in a row and been therefore, repositioning our pricing in international markets and in Brazil, much in line with the news that you have been reading globally. And we are very happy with how the product is being received and the quality is being received by our customer bases, global brand owners are already using our product. And that makes us and brings the opportunity to discuss what's next. Up to -- in this stage, our Executive Committee is discussing the next steps for future investments or conversions so that we can later on present to our Board. But again, we're extremely happy how this business has developed, how this innovation has developed itself.

Regarding your second question on the sustainability of current prices. We believe, yes, there is fundamentals for that, huge supply constraints, which we don't think will be solved in the short term. But obviously, there are some factors to be watched looking forward, maybe towards the second half of the year. which is how effectively the Chinese producers will be able to implement price increases on their products and how COVID if short-lived or not will impact demand. Regarding pricing or paper pricing in China, we have seen movements.

We have seen movements, including during the Labor Day holidays, new announcements coming out for tissue prices. Maybe 2 tissue prices at the moment is a way that has been more accelerating in terms of price increases, but we have been seeing a positive trend in most grades or in all grades. And when we analyze the margin of our customers, obviously, we do that very frequently. We come to a conclusion that's a bit different than the one that's usually published by competitors that there is no margin in China. Since our customers, the big customers and place orders far in advance, and there is a delay in the system, as I mentioned, inclusively for the reasons why our prices were and not as we hoped it will be in the first quarter, our customers are still receiving low-cost pulp.

So this means that they still have space and time to be able to implement price increases downstream. And they use this moment to gain market share over smaller customer swaps. We don't have this benefit. So we believe that they will be successful and the implementation is therefore expected to be successful as well.

Operator: The next question comes from Daniel Sasson with Itau BBA.

Daniel Sasson: My first question is on price realization in the pulp business. I know that you mentioned that the recent improvements in pulp prices have not yet reflected in your results. But if you could give us more color on the most important factors that impacted your price realization in the first quarter. I mean if it's purely related to the fact that you maybe had more pulp sales concentrated in a period in which the BRL was stronger or if there is some -- there are some lagging volumes from previous periods in which the prices were not as high as they are right now, that would be pretty interesting. And my second question in regards to the expected impact on supply from the Russia-Ukraine tension, if you could elaborate a bit more on what you expect even if the war is over, I mean, probably sanctions on Russia will not be lifted in the very short term.

So if you could give us more color, more numbers in regards to how dependent on Russian wood is European supply or European pulp production today that would also be helpful from our end.

Leonardo Grimaldi: Okay. Daniel, good morning. This is Leo here. I'm going to answer both of your questions.

The first one regarding pulp price realization in the first quarter. There are two main reasons. And we usually -- obviously, we invoice our customers in U.S. dollar terms. And at the end of the quarter, we calculate the price back to U.S.

dollars for reporting purposes using the average FX of the quarter. This quarter, we had a particular situation that due to our maintenance downtimes and production schedule and the program times of vessels to arrive and to be shipped out of Brazil, we had a bigger concentration or a very big concentration of our invoicing in the third month or in March when FX played a different role, right? The FX was appreciated at the time. Therefore, our price of $639 has distanciated itself from our actual price of $655 when we add our invoice in U.S. dollars. Second issue is related to the timing of the invoicing.

We are facing a situation for our, obviously, direct sales, mainly our sales to Asian markets that today, we have a carryover on invoicing of over -- or a little bit over 30 days. So we are running with this late invoicing. And with our planned production, we did not be able -- we were not able to recoup that. So when we add those two effects, we come into the price that I have just stated before. Now in terms of Russia-Ukraine war, an impact in supply, we see two main factors playing out -- possible factors playing out.

First is related to the sanctions on Russian wood. And there are two optics to look at it. First of all, it's related to certifications. You all know that FSC has canceled certification of Russian wood. So this is an important factor to consider.

And second is the fact that 30% of the wood necessary for the finish, pulp production was coming from Russia. That's a bit over 4 million cubic meters or maybe approximately 1.2 million to 1.5 million tons of pulp production a year. That was birch wood crossing the border and now the finished producers have a challenge to find alternative wood supply to be able to run the operations. We still haven't seen solution playing out on what they're going to do for the upcoming months. And the second issue on Russia that will also affect supply is due to the fact that Russian producers at this moment or at least in the beginning in the short term are facing from what our market sources report difficulties in getting supplies into their mills.

And the issue or the item that we see the greatest restriction are chemicals or bleaching chemicals. So for example, Fastmarkets RISI just reported last week, that it is relevant for the most relevant Russian producer who was a big exporter to China ran April only with 50% offerings of their volume of bleached hardwood pulp and will be not offering at all volumes in May due to a 30-day maintenance downtime. We do not know exactly the reasons. We know -- the reasons are in the news; we know are the ones that's what we read as well. So this obviously will create a big impact to the market.

Daniel Sasson: Perfect. Just to clarify in regards to your -- the carryover of invoicing that you mentioned a bit over 30 days, this is something that is continuing to take place, right? And should, therefore, have an impact on your second Q realized prices as well?

Leonardo Grimaldi: Sorry, I had a problem here with the microphone. Yes, we continue to see that taking place, but it's important to state that, as I mentioned, all our price announcements have been fully reflected on our order intake. So it's a question of just delay in terms of price realization.

Operator: Mr.

Thiago Lofiego would also like to make a question. Thiago Lofiego : First question, Bacci, I believe you mentioned the Cerrado Project CapEx was lower than expected this quarter. Can you comment a bit more on that? Are there any issues regarding suppliers, any bottlenecks at all? And the second question about the domestic paper market in Brazil. So what’s the outlook for the remainder of the year, especially regarding cardboard and premium writing grades?
A –Marcelo Bacci : Thank you, Thiago. No, there’s no issues or delays related to Cerrado.

It’s just the work that we continuously do with the suppliers to postpone payments and to improve our working capital, but no effects coming from the physical side of the project. A –

Fabio Oliveira: Thiago, it’s Fabio here. Thanks for your question. Regarding the paper markets, we continue to see demand strong in the Q2 and moving forward into the second half of the year. As you know, we have seasonality in the paper business, which is stronger demand fees, is usually stronger in the second half of the year.

And this year, we have election, which is usually also a driver for paper print and right on demand. As of board, as you know, last year, first quarter was very strong. So the comparison basis in first quarter last year, it’s not good. The market has shrunk in the first quarter of this year, but still 20% above what we had in 2019 before the pandemic. So it is growing above historical trends.

And we believe that the market for board is going to pick up pace now in the second quarter moving on with the seasonality as well.

Operator: The next question comes from Carlos De Alba with Morgan Stanley. Carlos

De Alba: So first question, maybe continue on the paper side. Clearly, very strong pricing power you have experienced, so could you comment what is the outlook for paper price hikes potentially in the different markets and/or products? And then on pulp, something that makes it quite difficult for us to forecast sometimes the pulp price is the discounts that are embedded in different markets. So we have seen the nominal price increases at a very rapid pace.

Can you comment a little bit about any trend? And I understand that you need to be vague on this, but if you can give us a little bit of color on any trends that we should be aware of regarding the discounts in the different markets.

Fabio Oliveira: So Carlos, thanks for the question. It's Fabio here. On the paper side, regarding prices, we have implemented the prices that we have announced during the last Q4 that were supposed to be implemented in Q1. In Q1, we have announced new price increases that we start implementing now in Q2 here in Brazil for uncoated and also for cut size.

And we have recently announced a price increase for board, a 13% price increase for board, which is also 13% for uncoated and cut size. And for board, we start to implement that as of June. And also, we have announced price increases in all the markets that we serve internationally, in the order of $100 per ton, starting to be implemented as of May. So we continue to see the markets unbalanced, which is in favor of -- due to supply shortage, which is supporting these price increases. And also, as I mentioned in my presentation, we have the impact of inflation, which is impacting the cash cost of paper producers also leading to the need for more price increases.

So we see the market supportive of these price announcements that we have just made. Carlos

De Alba: Just one clarification on the uncoated and cut size increases are also 13% and also to be implemented in June -- starting in June?

Fabio Oliveira: The uncoated and cut size implementation started in April and for paperboard is June.

Leonardo Grimaldi: Okay. Carlos, this is Leo here, jumping into your question on pulp, regarding discounts so that there's a better clarity in terms of net prices. And so first of all, starting with Asia and China.

Our view is that the discounts on the indexes anywhere from 3% to 5%, but on average, 3%, that's what we consider to be a good indication of net prices in the market. And in the rest of the world, meaning excluding Asian markets, we see a consolidated discount of roughly 33%. This is our view on how to better translate to net prices globally. And I'm talking about hardwood, obviously, right?
Carlos

De Alba: Right. Yes, correct.

Okay. And have they been increasing a little bit or relatively stable?

Leonardo Grimaldi: We saw last year an increase of roughly 1%, mainly on the Western world, but stable in the Asian markets.

Operator: The next question comes from Marcio Farid with Goldman Sachs.

Marcio Farid: I have a couple of questions. I'm sorry to go back on the cost discussion again.

Aires, I just wanted to understand from you, what would be the driver of the flattish cost because we see diesel prices in Brazil increased by about 25% in March. Our analysts at least are saying that Petrobras diesel prices in Brazil are still 20% below what it should be if the company decides to increase prices again. So it's obviously a major cost inflation driver. And we saw wood costs being flat in the quarter probably because we produced less or we had to use less further away wood as well. So I would expect that wood costs could go up as well.

But then you are guiding for flattish costs, so which is quite good. So just trying to understand what are the offsetting factors? And my second question, maybe to Walter. Walter, we -- from time to time, we see commodity companies are being very flexible in terms of capital allocation, right, being able to do dividends, buybacks, growth projects, acquisitions. And it sounds like Suzano is doing all of that, obviously, in different magnitude for the different strategies, right? So just wondering how you're seeing the current cycle we are at. I mean are we in that cycle that commodities companies can do -- ever seen? Or is it just -- can we expect the company to continue to do this? Or is it just a punctual and opportunities that you didn't want to miss like the acquisition of Parkia, for example, or the buybacks? Is it punctual? Or is it a new trend in terms of capital allocation strategy?

Aires Galhardo: Thank you, Marcio.

Let's try to explain. For our following quarters, we will increase our volume of production in our best performance mills. In the first quarter, we stopped it. Três Lagoas line 1, Três Lagoas line 2, Imperatriz. That's our mills that we have our best performance in terms of cash cost.

When do we increase the volumes in this mills? The mix of costs will be better in the next quarters. That's the first reason. The second reason with bigger volumes in the following quarters, we will deliver better fixed costs, and we will produce more energy surplus to sell in the open market that will affect in underlying the cash cost. And the third important impact that we had the shutdowns in this mills in the first quarter that will reduce our expense in maintenance for the next quarters. Normally, when we have general shutdowns -- or do we take the opportunity to do a small maintenance that we have a program to the next quarters.

You are correct, the wood have a benefit of our reduction in the average distance from forest to the mills that offsets the impact of diesel. Our current forecast is in the regular scenario that we have until now could see that our cash cost has a possibility of reduction, but we must be prepared to the worst scenario and hope we talk to the best. That's the reason that I say that to remain flattish in terms of cash cost.

Walter Schalka: Marcio, thank you very much for your question. Just remembering that when we merged Suzano and Fibria, at that time, our net debt was $13.7 billion.

We announced the market that our target would be to have $800 per ton as a net debt, as our target that at that time was roughly $10 billion. We are aiming to reach a debt we are getting close. Right now, our net debt, it's at $10.5 billion, very close to the previous quarter. That was $10.4 billion. We believe that now after we are getting development on our Cerrado Project, our target as we announced during the -- our Suzano Day would be a little bit more.

We're a little bit close to $12 billion of net debt since we are going to get close to 15 million tons of total capacity. And we believe that with that, we open possibilities on capital allocation. We have the capital allocation regarding buybacks or higher dividends in the future. And we have the possibility as well to reinvest on projects that we have in the company that could deliver a very good return to our shareholders. I think our track record on investments on retrofitting our facilities or our forest as we are doing right now with our Parkia Project is showing that we can create value to our shareholders.

We are bringing more than 200,000 hectares of land to our system. In addition to that, we are going to avoid the payment of more than $50 million on biological assets at every year. Then I think it's a very positive combination of value creation to our shareholders. Then our possibilities in terms of avenues to invest on the near future and capital allocation are much higher since we reach our net target on that, that we announced the market. With this, I think we can create a possibility of combining higher cash returns to our shareholders and a combination of capital allocation on projects that can create value as well in terms of growth.

Operator: The next question comes from Cadu Schmidt with UBS.

Cadu Schmidt: Two questions on my side. Leo, can you please share some views on Suzano's inventory position? Can we expect production to surpass sales this year considering low inventories at the moment and another massive concentration of downtimes in the second quarter of next year? And my second question to Walter. Walter, can you please comment on the law proposal that would allow private companies the right to have the concession of public forest in Brazil and explore carbon credits from these assets? Is Suzano interested in acquiring any of these concessions assuming that the law is approved? And do you have any initial estimates on the benefits in cost for a transaction like this?

Leonardo Grimaldi: Cadu, so regarding inventory, for obvious reasons, we cannot disclose our forward strategy as it is very linked to our commercial strategy. What I can tell you is that we have been running for several quarters in a row with suboptimum stock levels, inventory levels, which is putting a lot of pressure on all our operations team to be able to maintain the excellence and the reference of service levels that we have to keep our service good.

Walter Schalka: Thank you, Cadu, for your question. We believe that we need to impact all the stakeholders. And when the stakeholders, then we need to impact is the society. And we believe that regeneration, it's part of the solution for the future and our society. We need to address the climate change issue to do it.

We need to reduce our emissions, and we are working on our area to do it at Suzano. We would like to buy all of the other companies and consumers in the world to do it. We need to do it immediately. We cannot postpone that. We cannot procrastinate the situation of higher emissions on setup.

But on the other hand, we need to address the increase our carbon sequestration. And we believe that regeneration is part of the solution. We are engaging our team on these discussions. And we believe that these concessions on the public areas, the degraded public areas to be regenerated for doing part of the solution. We are welcoming the fact that the government is thinking about this situation, and we are incentivizing the government to keep -- and Brazil could be a major player in the world on regeneration of forest.

I think would be very good for the Brazilian economy. It is going to address the social problems that we have in different biomes. And in addition to that, I think it would be very positive as well for the climate crisis change that we are living right now. And I think with that, we are asking your question. Thank you.

Operator: As there are no more questions, I would like to turn the floor over to the company's CEO for final considerations. Please, Mr. Walter Schalka, you may proceed. Walter Schalka : Thank you very much for joining us for the session. I think it's very clear that the Suzano is in the right track to create value and share value with all the stakeholders.

This is part of our culture, part of our aim. We believe that -- and we have a very good track record on delivering value to our shareholders. We would like to show to the society that we can deliver even better value to all the remaining stakeholders. We believe there is -- we are on the right track and the right speed to do it, and we are committed to do it even better. Thank you very much, and let's keep in touch.

Operator: Thank you. Suzano first quarter results conference call is finished. Have a nice day.