- Suzano provided an update today on how they are navigating COVID: They are “preparing for the worst and hoping for the best”. Their update was encouraging, with a strong focus on their employees (health safety and job security guaranteed during the pandemic). All back-office staff (4,000 employees) are now working from home, with the exception of their China offices. Transparency is key and they believe in over communicating during these times and have accordingly engaged with stakeholders across the board.
- In response to COVID, they are prepping for tougher times: With 3 months of risk assessment (forests, industrial and logistics), they have measures in place to protect their business and operations. They have postponed their annual shutdowns; pushing pulp and paper inventories closer to buyers; increasing wood yard inventories as well as other key raw materials (such as chemicals) to avoid supply chain disruptions.
- Pulp exposure positioned well for growth, with few tissue producers integrated: 61% of their pulp is sold into tissue, with 20% to P&W, and 16% into Specialty. Tissue demand has been trending upwards in China, Europe and the US, in line with LT expectations; however, supported by an increase in ST demand (increased consumption at home). Packaging has been positively impacted by
e-Commerce and food delivery, while P&W and Specialties has been negatively impacted with further sharp declines expected in Europe and the US in coming months. Price increase in China of USD 30/t effective 1 April, with prices stable in Europe and North America. - Supply side to see lots of uncertainty ahead: There has been 1mt of unexpected downtime spread across Asia, Europe and North America as high cost mills battle lower pulp prices and the impact of COVID. ST supply could increase as mills delay maintenance and paper producers idling PMs but still producing pulp.
- Less recycling means demand for virgin fibre is increasing: Hardwood has been gaining market share over Softwood and recycled fibre.
- Liquidity, the new war chest to manage this crisis: Liquidity was enhanced during Q1 with a USD 750m roll over; USD 850 raised;
USD 190m 2021 bond was prepaid on 31 March and USD 500m RCF was drawn down (effective 1 April). Suzano have cash on hand of
c. ZAR 2.4bn, enough to cover the next 3 years of maturity. 83% of debt matures from 2023 onwards (debt mainly fixed rate now). Oil prices were also hedged to lock in lower input costs. - Insights ahead of Q1 20e results on 14 May: OpEx and CapEx guidance to be lowered (“major reductions”) as well as the extent of their pulp destocking in Q1 20e (Q4 19A: 650kt & Q3 19A: 450kt).
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