- Suzano delivered a robust performance: Suzano delivered ahead of promised synergies from the Fibria merger. This coupled with pulp volumes sold up 15% y/y to 10.8mt, helped Suzano print a 50% EBITDA margin.
- FY 20A cash costs drop 9% y/y, with an outlook for stable cash costs: This was mainly due to delivering on synergies (57% of synergies relate to cash cost of production). They managed to significantly reduce wood and fixed costs but offset against BRL Real depreciation vs. the USD of 31%.
- Balance sheet de-gearing to provide further optionality: Net debt/EBITDA declined from 4.9 to 4.3x (aided by non-core asset disposals of c.BRL 1.5bn). Suzano is targeting a 3.0x net debt/EBITDA in FY 21E. Suzano is also “now much more open to new alternatives to new possibilities of value creation”. Further pulp expansions are just a “a matter of time”.
- Q4 20A was an inflection point for the pulp markets: Graphic Paper producers recovered from low operating rates in Q3 with seasonally stronger demand in Europe and the Americas. New P&W and Tissue capacity started-up in China. Tissue demand continued to be solid globally. Speciality and packaging paper continued to see positive structural demand from higher online sales and demand for more sustainable products. The supply side saw planned maintenance but also unexpected curtailments. Supply chain continues to be burdened by shortage of shipping containers. Improved operating rates for Graphic paper producers and DWP have also helped tighten supply.
- Suzano’s pulp inventories in Q4 were at a historical low across their global supply chain: Their sales coverage was the lowest ever (stock on hand at end of December for next three months). In 18 months, Suzano has destocked 2mt and believe it is impossible to destock further but still not providing any guidance on inventory policy or strategy.
- Suzano believes that Paper producer inventories are normal: “Pretty low inventories in the whole supply chain”. In China, some customers are higher than normal on the HW side. Producers have very low stocks and customers low to medium, which in part helps explain the price recovery as seen in Europe, where pulp price increases are already effective in February.
- Substitution still taking place in China: Suzano continues to see a movement from SW to HW, mainly in the tissue segment. When pushed for an outlook for the SW/HW spread, it was noted that this is almost impossible.
- 2021 pulp supply likely also to support pulp prices: They do not expect new supply to reach the market before Q4 21e and might see some surprises from unexpected downtime. Suzano expects c.0.5mt of pulp supply to swing back to DWP. In 2021, Suzano will produce more y/y, but sell less due to low inventories.
- Pulp outlook positive in 2021: Suzano believe the demand outlook is solid and supportive of rising pulp prices in all markets, geographies and all segments. (tissue and packaging are likely to remain the best performers). The supply side is “short and pretty tight”. Container and import congestions could take 3-4 months to clear, but still tough to define when Asian port congestion will be resolved.
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