• Suzano hosted its 2022 Day this week: Key focus areas included sustainability, expanding into new markets; advances in the links of the chain (focussed on textiles; micro fibrillated cellulose, biofuels, and carbon) with a competitive advantage; maintaining relevance in pulp through projects with best-in-class total cost. Suzano provided an optimistic outlook for global hardwood (HW) supply/demand dynamics through to 2026.
  • Based on conservative assumptions, the global HW operating rate is expected to improve: The global HW operating rate is expected to improve from 89.7% in 2021 (average price in China was USD 653/t) to 90.7% in 2026. This is to be driven by organic demand growth and fibre substitution detailed below.
  • BHKP demand is expected to grow by at least 6.7mt unitl 2026 (CAGR: 3.4% p.a.): Growth will be driven by tissue and packaging in all regions (>1.5% p.a.) and to a lesser extent specialties, while P&W will detract from growth in most regions (< -0.5% p.a.).
  • Global tissue industry still provides significant room for increasing BHKP furnish by 1mtpa: Trends to favour HW based on new technology (feedstock flexibility); fibre improvements through R&D (softness and tensile focussed); limited new BSKP supply; limited recovered paper (RCP) availability and cost competitiveness of BHKP vs. BSKP.
  • Packaging industry in China to boost BHKP demand by c.1mt in the next five years: Cartonboard trends are set to favour BHKP demand as new projects are focussed on increasing ivory board capacity (contains up to 35% HW), while duplex board contains less hardwood (<5%). This will be driven by lower availability of RCP; fibre’s tensile improvements through R&D; Packaging premiumization to promote branding strategy and competitiveness BHKP vs. BSKP.
  • BHKP net capacity growth set to increase by 6.9mt between 2021 and 2026 (CAGR: 3.2% p.a.): HW supply is expected to reach 47.5mtpa by 2026 (2021: 40.6t). Main projects include: Bracell Star 2.8mt; Arauco MAPA 1.5mt in Q2 22E, UPM Pasos de los Toros 2.1mt in Q1 23E, Suzano Cerrado 2.55mt in H2 24E. Closures and conversions accounts for 1.3mt (key ones include: Arauco: 290ktpa and Resolute:190ktpa). Supply side risks remain, as historical unplanned HW supply disruptions continue to increase. The historical average is c.0.7mtpa vs. the 2017-2019 average of 1.2mtpa and the 2020-2021 average of 2.0mtpa. Looking forwards, Suzano highlighted that both land and wood shortages are becoming more evident (starting to drive wood costs higher) and this is likely to set a limit on new projects that can announced and come online.
  • Entering a new threshold for hardwood pulp prices: Inflationary pressures on producers’ cost are setting a new threshold for pulp prices. Hawkins Wright expect this to reach USD 570/t for the Chinese HW pulp price by 2023.
  • Cerrado Project, one of the most competitive pulp projects (cost of USD 280/t): In the past 20 years, Suzano has demonstrated a strong track record of project execution. Suzano has added 40% of global hardwood capacity with an average execution period of 30 months in the last ten years, which compares favourably to peers at 40 months. The project is expected to be completed in H2 24E, with a total project cost of R$ 19.3bn. and should lower the group’s cash costs, with further upside from 2027 as the forestry base stabilizes. The group’s energy efficiency will improve, and the energy surplus generation will increase by 64% to 0.23MWh/t.

Other key notables

  • Suzano is advancing its textiles ambitions: The Woodspin JV (Suzano and Spinnova) is becoming a reality. Spinnova market cap is on EUR 462mn, of which Suzano owns 19% (cost EUR 5mn). Spinnova already has the backing from the likes of H&M, Adidas, Bergans, Marimekko and North Face.
  • Suzano’s carbon business is about to be launched: The potential pipeline includes over 30mt of CO2. This is comprised of 7.5mt from the first project submitted and 22.5mt from identified projects with potential under exploration.
  • Increasing global pressures for sustainable consumption: Countries which have announced single-use-plastic bans include Australia, Brazil, Canada, Chile, US, EU, India, Mexico, UK and Taiwan. This accounts for 51% of world consumption of single-use plastics.
  • Advancing in the links of the chain (paper, fluff, packaging, and tissue), always with a competitive advantage: Suzano is targeting expansion into the Brazilian tissue market (Kg per capita 6 compared to 27 in the US). This will be achieved organically or via M&A. Suzano has increased its tissue market share from 0% in 2017 to 11.2% in 2021.

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