Prepared remarks
Ladies and gentlemen, thank you for holding, and welcome to Suzano's conference call to discuss the results of the second quarter of 2026. We would like to inform that all participants will be in a listen-only mode during the presentation that will be addressed by the CEO, Mr. Beto Abreu. 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 conference over to Mr. Beto Abreu. Please, you may begin your presentation.
Hi, everyone. Thank you for attending our second quarter results call. I want to start with the highlights of the following three points. The first one, we reported solid operational results with strong free cash flow, once again showing resilience of the business even with more volatile geopolitical conditions. The second point that I also would like to highlight is that on July 1, we had the Arbex closing, fully aligned with what we had previously expected in terms of timeline. The governance and the management team is already 100% in place. And now we will focus on the integration and on capturing efficiency gains of this new organization. The third point, I also would like to say that Suzano will keep the focus on reducing the TOD, the total operational disbursements (TOD), and, of course, on deleveraging the business. I also want to take the opportunity to say that today is the last call for Aires Galhardo, our Vice President for Industrial Operations and Engineering.
Aires is leaving a legacy of major achievements at Suzano, and we all want to wish him every success in his next journey. So thank you very much, Aires. On the next call, we will also have Carlos Anibal as the company's Industrial and Engineering Executive Vice President. Carlos has been with us for 23 years already, has previously held the roles of Paper Business Vice President, Commercial Vice President and also Forestry Vice President. So he has experience in many areas of the company, and he has been both a supplier and a customer to the industrial area. So we wish him great success in this new cycle. Very welcome, Carlos. Having said that, I will turn over to Fabio to talk about the paper business.
Thanks, Beto. Good morning, everyone. Please let's turn to the next slide. Our second quarter performance reflects higher sales volumes and prices as well as lower SG&A on a quarter-over-quarter basis. These positive factors were offset by inflationary pressures on wood and oil-related products and logistics as well as a longer-than-expected ramp-up following our annual maintenance downtime at the Pine Bluff mill. Looking at our addressable markets in Brazil, print and write demand according to IBA remained stable in the second quarter compared to the same period of last year. On a quarter-over-quarter basis, the 4% growth was driven by seasonality and higher demand for coated papers, benefiting from increased promotional and communication-related activity ahead of this year's elections. On such context, Suzano's domestic print and write volumes grew 4% on a year-over-year basis and 10% on a quarter-over-quarter basis.
In the export markets, print and write demand declined 4% year-over-year in the U.S. and Europe, according to PPPC. Latin America showed stability, led by an increase in participation of Asian players in the region. Now looking at paperboard, demand in Brazil grew 8% in the second quarter when compared to the same period of last year and grew 11% against the first quarter. We note some customer inventory buildup in the first half of the year ahead of the implementation of paperboard price increases. Against this backdrop, Suzano domestic paperboard volumes grew 11% on a year-over-year basis and 28% on a quarter-over-quarter basis. In the U.S., according to FP&PA's data, SBS shipments grew by 11% year-over-year, albeit at an operating rate around 82%, which is softer year-over-year and stable quarter-over-quarter. Adjusting for recent capacity closure of the Smurfit Westrock La Tuque mill, Clearwater's Cypress Bend capacity reduction and the interruption of operations at the Nippon Dynawave facility, operating rates increased to 90% and should support better market dynamics in the second half of the year.
Our Suzano Packaging sales volumes were quite stable on a quarter-over-quarter and year-over-year basis. Turning to the EBITDA performance, our Brazilian operations improved 28% on a quarter-over-quarter basis with higher volumes and better prices domestically and from our exports despite unfavorable FX. Compared to second quarter 2025, the EBITDA from our Brazilian operations declined 20% due to lower price, export volumes and FX. Suzano Packaging EBITDA was impacted by the scheduled maintenance outage in May and operational instability returning from the outage as well as increased costs due to the ongoing Middle East conflict, especially in oil-related inputs, mainly resins and logistics. Looking ahead to Suzano's paper and packaging business performance, sales volumes from our Brazilian operations tend to improve across both domestic and export markets, given historical seasonality for the quarter.
In the U.S., we started Q3 with a strong order book with improvements in supply and demand dynamics. We remain focused on managing inflationary pressures related to the Middle East conflict, mainly in resin and logistics. Through initiatives already implemented or currently underway, we expect to mitigate most of these impacts going forward. Now I will hand over to Leo, who will be presenting our pulp business results.
Thanks, Fabio, and good morning, everyone. Let me highlight the main developments in our pulp business unit during Q2 2026 and share our outlook ahead. Q2 was marked by different dynamics in pulp markets. In Europe and North America, pulp demand recurrently outperformed expectations, supported by stronger paper production due to war-related effects and inventory replenishments across the value chain as customers aim to get ahead of expected cost increases. These factors led to consistent month-over-month increases in pulp prices during the quarter. In China, the narrowing softwood-hardwood price spread and the high availability of softwood pulp at Chinese ports weighed on purchasing activity from paper producers despite solid paper production, higher wood costs impacted integrated local producers and there was greater clarity around the delayed start-up of the OKI 2 mill. This unfavorable backdrop, driven primarily by softwood dynamics, affected the broader pulp market and led to hardwood pulp price concessions towards quarter end.
Even at lower prices, customer purchasing activity remained subdued in June. At Suzano, our Q2 was marked by constrained production output due to a concentration of planned maintenance downtimes added to our ongoing reduced operating rate as well as an inventory rebuilding towards minimum operation levels required to support our activities as previously discussed. As a result, our sales reached 2.9 million tons during Q2, lower compared to Q2 '25 and slightly above Q1 '26. Higher prices across all markets, combined with the recovery of delayed invoicing to China and Asia drove our average export price to $601 per ton in the quarter. Turning to the right side of the slide, the BRL 4.2 billion in EBITDA with a 48% margin reflected higher prices in U.S. dollar, partially offset by higher cash costs and FX headwinds. Now looking forward, I would like to share our view on the key factors influencing pulp market fundamentals.
Market dynamics in July were quite similar to those observed at the end of the second quarter: healthy demand in Europe and North America, but mounting pressure in Asia for the same reasons pointed out before. As hardwood pulp prices in China approached the mid-USD 500 range, paper producers stepped up buying activity and our July order intake returned to healthy levels. In addition, our market intelligence team indicates that hardwood pulp inventory levels remain well balanced, both at Chinese ports and in the hands of paper producers in China. As we move into August, we see a more constructive environment developing in Asia. Seasonal demand is expected to strengthen. Hardwood pulp prices have moved below the cash cost of a number of Chinese producers and a wider softwood-hardwood price spread enhanced the competitiveness of hardwood grades. Together, these factors should support higher order intake volumes in China and Asia, reinforcing our confidence in a stronger second half of the year.
Furthermore, the prospect of paper price increase announcements in Asia should provide additional tailwind for pulp demand in the coming months. While demand indicators are becoming more constructive, the supply side also presents potential upside risk to market fundamentals. At current CIF China price levels, a meaningful share of global pulp capacity remains under economic pressure. According to a well-known industry consultancy, the updated numbers indicate approximately 17 million tons of softwood and 5 million tons of hardwood capacity are currently operating below cash cost levels at the China prices, representing close to 30% of global market pulp production. Production curtailment announcements have reached the headlines during the past months, mostly in softwood pulp, but still insufficient to rebalance market fundamentals. At the same time, industry profitability continues to be pressured by rising input costs, several of which are linked to ongoing geopolitical tensions.
Still on the pulp supply side of the equation, a stronger El Niño season this year may increase the likelihood of weather-related disruptions in key producing regions with possible implications for wood availability and production costs. Together with the recent forest license revocations in Indonesia, these factors could contribute to a tighter-than-expected supply-and-demand scenario in the short term. To conclude, I would like to reiterate that Suzano's unmatched business platform supported by our best-in-class assets and unique end-to-end logistics capability provide us the agility to respond quickly to any market conditions and capture commercial opportunities. With our inventory levels already aligned with our operational needs, we remain well positioned to navigate the ongoing volatile global environment. With that said, I would now like to invite Aires to share our cash cost performance for the quarter.
Thank you, Leonardo. Good morning, everyone. Cash costs excluding downtimes reached BRL 843 per ton in the second quarter 2026, broadly in line with our guidance. The 5% sequential increase mainly reflects higher input costs, particularly natural gas, caustic soda and chlorine dioxide amid continued pressure from global commodity and energy markets due to the conflict in the Middle East. Wood costs also increased quarter-on-quarter, mostly driven by longer cartages and mill production mix. These effects were partially offset by stronger utilities results, supported by higher export volumes, favorable FX and fixed cost dilution from higher production volumes. The conflict in the Middle East remains a factor affecting our year-over-year cost performance, contributing to higher chemical and energy prices. Wood costs were pressured by higher logistics and harvesting activities, driven by transportation mix, labor and maintenance.
These headwinds were partially offset by the same positive factors discussed in the quarter-over-quarter analysis, namely favorable FX effects and stronger energy sales performance. In addition to the higher energy export volumes, energy price benefited from the excess energy auction related to Ribas mill, which became effective in January 2026. Beyond the information presented on the slide, I would like to provide some additional color on maintenance downtime costs. The BRL 129 per ton this quarter mainly reflects a heavier maintenance schedule during the quarter, extending downtime at the Três Lagoas mill and the remaining impact of the Ribas mill downtime that began in the first quarter of 2026. Looking ahead, the company remains on track to deliver an average 2026 cash cost, excluding downtime, of approximately BRL 800 per ton, in line with its guidance and disclosure assumptions, supported by the gradual cash cost decline in coming quarters. With that, I pass the word to Marcos to continue the presentation.
Thank you, Aires, and good morning, everyone. I'll start on Slide 7, explaining the impact of higher oil prices on our operations and the effectiveness of our hedging strategy. In second quarter 2026, our costs increased by BRL 275 million due to higher oil-related prices. And we had a positive cash impact of nearly BRL 150 million from our hedging portfolios, compensating nearly 60% of the negative impact. Looking ahead, we have 85% of coverage over our hedgeable exposure in the second half of 2026 and 35% in 2027. As a sensitivity, if Brent prices remain at today's level of $87 per barrel, Suzano will receive a positive cash adjustment of BRL 250 million over the upcoming 18 months. Moving to Slide 8. I'll show that our currency portfolio continues to protect our free cash flow. In the second quarter of 2026, we had a positive cash adjustment of BRL 480 million from our FX hedges. Our portfolio of zero-cost collars remains solid at $4.6 billion with an average put option of BRL 6.11 per dollar, covering 57% of our U.S. dollar exposure.
As a sensitivity, if the BRL remains at today's level of BRL 5.19, Suzano will receive more than BRL 4 billion in positive cash adjustments in the upcoming 24 months. Moving to Slide 9. Our positive free cash flow in the quarter contributed to reduce our net debt from $13 billion in first quarter 2026 to $12.8 billion in the second quarter. Our leverage ticked up from 3.3x in first quarter 2026 to 3.4x in the second quarter, mainly explained by the contraction in our last 12-month EBITDA. Following the acquisition of Arbex in the third quarter, we will consolidate 100% of Arbex net debt and only one quarter of EBITDA. But we believe that the correct way of looking at this metric will be to consider the last 12-month EBITDA of Arbex. We remain highly focused on executing our strategy to reduce Suzano's leverage following the conclusion of this transaction. Lastly, we maintain a very healthy cost of debt at 5.1% in U.S. dollars with a comfortable amortization schedule of 76 months with limited amortizations in the short term.
Important to mention that we continued our liability management effort in the second quarter of 2026, and we issued BRL 2.5 billion or $500 million in local instruments with an average tenure of nearly 11 years and a final cost 60 basis points below the Brazilian benchmark rate for the same period. Now I'd like to turn the call to Beto for his final remarks.
Thank you, Marcos. I want to highlight three main points looking forward. The first one is that we're still expecting higher demand in the second semester and then stronger sales. That's the first point. The second one is that we're still confident that we will deliver the guidance regarding the cash costs that we shared with all of you. And the third one is that we are already expecting efficiency gains from the Arbex operation in the second semester since the team is already in place. So having said that, I will open for questions.
Questions and answers
Our first question comes from Caio Ribeiro with Bank of America.
So my first question is on your cash cost guidance for the year, which you kept at BRL 800 per tonne, which points to a drop to levels below BRL 800 per tonne in the second half of the year to achieve that. So I know that you guys are confident in achieving that, but I just wanted to see if you can share some more color on the main components of that cash cost and the variables that should help you deliver that guidance. And if you can give us also some color on the general trends that you're seeing for next year, how sticky some of those cost impacts from the conflict are, that would also be great. And then secondly, a question on leverage, with the company targeting to reach that level below 2.5x debt to EBITDA in 2027 to '28, and you still have to consolidate the net debt from Arbex. Just wanted to see if you can share some color on the pathway towards achieving that level, if you believe at this point that it can be reached solely with free cash flow generation in the period or to what extent you're incorporating divestments as part of that assumption to reach that level, that would also be very helpful.
I'll start, thank you. I'll start with the leverage question. So the bulk of the free cash flow generation will continue to come from our operations. So we expect to generate that from our business. As Beto mentioned, we also expect Arbex to contribute to our deleveraging process as they will be able to generate efficiency gains over the upcoming quarters, namely in 2027 and in 2028. And on top of that, as we started mentioning in our last Suzano Day in December last year, we are also focused on a couple of divestments of noncore assets. We mentioned to you that we will have a strategy of selling land plots in Brazil that will be sold to a higher best use than being only used for planting forestry. And we already started — we started that in the last months and last quarters, and we expect that to also help on the deleveraging process going forward.
Caio, Aires speaking here. For the second semester, there are three main reasons to expect a decrease in our cash cost. First of all, we don't have significant downtimes at our facilities, which will increase our production, improving the dilution of fixed costs. The second one, these downtimes normally impact all the costs in the analysis because normally we bring forward general shutdowns and other maintenance that we have scheduled for the year. And the third most important factor, we expect a reduction of wood consumption, especially because we've fully implemented our deal with Pangeia that we presented at the end of last year. It will take place in a good amount and probably reduce our ratios and our wood consumption in the coming years. There is another important effect, that's energy. Probably in a specific quarter we will have an increase of surplus and it will deliver a better result. For next year, I prefer Carlos be in place to say what you're expecting for the coming year.
Our next question comes from Marcio Farid with Goldman Sachs.
Well, first of all, Aires, I've been following your work since your Fibria times and very well done. Congrats on the great journey on Fibria and then on Suzano. It's been truly remarkable the operational delivery you guys have delivered. So congrats and good luck on the next steps. Yes, I have a couple of questions. The first one on Arbex. I've seen many link updates. Clearly you've been moving fast in terms of putting the team together. And I'm sure by now you probably have an even better idea on what the company and the assets and the markets look like versus when you did the due diligence for the acquisition. So it would be great to hear your updates, early impressions, next steps and your ongoing conviction on the deliveries that can be expected. And secondly, maybe on the paper side, I think Fabio mentioned China imports have been hitting the market. We've been hearing about Chinese and Indonesian imports being more harmful to the Brazilian market as well. So trying to understand if you can see actions being taken by the government in terms of tariffs and how you are positioned for that? And also if you can comment on the U.S. profitability side, that would be great as well.
Marcio, this is Beto. Let me cover the Arbex and then the team here with all the other questions. I think three things that we should highlight on Arbex. The first one is that the team — I'll say the combined team from Suzano and Kimberly-Clark — have been working together during all this period of time, and they have delivered a tremendous job in terms of carve-out and also in terms of writing down all the value gain streams that we had in place. So all the premises that we shared once we announced the deal, we want to confirm that they are still in place. So we are now focused to deliver the premises that we also shared with you. The second thing is that the governance is already working. We have a board already in place with three members from Suzano and two from Kimberly-Clark. They already had a first meeting. They are already working to implement the plan that we have approved. And thirdly, we are very glad about the management team that we were able to put together with people from both companies and also hiring people from outside. So we are confident that we have a very strong team to extract all the efficiencies that we shared with you once we announced the deal. So the team is very confident about what we are able to build with this initiative. Thank you. So let's take the — I'll hand over to Fabio.
It's Fabio here. Marcio, thank you for your question. So let me take the first part about the Chinese imports. Yes, we have seen a big inflow of Chinese imports in the first half of the year. This is mainly given the stronger real for most of the first part of the year, and also lower freights that we saw especially at the beginning of the year. Things have changed a little bit. We have seen some price increases announced by Indonesian and Chinese paper producers. And also, we have seen rising freight costs, mainly with the Middle East conflict. And also the Brazilian real has weakened a little bit. So let's see what happens in the second half of the year with these adjustments. Through IBA, the main players are discussing ways of protecting the domestic industry, looking at our import duties and seeing if we have the right level of import duties in order to protect what we are doing. So we are discussing with the Brazilian government ways of protecting the national industry here.
Your second question regarding U.S. profitability, we have had a difficult second quarter. Part of that was expected because we had a cold maintenance outage, which is the first time that we have done that in Pine Bluff. It's the one where we turn off all the utilities at the mill. And so we had some difficulties bringing the mill back to operations, and that affected our results in the second quarter. And also, we had a delay in pricing protection. We have 80% of our volume under contract and our contracts offer some inflation protection for prices, but there's a lag of three months between when the cost hits us and when we can increase prices to customers. So that second quarter was the lag period where we had higher costs and prices start rising now in the third quarter. We are optimistic about the second half of the year, as I mentioned, there are some things happening in the market.
Our main competitor had a major accident at the mill and is still down, not operating — that's Nippon Dynawave. And we have received a very strong order book for the second half of the year. And so we now need to produce well so that we can capture all these volumes that we have in terms of orders. So we're very positive about the second half of the year. We have no major event in terms of maintenance plan for that period, and we see the mill running much better now in August already. So we're optimistic.
Our next question comes from Rafael Barcellos with Bradesco BBI.
Congrats Anibal for the new position. So first question on pulp markets. Leo, your speech seemed a bit more constructive versus what we have been hearing over the past one or two months. So I just wanted to hear your thoughts on how strong you believe demand will be at the end of August as we approach a stronger demand seasonality. And if you are comfortable to call where we are in hardwood pulp as the bottom? And any other comments that you can provide on the cycle could be interesting as well. And the second question, Beto, on capital allocation. So the company still has some potential investments going forward, like you have the right to increase your share in Lenzing, in Arbex. You also have a buyback program open and you have this priority now to deleverage. So I just wanted to hear your thoughts and your framework here on which areas you should prioritize. I mean, if you can consider any sort of asset sales to accelerate deleveraging and your overall thoughts on how you're going to balance the buybacks, the potential investments in this deleveraging process.
Rafael, good morning. Thank you for your question. Yes, indeed, we are a bit more constructive when it comes to volume allocations. As we know, the second half of the year is seasonally higher than the first half of the year. And during these first weeks of August, all interactions that we are having with our Asian customers and Chinese customers are extremely positive. We expect that August order intake will exceed significantly our average order intake pattern. So we are quite confident of that. And we're also seeing now the first signs of integrated Chinese producers, mainly the higher-cost ones, already coming to the table to start negotiating. So that's always a big indication of higher volumes going forward. Regarding your question about whether we see hardwood pulp reaching the bottom, obviously, we cannot give definitive forward-looking statements, but we are confident as the negotiations have started that at current levels or very close to them, we will see the industry moving in China and in Asia and consecutively in Europe and North America as well. So we are very confident of a strong second half of the year.
Rafael, thank you for your question. To be very straightforward in terms of capital allocation, our priority is deleveraging. So this is where we're going to focus despite rights that we might have on those deals that you mentioned before. And this is also related to buyback. Again, the focus and the main priority of the company is deleveraging, and this is what we're going to focus on. Regarding asset sales, you know that we own nearly one million hectares in terms of land, and we have a small part of that, a very small part of that, that we call higher and best usage of the land that we might divest. Actually, we have already started. But besides that, there's no other important divestment process that we are considering at this time.
Our next question comes from Daniel Sasson with Itaú BBA.
Before we start, I'd also like to thank Aires for all the changes we've had over the years, your constant availability to engage with us. It's really been a privilege to follow your journey across Aracruz, Fibria and Suzano. So best of luck in your next steps. My first question, Marcos, you mentioned that you expect internal free cash flow generation to be the main driver of your deleveraging path over the next few years, followed by opportunistic divestments and so on. At what point do you believe the company can rethink its formal policies so as to maybe send a clear message to the market with regards to shareholder returns, for instance by changing its dividend policy? Because I think the main point of discussion we had with investors last night was the super strong operating free cash flow that we posted this quarter. So once this continues to materialize after the incorporation of Arbex mainly, you're going to start to be asked about capital allocation and so on.
So I'd like to understand how your official policies are entering into this discussion. And then maybe my second question to Leo. If you could expand a little bit more — of course, you can't say whether you are close or not to the bottom of prices for the cycle — but if you could give us more information or more details about what you just said that there are some high-cost integrated Chinese producers maybe considering buying market pulp, what are your estimates in regards to the Chinese pulp production cost depending on if they use domestic wood or if they import wood chips from Vietnam, for instance, because we're seeing wood chip prices increasing across South Asia in general. That would be really helpful.
Daniel, thank you for your question. First, I would say that we continue to be very focused on our strategy. So the first point is we will continue to be 'never satisfied' in terms of how competitive we can be in our operations. So we're always looking for opportunities to improve our efficiency across the value chain, starting from the nursery to the forestry to logistics to commercial and industrial areas. This will be a top priority for us. And this we believe will help and contribute to generate cash to reduce our leverage. Second point, as we mentioned, we will continue to extract value from our recent growth investments that we made. And the most relevant one is Arbex for sure. And we are confident that we will be able to deliver the efficiency gains that we're expecting for that business. Last point, we should look for optionalities that we can have and that we can bring to the table as we have an irreplicable asset base in our hands.
We started with the land plots, as we mentioned, but we could extrapolate that into other businesses that we have. Of course, whenever trying to extract value from our asset base, this could take some time. We mentioned to you before that we have very strong and competitive logistic assets in Brazil that we could extract value from in the future, but this could take more time. So for the short term, we are definitely focused on bringing leverage to the level that we believe is healthy for the company, 2.5x. As we reach that, we will be able to decide on a more aggressive return to shareholders or not. So I would say that the main assumption behind considering a new return to shareholders will be focused on deleveraging the company to 2.5x.
Daniel, this is Leo here. Thanks for your question. I'm going to try to give color on other variables beyond just wood to explain why we see a constructive second half with several potential upsides. First, with our market intelligence team in China and all the work we do, our current estimate of average cash cost for pulp production in China ranges from $535 to $550 per ton, and that's the average Chinese cash cost. Obviously, older mills operate at a higher cash cost and newer mills at a lower cash cost. Prices are very close to these levels and already breaching the cash cost of higher-cost Chinese producers. I'm not even talking about marginal cash cost because that's, in our view, around $630. So we really think that something has to change in the global pulp scenario. It is unsustainable to see an industry operating with 30% of total production underwater. This cannot be sustained for a longer time.
A bigger evidence of that is the amount of unplanned downtimes and closure announcements that we have seen so far. I have always been saying that this is one of the drivers of change. That's not in our forecasting models, but that happened and could happen in cycles like this. Just to exemplify, the unplanned downtimes and closures last year totaled roughly 1.7 million tons, adding softwood and hardwood. What we know up to today and with the recent announcement of Metsä, we are now reaching 2.5 million tons already. And again, that's just until yesterday. So it's a 45% increase in unplanned downtimes and closures up into August — that's almost 1 million tons of product that's now less available to markets, but in my view still insufficient. We still need to see more closures for the market to recover balance. Last but not least, it's important to look at inventory levels at Chinese ports.
They are high indeed, but they are reducing. We see a reduction from peak of roughly 300,000 tons. In our view, that's all softwood inventories being reduced. A few months ago, inventories of softwood represented 65% of what was available at ports based on our market info and teams on the ground. Today, we see maybe a 50-50% split in terms of what is in Chinese stocks, meaning that hardwood is completely in balance. But there's still an overstock in softwood grades, which we believe with the number of closure announcements and expected future announcements under this economic scenario should again reshape and rebalance Chinese inventories and, consequently, the market as well.
Our next question comes from Rodolfo De Angele with JPMorgan.
I have a couple of questions. One is just to Marcos on working capital outlook. Just wanted to hear if you have any visibility on potentially freeing up some working capital to help that process of deleveraging in the second half of the year. The main question I have is for Beto on strategy. When we discuss the investment case for Suzano, one pushback that we constantly receive is, again, because of the past and the fears of potential opportunistic M&A, shifting the focus away from deleveraging and shareholder returns into more investments. So I just wanted to make the question very vocally to you so that we can, for sure, clarify even better how management views M&A as part of the toolkit of potential actions and how you look at it as a whole. That's it for me.
Thank you very much. Thank you for your question. On working capital, definitely we have a very strong focus on improving that line. This is an internal target for the company and it resonates with the 'never satisfied' approach that we have. How can we be more effective and more efficient on our inventories, how can we be more efficient on our CapEx, and so on. So we will continue to look at this line with very close eyes and capture opportunities. However, I would say that there are fluctuations in that line that are frequent across accounts, such as accounts receivable, accounts payable and CapEx timing. So it's very difficult to predict or to forecast anything precisely on that line. But you can bear in mind that this is a strong focus of management at this time.
Rodolfo, thank you for your question. I have been saying that our strategy is very concentrated currently on reshaping the level of competitiveness of our company. We still have a lot to do in that area in the next couple of years. The commercial team has been doing a great job creating new demand through the fiber-to-fiber strategy. The potential of those initiatives is still in place and still growing. And as I said, in the very short term, the next two to three years, deleveraging the business. So there's no M&A in the pipeline at all. This is what we're going to keep focused on, and this is what we want to do. Thank you, Rodolfo, for your question.
Our next question comes from Alfonso Salazar with Scotiabank.
The question that I have tries to put together some of the comments that you have made during the presentation: the fact that China is exporting more, what you mentioned about the situation in China. And we know that consumption in China has been very weak recently, overall consumption, not only paper. But this is something that more people are starting to think is structural, not something cyclical. And at the same time, they are producing more. So I'm wondering if at some point, as you consider what could happen if you start having overcapacity and more supply in China, more exports, what grades and what markets you think could be more exposed? What would be the strategy, especially as you are getting more exposure to new markets through Arbex? So if you can comment on how this situation could unfold or what your thoughts are about what we are seeing today?
So this is Leo here. I'm going to answer your question. But before that, I want to address Daniel's earlier point about wood impact in China. We are seeing today the Chinese industry using roughly 58% to 60% of their fiber needs from local wood in China and roughly 40% to 42% imported. There's been a price increase, as we know, that ranges from $30 to $50 per BDMT since the end of last year. I mentioned earlier that this could be a probable impact related to the revocation of Indonesian licenses and now Indonesia importing wood from Vietnam, which is what's happening. In China, there's also an uplift in prices compared to early last year's prices of roughly $30 per BDMT. We see a lot of short-term volatility very related to the typhoon season. There's a big correlation of wood prices in China and these weather-related events. So every time a typhoon occurs you see peaks. The recurrence of those in a strong El Niño year is higher.
So we see peaks occasionally. But overall, if we consider the lower part of the $30 range increase, we're talking about a $60 per ton increase in the cash cost of Chinese producers. If we consider the upper range of $50, that's a $100 per ton cash cost increase for Chinese integrated pulp producers. That's our view on wood. Now going to Alfonso's question, this is a big dilemma. First of all, I would start by saying what I don't agree with: we don't agree that consumption in China for paper grades is weak. We see in most grades, packaging and tissue, double-digit demand growth in China. So it is not our view that we're seeing a contraction of demand in those grades. Printing and writing grades still grow domestically but at a lower pace and not double digits. So we're not seeing a negative consumption trend in paper grades. There is a positive consumption trend in China, excluding exports and adding imports to that.
But yes, there is overcapacity in the industry. This is not new; it has been ongoing for many years. It's important to say that there are grades that are easier to export, which are more efficient in logistics — printing and writing and packaging grades. And tissue is much harder to export because logistics and the cost of logistics is a key component. So tissue is a product that usually reaches efficiency closer to local production. Risk levels differ among different paper grades in terms of exposure to Chinese exports.
The Q&A section is over. We would like to hand the floor back to Mr. Beto Abreu for his closing remarks.
Thank you very much again for joining our second quarter 2026 results call. I want to thank you, and if there are any further questions, please get in contact with our IR team. We will be keen to answer any further doubts. So thank you very much, and have a good day.
The Suzano S.A. second quarter of 2026 conference call is concluded. The Investor Relations department is available to answer further questions you may have. Thank you, and have a good day.