管理層發言
Ladies and gentlemen, thank you for holding, and welcome to Suzano's conference call to discuss the results for the first quarter of 2026. This call will be presented in English with simultaneous translation to Portuguese. 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.
Thank you. Thank you, everyone, for attending our first quarter 2026 results. Let me kick off our call highlighting that Suzano's business model has distinct attributes that set it apart in the pulp and paper industry and provide greater resiliency in the current global environment. Our consistent long-term focus and conservative financial management reduce the company's exposure to risks associated with the current geopolitical landscape. For example, in international logistics, Suzano operates under long-term contracts with dedicated vessels. We have more than 50 vessels and 10 of them fully dedicated to our operations, which protects the company against increases in freight rates and ensures reliable services to customers worldwide. Additionally, the company produces critical inputs for its manufacturing process inside the fence, mitigating supply risk and also cost pressures. Finally, to reduce the impact of energy cost pressure linked to higher international oil price, Suzano maintains a hedge portfolio that mitigates its exposure to Brent-related volatility.
During our presentation, Marcos Assumpcao will give you further details about that. Turning to our results. Let me start with the EBITDA of the first quarter. In our view, the numbers reflect a solid performance with volumes above first quarter 2025, given historical seasonality compared with fourth quarter 2025, supported by higher pricing and G&A expenses that fully offset year-over-year inflation. These results are starting to show the management's clear focus on strengthening the company's structural competitiveness. As a highlight, I also would like to share with you that we are currently running our operation with 10% fewer head count when compared with a year ago. So besides that, cash production cost delivery in the first quarter of 2026 was 100% aligned with our operational plan and also aligned with what we mentioned in the previous call. So despite cost pressures arising from the current geopolitical environment and based on the visibility we have today, we continue to expect our average cash cost in 2026 to be below 2025 levels.
Let me move to free cash flow. The free cash flow in the first quarter of 2026 reflects specific cash flow items in the quarter, as we know: dividend payments, also the timing of interest payments under our debt schedule and also a one-off CapEx related to the wood swap with Eldorado last year. Therefore, our capital allocation priority remains focused on further strengthening Suzano's capital structure with a clear emphasis on reducing net debt. And before handing the call to Fabio, I also would like to note that we are encouraged by the efficiency gains already mapped in our JV with Kimberly-Clark, which reinforce our expectation of value creation going forward and confirm the quality of the capital allocation decision underlying this partnership. Having said that, let me hand over to Fabio, who will cover the paper and packaging business.
Thanks, Beto. Good morning, everyone. Looking at our markets in Brazil, paper-wide demand according to IBA increased by 3% in the first two months of the first quarter compared to the same period of last year, led by stronger coated paper demand and higher volumes of imported uncoated wood-free. International markets continued to face a challenging environment with weaker demand and excess capacity for papers. According to PPPC, demand in mature markets declined by approximately 7%. In contrast, Latin America posted demand growth of 5% year-over-year. However, prices remain under pressure, giving very low prices to Asian producers across major markets. In paperboard, Brazilian demand grew 6% in the first two months of the first quarter when compared to the same period of last year, supported by improved economic activity. In the U.S., AF&PA data shows that SPS shipments and production were broadly stable year-over-year, albeit at a lower operating rate around 82%.
Production of liquid packaging board grades dropped 20% year-over-year, reflecting softer end consumer demand and inventory reduction by packaging converters during the quarter. In this context, during the first quarter, we experienced different dynamics across our Brazil and U.S. operations. While all Brazil operations delivered stable volumes when compared to first quarter 2025, we have seen lower volumes from Suzano Packaging as a result of lower demand and LPB inventory reduction at the converters' end. Turning to price performance. In Q1 2026, we continued to see sequential improvements at Suzano Packaging on a dollar basis, while our prices in our Brazilian operations suffered from lower export prices and FX impacts. Our export prices were further affected by reduced shipments to the U.S. market, which used to be one of our strongest combinations of prices and volumes abroad prior to the imposition of tariffs.
At the EBITDA level, the 8% year-over-year decline was mainly driven by lower export prices from Brazil together with FX appreciation. Meanwhile, Suzano Packaging EBITDA delivered a strong EBITDA increase of 167% year-over-year, reflecting our turnaround effects. I would like to highlight the cost improvements achieved in our Brazilian operations, which delivered an 8% lower COGS per tonne on a year-over-year basis and a 6% reduction quarter-over-quarter. These gains were driven by lower cash costs across all mills and lower logistics costs, supported by our continuous focus on operational excellence. At Suzano Packaging, costs in the first quarter were impacted by higher natural gas consumption and prices during the severe winter storm in major parts of the United States at the end of January. Total weather-related costs were estimated around $5 million. Looking ahead to the performance of Suzano's Paper and Packaging business, sales volumes and prices from our Brazilian and U.S. operations will improve in Q2, following the usual seasonality and with the implementation of price increases and the pass-through of cost indexes in our U.S. contracts.
Market conditions are expected to lead paper producers to increase prices since higher raw materials, energy and logistics costs are expected to hit paper producers hard as a result of the ongoing conflict in the Middle East. We expect our industrial cash costs from our Brazilian operations to be stable in Q2 versus Q1, while logistics costs should trend slightly higher with increased diesel prices and container rates. At Suzano Packaging, our annual maintenance is scheduled for early May, which will temporarily impact production costs in the quarter, in line with our business plan. We don't expect any sales impact from the annual maintenance shutdown and we are fully committed to delivering full year results for Suzano Packaging better than what we did last year. Now I will hand it over to Leo, who will present our Pulp business results.
Thanks, Fabio. Good morning, everyone. Let's now turn to our Pulp business unit, where I'd like to share with you the highlights of the first quarter of 2026 as well as my view for the upcoming months. This past quarter was marked by more balanced market fundamentals as a consequence of healthy paper production in key markets and supply side events reducing short-term availability of hardwood pulp. In China, paper and board production according to SCI posted a 15% increase compared to Q1 '25, with growth across all paper segments and January and March production levels in line with the highest and record production months of 2025. Recent supply side developments, notably pulp production curtailments in Indonesia following the revocation of forestry licenses and greater clarity on the delay of APP's OQ 2 project start-up to year-end, meaning that no new market pulp volume will reach the market in 2026.
This all has supported hardwood pulp price increases during the quarter to all markets with strong order intake levels and slightly above our forecast, resulting in continued delivery backlogs, particularly for Asian markets, including China. In this context, Suzano sold 2.84 million tonnes of pulp in Q1 '26, representing almost 200,000 tonnes increase compared to Q1 '25, which was fully consistent with our sales plan designed according to market seasonality. Pulp production volumes during the quarter came in below budgeted levels due to some non-recurrent events during planned maintenance and the ramp-up following the scheduled downtimes. As a result, we were unable to rebuild inventories throughout the quarter and our inventory levels ended Q1 '26 quite low and flattish like year-end 2025. Our industrial teams are fully committed to gradually recover these lost volumes, mostly in the second half of this year as demand picks up towards year-end.
With the unfolding of the Iran war affecting logistics to key markets where we have important customers, our unique and irreplaceable logistics, as Beto has said, enabled us to keep delivering pulp to our customers in the region, being able to surpass any eventual additional war-related surcharges to ensure pulp supply chain continuity. Now looking to the right side of our slide, the BRL 4.1 billion in EBITDA was a result on a year-over-year basis of higher volumes, lower costs and better prices in U.S. dollar terms, however, facing a toll from FX appreciation during the period. Compared to the previous quarter, EBITDA declined despite higher pulp prices in U.S. dollars, primarily due to seasonality, a stronger Brazilian real and a more intensive maintenance schedule. Now looking ahead, I would like to highlight a few key points. The conflict involving the Iran war has unfolded so far and has wide implications across regions and markets.
In Europe and North America, demand has exceeded our expectations with paper producers increasing their operating rates to capture temporary market opportunities amid reduced competition or longer and more expensive logistics affecting prices as well as a surge in these markets to build up finished goods inventory on the whole value chain. This dynamic has led us to announce a new round of price increases for May, specifically directed to Europe and North America. The war has also been affecting cost structures of different pulp players in different regions as energy matrices vary, while also raising imported wood delivery costs to key markets and impacting logistic costs and flows. Overall, supply and demand dynamics have diverged meaningfully between hardwood and softwood grades. Hardwood pulp fundamentals remain quite balanced and healthy, a backdrop that contrasts with the current situation faced by softwood producers.
In softwood, we continue to observe high inventory levels in China, which combined with declining prices throughout the past months, result in an increasingly unsustainable environment in our view. According to a recently updated report from an industry consultant, roughly 11 million tonnes of softwood, which is equivalent to 40% of global softwood capacity, is currently operating at a loss. Again, 40% of total softwood production is currently operating at a loss. And the situation is further aggravated by higher war-related cost pressures still to impact their cost structures. These dynamics point to a higher likelihood of commercial downtimes or permanent closures of softwood mills, especially in the Northern Hemisphere, while also incentivizing projects of de-verticalization of integrated pulp and paper producers in the western part of the world as we have been stating before. The ongoing convergence of hardwood and softwood pricing with different dynamics in Western and Eastern markets has increasingly shaped recent discussions with our customers as softwood market imbalances intensify competitive pressure.
Our commercial strategy is structurally focused on maximizing our sales, also taking into account seasonality and regional dynamics, while reinforcing fiber substitution and expanding the addressable market for hardwood. Fostering fiber-to-fiber substitution and increasing the addressable market for hardwood is totally key for us. Looking specifically into Suzano's Q2 2026 sales volumes performance compared with Q2 '25, our production output will be constrained by previously announced planned maintenance downtimes at major pulp lines such as Três Lagoas 1 and 2, Mucuri 1 and 2 and Jacareí as well as by the lower operating rates at some of our mills, resulting in almost 300,000 tonnes of production reduction year-over-year. In addition, some inventory rebuild will definitely occur in Q2 '26 as we were unable to increase inventory levels in Q1. We plan to keep this rebuild to the minimum possible levels.
However, it is critical to ensure our high service level standards to our global customer base as well as operational efficiency. To conclude, I would like to reinforce that Suzano's unmatched business platform, supported by our best-in-class assets and the unique logistics structure provide us agility and resilience across our supply chain. This enables us to respond quickly to changing market conditions, capture commercial opportunities and consistently maximize value, even in an increasingly volatile and uncertain global environment. We are very well prepared to navigate these rougher seas. With that said, I would like to invite Aires to address our cash cost performance during this past quarter.
Thank you, Leo. Good morning, everyone. Turning to cash costs in the first quarter '26. Excluding stoppage, it reached BRL 802 per tonne, up 3% quarter-on-quarter. The increase was mainly driven by temporary operational factors, including higher input consumption, especially auxiliary materials, reflecting the scheduled replacement calendar associated with planned shutdowns. In addition, purchased energy costs were higher due to a nonrecurring event at mills. We also saw temporary pressure from wood costs, driven by higher specific consumption as well as a lower fixed cost dilution following the reduction of production volumes in the quarter. These effects were partially offset by a lower input price and by the 3% average depreciation of the U.S. dollar versus the real, which reduced costs in local currency for items such as caustic soda and natural gas. Finally, energy sales performance improved, supported by a higher average price and the start of volumes contracted in the auction for surplus energy from the Ribas do Rio power mill.
Importantly, there was no impact from the Middle East conflict on our cash cost in the first quarter '26. Year-over-year, cash cost excluding stoppage decreased 7% in the first quarter '26, driven by a combination of several factors. The main driver was the 10% average depreciation of the U.S. dollar against the Brazilian real, which reduced the cost of key dollar-linked inputs, particularly caustic soda, natural gas and chlorine dioxide. We also benefited from the lower wood costs, reflecting a shorter average distance from forest to the mill, lower diesel prices in the harvest and transportation and a favorable mix effect related to wood sourcing and new allocation. In addition, input prices excluding FX came down, especially caustic soda and natural gas, while fixed costs were also lower following reduced spending on labor and services. Finally, energy sales delivered a strong result, supported by a higher average energy price, including a contribution from the previously mentioned energy option.
Looking ahead to the second quarter '26, our initial expectation was for cash costs to be close to the first quarter '26, reflecting the high intensity of scheduled maintenance shutdowns according to our operation plan for the year. However, we now anticipate some pressure on cash cost in the quarter related to the impacts from the Middle East conflict, particularly through energy and other input markets. As a result, our current expectation is for our cash cost in the second quarter '26 to increase by a low single digit versus first quarter '26. This headwind is partially mitigated by our Brent hedge portfolio, which our CFO will now address in more detail. But first, additionally, even with this conflict scenario, based on our assumptions that we have today, we expect to close 2026 with average cash cost lower than compared to 2025, even on a nominal basis. Again, as a disclaimer, this forecast is based on the assumptions for Brent at $85 per barrel for the year ahead and inputs that we have today. Marcos, the floor is yours.
Thank you, Aires, and good morning, everyone. I'll start my presentation explaining Suzano's exposure related to oil and also detailing our hedge portfolio, which offers us a clear competitive advantage in the current volatile environment. On the left part of the slide, we show a sensitivity to the variation of Brent prices, assuming a full pass-through of all the impact of Brent to local prices, which has not occurred yet. In that case, for every $1 per barrel increase in Brent, our EBITDA will decline by BRL 47 million. However, our current net cash impact of the event of $1 per barrel increase in Brent prices is only BRL 12 million, less than 25% of the full impact that we showed in this table. The diminished impact is explained mainly by long-term diesel contracts, which have not been impacted by higher oil prices yet, and most importantly by our portfolio of hedges on oil that we built over the past two years, which will likely compensate higher costs with positive derivatives and financial results.
Moving to the right part of the slide, we show our current portfolio of oil hedges due to our exposure to shipping costs and also natural gas prices. We also use zero-cost collars for our hedges. In this case, we buy call options and we sell put options with the same premium. Our current portfolio ranges between $57 to $69 per barrel on average, which means that our cost of oil for the hedges that we made is capped at $69 per barrel. Of course, we gave away the possibility of having lower-than-$57 per barrel cost as we did the zero-cost collar. We are nearly 90% covered for our 2026 exposure. And as we made in the sensitivity, if Brent prices stay at $104 per barrel, which was the level that we closed by the end of first quarter 2026, we will receive a cash adjustment of BRL 810 million over the upcoming two years. In the first quarter of 2026, we already benefited from our hedges and we had a positive cash impact of BRL 48 million in our results due to our oil hedges.
Moving to the next slide. I'd also like to reinforce our FX hedge portfolio, which is already offsetting the impact of BRL appreciation. As you can see, our current portfolio stays at $5.6 billion, which means more than 60% of our FX exposure with an average put option of $5.97 and a call option of $6.90. And in the chart on the right, we show our full portfolio and also the expected cash impact if the currency remains at 5.22, which was the same level that we closed the first quarter of 2026. So if that was the case, we will receive more than BRL 4 billion in positive cash adjustments over the upcoming quarters as well. Moving to the next slide. On the top part of the slide, we can see that our net debt increased slightly to $13 billion in this quarter, mainly impacted by the dividend payment in the beginning of the year, also higher CapEx payouts and a concentration of interest payments in the period.
Our leverage remained relatively stable at 3.3x when measured in U.S. dollars. Regarding our amortization schedule, we continue to have a healthy average maturity of more than six years, while we maintain our average cost at 5%, which is also a clear competitive advantage for the company. I would also like to highlight that following the end of the quarter in April, we concluded two other very important transactions in the local market. We issued a CPR of BRL 2.5 billion, nearly $500 million, with an average term of 11 years, and we swapped that into CDI and we stayed at 96% of all-in swapped cost of CDI. So a very, very competitive instrument. We were also able to issue an additional BRL 180 million in incentivized debentures with a 15-year average maturity and with even more competitive costs. So now, I would like to hand it over to Beto for his final remarks.
Thank you very much, Marcos. I think the summary of what you just said is that we should have a unique hedging portfolio for FX and Brent in the industry. I would say at least one of the most robust hedging portfolios to face the current business environment. I think this is the first thing. The second one, going back to Fabio's presentation, let me highlight one of his points, which is he is expecting sales and pricing in the U.S. and Brazil improving already in Q2. On the pulp cost, we, as we mentioned, continue to improve. Our performance is showing the commitment of this management on this line of our business, not only on cash costs, but many other line items of cost. On the JV, as I mentioned, we are moving fast and the closing is estimated to be in the third quarter of 2026, 100% aligned with what we planned. This management will keep the focus on strengthening our balance sheet, competitiveness and also reducing our net debt. Having said that, we will open for questions. Thank you very much.
分析師問答
Our first question comes from Daniel Sasson with Itaú BBA.
My first question for Leo. Since the last call, the price drivers seem broadly unchanged, Leo. I'd like to know if you agree with that: restrictions in Indonesia, reasonably healthy Chinese demand, still somewhat tight supply. But the announced price hikes have been harder to implement, right? I'd like to know if that's also your view. So digging deeper into that, what explains the main increase being focused on Europe rather than in China? How do you see the continuation of land revocations in Indonesia, the impact on cost in China? So if you could give us some color on that, it would be great. And my second question is actually more of a follow-up on your initial speech. You haven't been able to replenish inventory levels because of the maintenance stoppages you mentioned. You also mentioned logistic challenges in the quarter. Can you please elaborate a bit more? Did the logistic challenges translate into lower revenues in the first quarter that were pushed to the second quarter? Or did you have any one-offs in terms of production that didn't allow you to replenish inventories as quickly as you thought you would? Those would be my questions.
Daniel, this is Leo here. On the first one, you are correct. The price drivers that I mentioned in the last call related to hardwood are unchanged. We still see positive demand and actually a positive surprise coming from Europe and U.S. tissue, where we see even stronger demand than we had originally forecast. And on the supply side of the equation, again, you are correct. The factors that we have pointed out are confirmed or even further confirmed, being the revocation of forestry licenses in Indonesia affecting market pulp production and availability in Q1 and also the postponement now very clear of OQ 2 to year-end and maybe even the beginning of 2027. So that is really unchanged. Regarding implementation of price hikes, I think we have to separate the world in two. We have Eastern markets and we have Western markets. Eastern markets, our prices have been increasing continuously since mid last year, while softwood prices have been declining continuously since mid last year.
And now this price difference has reached a point where all our negotiations are much harder with our customers if we want to sustain this fiber-to-fiber agenda, which, as I have mentioned in my speech, is a priority to us. So at this time, in Asia, we are being cautious. We are waiting. We understand that something has to happen in softwood. As I mentioned, 40% of the global softwood production is losing money as we speak. And we are not in a position to make moves that will jeopardize our overall strategy of supporting a much bigger market and an addressable market for hardwood, not only in the short term, but mid and long term. In Western markets, different than that, still the price gap between fibers allows us to keep increasing our prices, and that's why I can confirm to you that we have managed to implement the full $50 increase in all Western markets as we had announced. And now we are getting prepared for this new implementation of the recently announced $50 for May.
So different market conditions depending not only on regional demand, but also on how we are positioned versus softwood pulp with the strategy of maintaining this fiber-to-fiber agenda. Our lower sales in Q1 is not related to logistics impact. It's really related to our plan. We had a very strong Q4 last year and our customer base has a seasonality where we have a lower Q1 traditionally versus Q4 of the previous year. Despite that, we were able to sell 200,000 tonnes above Q1 2025. So in terms of our plan, we were completely aligned with our sales plan, but some one-off events in the maintenance downtimes and their ramp-ups, as I have mentioned, did not allow us to make this replenishment of inventories, which was our original plan. I have also confirmed in my speech that Aires and his team are fully devoted and aligned to recover this production, mainly in the second half of the year, which is actually good for us because that's when we have demand pickup.
So that would be a perfect match for us as well. That all said, we will have to do some inventory replenishment in Q2 2026. We're going to try to keep it to minimum possible levels, not to affect our overall figures, but it is necessary and we have to do it now.
Our next question comes from Marcio Farid with Goldman Sachs.
Well, I think we spoke last time in China and you mentioned the plan to try and create a business outside of China and especially with the integrated mills pushing for a potential disintegration as well. It caught our attention. It seems like there is potential there. Just wanted to understand what is the latest there? And if you have any updates and more details you can disclose to us? And maybe second question to Beto. Beto, obviously, share price performance has been a disappointment. We look at the last—whatever window you want to look, one year, year-to-date, five years, share price is basically below where—even before Cerrado startup, which was a $5 billion investment, right? And we speak to investors. Obviously, capital allocation and the leverage levels are two main points of attention. Obviously, the sector has derated with all the structural change that we have been observing as well. But I wanted to hear from you and from management, from the Board side, is there a level of discomfort with the recent trend? And if there is anything that can be done or you think it's a matter of market understanding that Suzano's strategy might take longer to be reflected on share price and on investors' perception to what value generation is. And I think it's inevitable that we discuss that given the recent trends. It would be great to hear from you.
This is Leo here. I would just, to answer your question, do a step back so that we have all stakeholders aligned in terms of what we talked about in China. Suzano's strategy in leading the fiber-to-fiber agenda consists in two very clear avenues. The first one is fiber substitution itself throughout education projects, refining pilot plants and then applying our knowledge in our customers' machines and mills to be able to substitute not only softwood grades, but also other kinds of fibers like mixed hardwood or bamboo or any other alternative fiber as well. And that's one of the avenues. But the second avenue is a very important one, a bit more complex in terms of timing, which is how to de-verticalize integrated pulp-to-paper producers. We all know that globally now we are reaching almost 120 million tonnes of pulp-to-paper or packaging verticalized producers. A big part of that is in Western markets and a big part of that are old mills, very old mills or old mills which are being pressured for quite a while now in terms of their cost structures and pulp production, and I would say that even further pressured now with war-related cost pressure.
So this is a key part of our strategy. We have been engaging with several of these players, very well known in their markets. The idea is to, together with them, discuss an alternative route where they are becoming more asset-light, shutting down their pulp production and Suzano being able to virtually integrate with them as their solution in terms of pulp supply, making them more competitive in this challenging environment. Projects are ongoing. These are longer maturity projects than the first avenue of fiber-to-fiber. We are in the imminence of confirming the first project, and we are going to give full visibility, obviously, when that happens because I personally believe that this case will show not only to the customers that we have already engaged with, but several others that there is a possibility—there is an alternative to verticalization, which is happening in Asia.
A couple of things regarding your question. The first one, of course, the management is not comfortable with the share price. I think there's a couple of things related to that. Firstly, we don't think it's aligned with the robustness of the business. That's the first thing. There is not a single reason, of course. For sure, the FX situation and geopolitical moment are factors that affect. We see here in the management when we look at the base that we have in terms of assets, in terms of asset portfolio, in terms of logistics, in terms of the trend of our cost. Let's look to the trend and how we see this in the mid- to long-term, not only about cash costs, but also all the other lines of cost. We see a very robust and resilient business to face the moment. And in the mid- to long-term, we see a positive trend for the business despite the current situation. But based on that, regarding capital allocation, of course, in those moments, despite our focus on deleveraging the business that I have been saying and also reducing our net debt, buybacks are always an alternative.
And in a moment like that, of course, we are analyzing that possibility since it's reaching a level that we have to consider this kind of alternative. But we also must take into account our track record on capital allocation. This is the way that we should be moving with discipline and concentrating again on the elements that I just mentioned and extracting value from the investments that we made. Having said that, I do not foresee, just to clarify, any kind of movement that can impact our cash in the coming years. So again, we will remain very disciplined and maintain the track record that we have been showing on capital allocation.
Maybe a quick follow-up to Leo. Leo, you mentioned you want to replace inventories. In our calculation, you should have been losing about 160,000 tonnes of production from capacity, already considering the 400,000 tonnes that you lost. But by the numbers reported, it seems like you've lost 400,000 tonnes and you have not recovered any inventories, which might suggest that the downtimes were much longer than expected. And you're talking about replacing inventories on even more aggressive downtime in the second quarter, which means sales are going to be even weaker. Is that the right way to think about it? Was the downtime more aggressive than expected in the first quarter?
Marcio, thanks for your analysis and question. But unfortunately, we do not disclose our production figures nor our inventory figures for the past quarter and also not looking and going forward. What I can tell you is that despite the maintenance—concentrated maintenance downtime seasons that we have now even further in Q2 '26, which we had zero, by the way, in Q2 '25, and the need to reestablish inventories, and we will push that to the minimum possible levels. The sales output in Q2 tends to be above what we performed in Q1 2026. And again, this is not a guidance. It's just to show the trend that we are seeing here at Suzano. And obviously, due to the implementation of the price increase rounds that I have mentioned previously in our backlogs, we see much better pricing in Q2 compared to Q1 2026, all this in U.S. dollar terms, obviously.
Our next question comes from Rafael Barcellos with Bradesco BBI.
Beto, Marcos, in recent months, you announced the buyback program, right? I understand that the company is now running with a leverage level which is above where you feel comfortable. And other than that, you have the Kimberly-Clark disbursements in the third quarter. But when do you think that you'll be ready to start accelerating the execution of the program? I mean you just discussed how low the shares are at the moment and so on. So I just wanted to understand, when do you believe you'll be ready to accelerate the program? And that said, are there any sort of asset sales that you could use to accelerate the deleveraging process? And ultimately, just going back to the dividend policy question, if you see any room for a discussion of a more robust dividend policy in the company. And then my second question—sorry for one more question on pulp markets. Last quarter marked a big change in your tone about pulp markets, right? You were clearly much more positive versus the previous quarters. Wrapping up everything that you just said here in the call, I mean you mentioned that western markets are going up, prices are going up. Eastern markets then you've seen more challenges, but you're still not seeing any sort of downward pressure on prices in Eastern markets, right? So I just wanted to wrap up your views.
Marcos here. Regarding buybacks, I think Beto already mentioned we are analyzing it. For sure, it's an interesting capital allocation for the company. We always look at that considering our leverage levels, but we also consider the valuation levels of the company as well. We would like to highlight and reemphasize that we continue to be one of the companies in our sector with the highest free cash flow yields at nearly 14%, as we included in our report. We also look at our valuation levels. We're trading well below our historical valuation levels. So definitely, this is an option for us. Regarding dividends, we would rather have a lower and more normalized leverage level before changing our dividend policy. But we see room in the future as we deleverage to improve dividend payout. But that's not being discussed at the moment.
Okay. Rafa, this is Leo here. First, you really don't need to be sorry for sending us questions. We are well prepared, and you guys can keep coming and keep sending us the pulp questions at all means. I think, Rafa, that the big change compared to our last quarter's call is really the trend that's going on in softwood, which has been deteriorating further than what we had already been seeing three months ago. It's impressive to say, as I have mentioned in my speech, that 40% of the softwood pulp producers today have cash costs above current market prices. So this is a big change to the model. And as we want to be supportive to the fiber-to-fiber strategy, as I mentioned, this changes a bit our short-term tactic in order to navigate, especially in China. Because in Europe, the situation and also in the U.S. is different, as I have mentioned. But just a quick sum up then as you asked. The big change compared to our last quarter's call is the deterioration in softwood, which is creating a headwind to our pricing strategy, especially in China and Asia.
In China, we are cautious to be able to support our commercial strategy and keep pushing the fiber-to-fiber agenda. In western markets, we have somewhat stronger demand than expected. Market dynamics have been changing quickly and now further challenged by the Iran war. But I am really confident that we at Suzano are in the best position to navigate any scenario ahead of us.
Okay. Just a quick follow-up, Marcos. Would you consider any sort of asset sales to accelerate the deleveraging process?
Yes, we are analyzing, as we mentioned even in our Suzano Day last year, a couple of divestitures, mainly for noncore assets. I would say that land plots that could be monetized by square meter, not by hectares, for example, is a first option for us. So the highest and best use for our land. This is one of the things that we have been considering. But there could be other options as well that we have been analyzing in order to reduce our leverage even quicker.
Our next question comes from Leo Correa with BTG.
So a couple of pending more numerical questions for me. First, reverting back to the cost discussion, Aires, you talked about a bit of guidance for the second quarter, which is an increase mid-single digits vis-à-vis the first quarter, which is probably going to put things above BRL 900 per tonne pulp cash cost. I remember some months ago that you guys gave indications of cash cost levels for 2026 of about BRL 800. And since then, of course, a lot has changed. I think as Marcos explained, the hedges have been working very well and very well executed. So clearly a lot of protection there. But still many moving parts. And of course, the base is very high. My question is, can that indication of BRL 800 still be maintained? Or would you say the numbers for 2026 are up for discussion and probably higher levels? Second question: the CapEx at Suzano specifically has been an issue for investors over many years. The still high number and above maintenance levels. The BRL 3 billion here is above, let's say, the guidance for the year of BRL 10.9 billion. So I can assume the guidance is still maintained and that the levels going forward will drop and things will normalize. I just wanted to double check on that.
Leo, this is Beto. Let me take the second question, and then I will hand over to Aires. Very simple. I just want to mention that the CapEx guidance is completely maintained. So there's no change on that. And by the way, we also, as I mentioned before, see a trend of lower CapEx in the next coming years. So this is absolutely aligned with our plan, okay? On the cash cost for the second quarter, let me hand over to Aires.
First of all, I said that it's low to mid single digits to the second quarter ex downtimes. That was in my speech. And we remain focused on keeping our cash cost close to BRL 800 per tonne ex downtimes for the full year. As I mentioned, our assumptions at this moment for cash cost are linked to Brent at $85 per barrel for the year ahead. And that's important. Note that our hedges don't enter in this line in our cash cost; they come in other lines that Marcos presented. Then I am considering here this level of $85 per Brent. If Brent is higher, it could impact cash costs negatively.
Our next question comes from Caio Greiner with UBS.
Leo, just going back to the point on the current pulp backdrop and more specifically about the China and western markets divergence. I wanted to explore a little bit more of the weakness in China specifically because I think it's a little bit hard to understand considering that we're seeing strong levels of paper demand, we're seeing wood chip prices on the rise. I think the only point that I caught from your speech that was the main source of weakness was the war impact. Is that right? Is that the main point as to why you're seeing such weakness in China? So in other words, if we were to see the war end shortly, would we be able to see pulp go back up? And then specifically on softwood, again, why do you think that we're seeing such weakness on softwood markets versus hardwood, specifically in China, again considering that we're even seeing cost inflation, pine wood chip prices on the rise?
I think maybe something a little bit more specific to China would be really helpful to us. And then the second point on wood chips. Not only pine chips, but wood chip prices in general have been on the rise, already $30 to $40 per tonne higher versus 2025 lows. We understand the slightly tighter operating environment in China with some capacity restarts, new capacity starting up, lower exports out of Indonesia. So I wanted you to explore two points here on wood chip markets for us. How do you see this backdrop impacting pulp fundamentals and prices going forward? And if you see this upward trend as something more structural or more of a short-term impact?
Okay, Caio. Leo here. I'm going to answer both questions. First, regarding China and what's going on there. You're right, demand is positive. Paper production has been performing very well, as I mentioned, 15% over Q1 2025. Domestic consumption is good. Exports have actually even been increasing as well. So all these KPIs related to paper production and consequently pulp demand are positive. Now I will split the answer in two, analyzing hardwood and then softwood. On hardwood, we have balanced inventories even trending a bit low. We are seeing a lower trend of imports going into China, meaning that these balanced inventories could even tighten up a bit. And we had on the supply side these two major events: Indonesian curtailment and the postponement of OQ 2. So that gives a favorable condition for hardwood and we have been increasing prices month by month in Q1, inclusive. On softwood, the situation is different.
First, looking at the supply side, despite there not being many new projects in the pipeline, we still have not seen an accelerated amount of commercial downtimes or planned permanent downtimes. Numbers are still low. It seems that producers are keeping decisions on what to do despite 40% of them losing money. So there were no supply adjustments yet. On the demand side, you had two effects directly hitting softwood. First is fiber-to-fiber substitution and the successful execution of plans like ours. Hardwood has been gaining market share that was previously occupied by softwood. Second, softwood chips became available in China since approximately the beginning of last year; we have been observing roughly 1.6 to 1.8 million tonnes of annual softwood now being produced domestically with costs very similar to hardwood pulp cost. This obviously occupies space that was previously being supplied by imported softwood.
So the big difference in the model is coming from the softwood side. Regarding wood chips, as we have been mentioning since Suzano Day in December, we see that there is enough wood in China to support new projects, the upstream verticalization projects. However, the big question mark is the price of that wood to supply not only new projects but also the full restart of integrated producers. We have been seeing wood prices going up. Even before the Iran war impacts and logistic costs, domestic wood has been increasing $10 to $20 per bone-dry metric ton and imported wood has been increasing anywhere from $25 to $35, $40 per metric ton. So that puts pressure on cost structures and will incentivize higher cash costs as more projects go live. When we analyze today's situation, based on 2024 production, our numbers point out that pulp producers occupy roughly 15% to 18% of the wood basket available in China.
With confirmed projects, that would move up to around 40%. With unconfirmed projects, that could move up to almost 80% of the wood basket. Obviously, this analysis does not consider incremental imports. But other sectors—furniture, packaging for logistics, and forms related to construction—traditionally use almost 90% of the wood basket; today they use roughly 70% because of the weaker real estate market. So clearly, there could be a shock in the short term as these projects continue to be deployed. We expect continued upward pressure on wood prices and consequently on pulp cash costs as more capacity comes online in China.
Our next question comes from Caio Ribeiro with Bank of America.
So I have another question on the pulp market, which is a little bit more longer-term structural in nature, touching on some of the topics that you mentioned in your previous response, Leo, but maybe to dive a little bit deeper. You mentioned that 40% of the softwood production right now is underwater. So clearly, something has got to give there. But looking at the hardwood side of things and downstream side of the market, we continue to see potential new hardwood market pulp projects contemplated, other projects already confirmed and being built up even at lower pulp prices, which you can argue that maybe the returns aren't there to justify those projects, but they're happening anyway. Meanwhile, there's integrated capacity additions in China that also keep coming and which generate implications for organic demand growth for market pulp, as Suzano has been flagging in recent presentations.
It also hampers downstream pricing power in China. What in your view would be the main catalyst that could alter this trend and reverse this recurring wave of supply additions, both on the market pulp side and integrated side in China? Secondly, as you look at your operations today, do you see any additional opportunities in your current assets to repurpose some of those assets to diversify into other grades, perhaps reducing your exposure to hardwood market pulp that way, and adding products that have less correlation with drivers for paper-grade pulp like dissolving wood pulp, for example? Those would be my two questions.
Looking long term, as we have been presenting, we see an oversupply scenario in the pulp markets despite a constructive view on increasing demand for pulp. But due to verticalization in Asia and confirmed projects in the pipeline, we see potential oversupply. We believe rebalancing factors can come from four dimensions. First is a recovery of permanent closures as we had seen three to five years ago, especially in softwood assets. It seems unsustainable that this much of global production is losing money, so permanent closures returning would help rebalance the market. Second is a higher amount of commercial downtimes. We are tracking that weekly and do see that growing over 2025, but still not to the levels of 2023 and 2024. Third is the time-to-market of projects. On this more challenging market scenario, projects and their time-to-market which were previously announced can be reviewed.
This is the case we have seen for OQ 2. And that can happen to other pulp projects and to verticalization projects in China, which are currently concentrated. We have a big cycle in late 2026 but it is unclear when they will actually go live. Fourth, and tied to Marcio's question, is the unverticalization trend. We believe this will happen in western markets: many integrated producers may move to an asset-light model. We hope Suzano can confirm the first project of this type. So one or more of these four factors can combine to change market dynamics and rebalance markets going forward. Regarding repurposing assets, yes, we can do that and we are doing that. We have just started fluff pulp production at our Limeira, São Paulo site. That used to be solely a paper-grade pulp line and it's now producing fluff pulp. We could do similar conversions in other locations and consider other grades such as unbleached kraft or dissolving pulp. So yes, it's an alternative and we're looking at these opportunities.
The Q&A section is over. We would like to hand the floor back to Mr. Beto Abreu for his final remarks.
Thank you very much for all of you. I will take the opportunity for final remarks and to complement a few things on Caio's question to Leo regarding the mid- to long-term view. Besides what Leo said regarding permanent closures, shutdowns and de-integration in the western part of the world, we want to share that in moments with the level of volatility that we have on the FX side and geopolitical side, the level of confidence that management has regarding the resilience and robustness of our business increases. When we look about the mid- to long-term, besides those factors, we also have to consider that consolidation might happen. We will have to analyze who will be more prepared in a situation like that because that's a natural consequence of a scenario that might happen. We have different scenarios: optimistic, middle and more worst-case, and we have to be prepared for any one of them. Just to add those comments in final remarks. Thank you very much. Any further questions, the IR team will be fully available. Thank you very much.
The Suzano S.A. first 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.