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SUZANO S A/ADR (NYSE:SUZ)
Q1 2021 Earnings Call
May 13, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for holding and welcome to Suzano's Conference Call to discuss the Results for the First Quarter of 2021. We would like to inform that all participants will be in a listen-only mode during the presentation of Mr. Walter Schalka, Chief Executive Officer; Marcelo Bacci, Financial and Investor Relations Executive Officer; Fabio Almeida, Paper and Packaging Executive Officer; Leonardo Grimaldi, Pulp Commercial, Executive Officer; and Aires Galhardo, Pulp Operation, Executive Officer. After the Company's remarks are completed, there will be a question-and-answer session when further instructions will be given. [Operator Instructions]

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 would like to turn the floor over to Mr. Walter Schalka. Please, Mr. Walter, you may proceed.

Walter Schalka -- Chief Executive Officer

Good morning, and good afternoon to everyone. It's a great pleasure to be with you today. Welcome to the first quarter results video conference of Suzano. With us here, we have all the executive committee. At the end of the session, we will be ready to answer your -- on the Q&A session.

Today it's a very important day. I think it's a historical day for us, where we are announcing not only extremely good operational results, but we are preparing the Company for the future. As you may know, we have been discussing with you for several times about several capital allocation alternatives that we have, and one of them would be to keep our relevance on the pulp market for the future. And we are announcing today, and there are certain precedent conditions, the approval of the project Cerrado that we are going to share with you during this session.

I would like to start presenting to you the operation highlights that we had on the first quarter. First mentioning about the pulp volume, we were able to sell 2.7 million tons in this quarter. There is a very positive market environment. We are not able yet to capture all the price developments on different regions, since we have certain lagging in this process, and a specific geographic mix. As you know, we have a very large dispersion in prices during this quarter on different geographies.

On the paper market, we had extremely good performance, with sales that come back at the same level that we have before the COVID-19 issue, comparing with the first quarter of 2019. On the pulp inventories, we are very stable comparing with the last quarter last year, just remembering that the first quarter for Suzano regions usually is not the best quarter of the year. We had an adjusted EBITDA of BRL4.9 billion during this quarter. That represent more than 60% higher than the comparison of the first quarter last year, and extremely positive even so, we are not able to have all the benefits of the price increase yet. We had operating cash flow of BRL3.9 billion, and this could lead us to deleverage the Company at the faster pace as we are going to mention to you in a few moments.

Our cash cost was BRL623 per ton, extremely competitive but I'd like to give a warning to you at this point of time that the brand prices and exchange FX and combined with higher chemical costs, could have a marginal increase on the cash costs on the next quarter. Very strong liquidity position $2.4 billion, and net debt that have been going down as a very fast pace, just remembering last -- end of last year we had $12.3 billion. Now, we have $11.6 billion, a decrease $700 million roughly and in this quarter, very extremely positive and showing the benefit of higher prices and better FX on our results. And leverage going down at a very fast pace. End of last year was 4.3 times, right now it is 3.8 times, and we are approaching the level on our financial policies that have to be between two times and three times, and 3.5 times during the expansion projects. Our financial discipline is critical for us. We are going to discuss in a matter of moment about our new project Cerrado and the conditions under this project.

And now, I'm going to pass to Fabio, who is going to show you our performance on the Packaging and Paper business. The floor is yours, Fabio.

Marcelo Feriozzi Bacci -- Executive Officer-Finance and Investor Relations

Walter, Fabio is having problems in connection.

Fabio Almeida de Oliveira -- Executive Officer-Paper and Packaging

I'm back.

Marcelo Feriozzi Bacci -- Executive Officer-Finance and Investor Relations

Okay, great.

Fabio Almeida de Oliveira -- Executive Officer-Paper and Packaging

Thanks, Walter. Good morning, everyone. Sorry about the connection problem here. Please, let's turn to Slide number 4 in the presentation.

Let's look at the Paper and Packaging business unit results for the first quarter of 2021. The figures presented here are specific to our Paper and Packaging business unit. Therefore, excluding Suzano's consumer business units' results. Despite several challenges imposed by the second wave of COVID in Brazil, the Paper and Packaging business delivered a solid performance when compared in a year-over-year basis, indicating demand recovering the domestic international markets and better overall price.

As you can see in the top graph and look at our sales figures, Q1 2021 has been our best first quarter in terms of volumes for the past two years, indicating demand is recovering after the major impact last year. We have sold 264,000 tons during the first quarter 2021, which is a 10.4% increase compared to the first quarter of 2020, and we were 18.4% below the Q4 2020, mainly due to seasonality of demand in the domestic market between periods. Domestic sales represented approximately 67% of our total sales in the quarter, totaling 176,000 tons, a 13.5% increase on a year-over-year basis. Strong recovery is mainly led by our paper board sales, which have grown 13.8% year-over-year due to strong demand for Paper Packaging products in the period.

Our domestic retail right and paper sales also grew by 9.6% on a year-over-year basis, reflecting continuous demand recovered, which started in the second half of 2020. Our international sales totaled 88,000 tons in the first quarter of 2021, a growth of 4.7% year-over-year, and with a 5.3% reduction quarter-over-quarter. Many export markets are still suffering from continuous logistics bottlenecks. Rising logistics and pulp costs pushed paper prices higher in our international markets. And that, coupled with a weaker real, allowed Suzano to export more at the better conditions.

Looking at the lower left side, we can note that our average prices during the quarter totaled BRL4,192 per ton, being 8% higher than our average prices in Q4 and 9.6% higher than our Q1 prices of last year. During the period, Suzano has announced multiple price increases with indirect volume and to markets we serve. We expect full implementation of these price increases in the months to come. Looking at the lower right part of the slide, we can note that our EBITDA totaled BRL373 million in the first quarter of 2021, being 28.6% higher on a year-on-year basis and 8.5% lower on a quarter-over-quarter basis, mainly due to seasonality between periods. Our EBITDA margin has reached BRL1,412 per ton, which is an all-time record for the Paper and Packaging business.

Now, I would like to invite Leo to present the results of our Pulp Business unit.

Leonardo Grimaldi -- Executive Officer-Commercial Pulp, People & Management

Thanks, Fabio, and good morning, everyone. So now let's move to Page 5 of our presentation. As you will note, the results of our Pulp business unit were positive in this first quarter 2021, supported by solid sales volumes with increasing prices at all regions and still low stocks. Just to give a recap on the market during the first quarter, after the inflection point which we perceived in the fourth Q '20, several factors continued to align and support the positive market fundamentals, which were present throughout this first quarter.

On the supply side, we have noticed low producer, pulp inventories coming into 2021. And production downtime during this quarter, both planned and unplanned have shortened even further the availability of market pulp. When we add the logistics constraints on container shipments, which have reached the break bulk trade, we note even further challenges on the supply side of the equation. On the demand side, we have noticed positive consumption trends in tissue, paperboard, specialty grades and the recovery of printing, writing grades from 2020 levels in all markets. And as Paper and paperboard production, as well as demand has been positive in all of this mentioned grades, supported by strong economic recovery and consumption as well as positive exports of products to other regions of the world. Additionally, we have been noticing price increase implementation in most paper and paperboard grades in all markets, which obviously helps support this quarter fundamentals. Regarding our production in the quarter, I would like to recognize all the actions that our team has been taken in this critical COVID-19 pandemic moment, remaining focused on very strict health and safety protocols for our employees and for the uninterrupted operation of all of our mills and supply chains.

Looking at our numbers for the quarter, we have sold, as Walter mentioned, 2.7 million tons of market pulp, which is in line with our fourth quarter sales. This volumes consequently bring us to low inventory levels for the quarter and we are endeavoring our best efforts to meet our customers' ideal needs in a turbulent supply chain scenario, caused by this logistics problems and constraints that we have been facing. Our sales for the last 12 months reached 10.6 million tons of market pulp. Our average export prices have reached $532 per ton in the first quarter '21, which is a 16% increase when compared to the fourth quarter, or equivalent to BRL2,913 per ton. When we factor in the strong sales figures, we presented in the quarter, the increasing prices both in US dollars and also in Brazilian reals terms, we reached an EBITDA of BRL4.5 million for the first quarter '21 being BRL1,683 per ton or equivalent to a 59% EBITDA margin.

Looking forward, we continue to focus on the execution of our commercial strategy, taking advantage of the supply and demand fundamentals, which continue to be very supportive. Supply continues to be tight considering low producer inventories, production curtailments, due to the spring maintenance shutdown season, mainly in the Northern Hemisphere, and expected production losses still continue to happen, in addition to constraints in global logistics as I mentioned before. Demand for pulp continues to be solid in all major markets, and our order intake is also positive, and according to our expectations.

With that said, I would now like to invite Walter back, so that he can give us more news on our next bold strategic move, the Cerrado Project.

Walter Schalka -- Chief Executive Officer

Thank you, Leo. It's a great opportunity to share with you our view about the future. It's very important to tell you that we have been implementing our purpose that is renewing tree, renewing life to trees that we have been discussing with you on the last several time -- years. Our ambition is to impact the society. We have this project, not only in the economic side, but on the environmental and social side as well. And this is very important to you.

Aires is going to show with you in a few moments about our vision of this specific details of this project. But it's very important to mention to you, there is -- it would be extremely positive project for all stakeholders. We will impact and create value for our shareholders in one side, but we will have extremely good benefits as well on the environmental effect, through increasing our carbon sequestration, through increasing our renewable energy in the coming years. We are very pleased to announce a project that is going to represent the lowest cash cost of our system and very probably their lowest cash cost in the world.

Yesterday, and you can see in the next slide, the Board approved this project under certain specific precedent conditions and it's very important that the first condition would be to follow very close our financial policies. We -- as you may know, we have a policy of between two times and three times net debt over EBITDA. But during the expansion period program, we can reach 3.5 times. We believe that with this project and Bacci is going to share with you, we are going to be, during this situation, this area of approval of our Board of Directors, and we are very pleased to tell you that financial policies for us is critical and have been very disciplined on that. And the second precedent condition is to reach an agreement with the major vendors of this project. We have been in discussions and negotiations with that, and hopefully in a short period of time, we will be able to announce how -- with whom and with whose we are going to use and use this technology for the future.

On the Slide number 8, you can see that we have been moving ahead with our long-term strategy. We are not the avenues that we have been telling you, led during the Suzano Day is our relevance on the pulp market. This is going to increase our competitiveness on this industry stance. So we are going to have even better cash cost comparing with our average best cash cost of the system. It's going to be the lowest cash cost of all of our plants. We are going to have a very good resiliency in terms of returns on capital employed. Even on every difficult and asset scenarios, we will deliver extremely good return on capital employed.

We will increase our economies of scale, and that is important as well. We are going to exceed 13 million tons of total capacity on our system. We will believe that we can expand their addressable markets with this project. As you may know, we have been discussing with you that in our ability and bio economy is very important to us. Then we are going to use this opportunity to bring alternatives of fiber -- short fiber use to several other markets that could replace recycled pulp, could replace long-fiber pulp and could replace fossil fuel products for the future and this could be a very good opportunity.

And not less important is going to contribute of our sustainability goals. We will announce our ESG results next week on our website and we were very pleased that we are going to have even higher targets for the future with this project. We are extremely good on the environmental and the social side as well, creating a major impact on that specific country region.

Now I'm going to pass to Aires, who is going to explain a little bit details of this project.

Aires Galhardo -- Executive Officer-Pulp Operation

Thank you, Walter. Good morning everybody. It's a great pleasure to be here with you announcing this important Suzano investment in the state of Mato Grosso do Sul that will greatly contribute to development of the region and the growth of the economy in Brazil.

As you already know, this is how the project is located in the state of Ribas do Rio Pardo, in the State of Mato Grosso do Sul. Approximately 100 kilometers from the capital Campo Grande. This new plant will be able to produce 2.3 million tons of pulp per year and will have the lowest production costs of our asset base. This excellent cost competitiveness is the result of a combination of the following factors. Our leverage structural supply radius of 60 kilometers. Our energy surplus generation of 108 megawatts in average, and efficient logistical system for supply and export in production, and a modern eco-efficient system in the treatment of residues. Our estimate is that somehow the project will start up in the first quarter of 2024, and the necessary capex to invest inside the fence, that is industrial capex infrastructure, indirect costs of BRL14.7 billion considering the FX of 5.25.

Now I give the floor to Marcelo, who will address the financial issues of the Cerrado project.

Marcelo Feriozzi Bacci -- Executive Officer-Finance and Investor Relations

Thank you, Aires. Hello, everyone.

Moving to Page 10. I'd like to emphasize that the Cerrado project is very special in the sense that it's very low cost of production, determines that we will be generating value even in more assets scenarios. This is a must for us. Suzano will always seek to enhance its low cost of production position globally.

On the following page, Page 11, we show that the capex will be concentrated in 2022 and 2023. We have only BRL1.3 billion expected to be spent this year '21. We've been preparing the Company for that over the last two years. Moving forward on a constant basis, our debt maturities to 2025 and onwards, and therefore we prepared our maturity schedule to cope with the capex execution that will be concentrated in years, where the maturities are very well. So we are very well prepared from the financial discipline point of view to cope with this additional capex.

On the following page, we update our capex program for 2021 as a result of this announcement, including a BRL1 billion of industrial and infrastructure capex related to Cerrado project, plus BRL300 million of additional forestry capex, also related to the project. So now the guidance for the year is BRL6.2 billion of total capex.

Moving to Page 13, we would like to highlight the key points of this project. First, the project will enhance our relevance in the pulp market over the years as a result of the belief that we have in the continuous growth of pulp demand with the current applications and with new applications of pulp. And at the same time, it will improve our cost advantage that is so important to us.

Moreover, we will be significantly, advancing in our ESG goals with the additional forest and a very high eco-efficiency that the new plant will bring. So climate change with the new forest will be impacted, plus additional renewable energy exports, plus the development that we bring to this region, contributing to the mitigation of income and quality.

We have in our team, a very experienced team with very good track record in implementing projects of this nature. So we are very confident that we will be able to deliver this project on time and on budget. And at the same time, we now bring with this project to new important point, which is the ability that Suzano has to implement a project of this size with only internally generated cash flow. We are not planning to take on any new project specific financing, but rather to rely on the cash position that we have today, plus the cash flow generation that we're going to have over the coming years. And this will all be done with absolute compliant -- compliance with our financial policy, financial discipline. So this is a very different this time around, when compared to other expansion cycles that we had in the past.

So with that, we conclude the presentation and we're ready to move to the Q&A session. Thank you very much.

Questions and Answers:

Operator

Thank you. The floor is now open for questions. [Operator Instructions] Our first question comes from Thiago Lofiego, Bradesco.

Thiago Lofiego -- Bradesco -- Analyst

Good morning, guys. Thank you. So, two questions on my side. The first one, how should we think about the wood supply equation for the project? You mentioned 85% of the wood requirement is already under contracts. I just would like to understand there is a little bit better. What does that exactly mean? Is this for the first years, or is it for for the long-term already? As far as I know you own roughly 100,000 hectares for the project, but the project demands something like 200,000 hectares, right? So just would like to understand this equation a little better, and potential new capex involved on the forestry side. And then the second question, it's about the projects internal rate of return. Bacci you mentioned and you put a slide with sensitivity analysis there, but could you give us some numbers? What would be like the more asset scenario internal rate of return? Maybe a range just for us to understand the -- how the project goes in the very negative scenario? Maybe with $500 per ton pulp and BRL4 or BRL5, maybe a range. Thank you.

Carlos Anibal de Almeida -- Executive Officer-Forestry, Logistics and Procurement

Good morning, Thiago. And thanks for your question. So on the wood side, we already have most of the volume contracted for the first cycle. By that I mean for the first seven years. That means that again on the wood side, we already started a new mill.

Thiago Lofiego -- Bradesco -- Analyst

Carlos, can you tell us like, longer term? Like what could be like the new -- the additional capex needed, and like the percentage of owned land versus leased land, etc. Maybe a ballpark estimate for us to understand a little bit better?

Carlos Anibal de Almeida -- Executive Officer-Forestry, Logistics and Procurement

Yeah, all I can say right now, Thiago, is that we are already expanding our forest basis and the plantation base, we will only increase from now onwards. By the end of this year, I can say that we will have the relevant part of our plantations established. Thiago, due to the commercial sensitivity of such information, I -- we cannot disclose any other information like the volume or area for the time being. I hope that you can comprehend that sensitivity now.

Thiago Lofiego -- Bradesco -- Analyst

Of course. Yes, thank you, Carlos.

Marcelo Feriozzi Bacci -- Executive Officer-Finance and Investor Relations

Thiago, in relation to the internal rate of return, we are not in a position to share specific numbers with you. But I read your report and I can see that your analysis of the net present value of the project is not too different from the analysis that we have internally here. In any potential scenario according to what the history shows to us of pulp prices, this project will always be generating cash, positive cash after capex. And in only a very few scenarios that this cash flow generation will be below the necessary to have a positive value generation in the sense that the return will be in most cases above our cost of capital. But of course, you understand that this is very sensitive to pulp prices. And again, your analysis is not too different from our internal view.

Thiago Lofiego -- Bradesco -- Analyst

That's clear. Thank you, Bacci. Thank you, Carlos, again.

Operator

Our next question comes from George Staphos, Bank of America.

George Staphos -- Bank of America -- Analyst

Hi, everyone. Good morning. Thank you for the details and good luck with the project. I wanted to go back to the cost positioning of the Cerrado Mill and what makes you comfortable that will be your lowest cost mill in the system? My guess is, it's going to be around the fiber radius, but if there is a way that you could quantify or stack rank the logistics versus the wood basket versus the residuals, how should we think about how that contributes to the cost position of the mill? And then I had a follow-on question, just regarding existing results.

Walter Schalka -- Chief Executive Officer

Thank you, George. It's Walter answering this question. We -- it's very important to mention to you and to all of you that one of our key strategic deals for the future is to increase our competitiveness. As you know, our total disbursement cost is a critical factor that we have been telling you to the future that we have been working. There is the combining number of opex and capex on the forest, industrial and logistic area. We have been working on this dimension in the every single plant of our asset base is specific, and the Cerrado project is going to be the lowest of all of the others. And the reason behind that is the first, as you know, would represent more than 40% of our total cost, and wood is going to be extremely competitive. We are not going to operate only with very low average distance, but with off-roads in ex-trans that is very important with us with higher trucks, bigger trucks that could bring more wood per trip to the plant is going to decrease our total cost as well.

In the industrial side, we are going to have much more export of energy to degree. There is -- and this is a discount of the total cash cost as you may know. And our chemical costs are going to be lower as well. If you combine all of these issues, you are going to see that this plant is going to be lower than any other plant of our system. And this is the reason behind that we believe, as Marcelo mentioned, that we are going to generate cash in any single alternative, combining FX and pulp price for the future.

George Staphos -- Bank of America -- Analyst

Walter, thank you. Just a point of clarification, what energy assumption have you baked in, as we would say to your energy benefit for the project over the course of the cycle? And then my other question, I will turn it over. As we sit here today in terms of pricing that has been accepted by customers, pricing that's been reflected in the published benchmark, what additional pricing should we bake in? I'm not asking about any new initiatives that you might have, but just based on what's already happened, what benefit should we see from pricing in 2Q? And what's embedded inflation do you have in inventory and cash cost should we expect for 2Q? Thank you very much, and good luck on the quarter, and congratulations.

Walter Schalka -- Chief Executive Officer

Thank you, George. Just to complementing your question related with the cash cost, the Company will operate this plant with a lot of -- major sales and energy grid. We are not going to disclosure any information about guidance on energy prices. But I can tell you, that is not going to be different from what we have today. Not today, but during the last few years. Of course, if it's today, today the energy price is very high, but if you compare the average price of the last few years, this is exactly the same amount that we have in the calculations that we use for the future of this plant.

George Staphos -- Bank of America -- Analyst

Very clear.

Marcelo Feriozzi Bacci -- Executive Officer-Finance and Investor Relations

Now, Leo will talk about the market.

Leonardo Grimaldi -- Executive Officer-Commercial Pulp, People & Management

Yeah, sure. Hi, George. Good morning. And so, talking a little bit about our prices, as you know we have announced $780 for China, April and change for May, and announced now a new increase of $80 for Europe and North America. Bringing this local prices to BRL1,090 [Phonetic] per ton, and in the US at $1,320 [Phonetic]. And we believe strongly that the current market conditions fully support the implementation of this announced prices. It is also important to mention that the prices that were lately or recently announced are all being full implemented with no discount from this price levels that I mentioned to you, But it's also important to bear in mind that the price realization may pose delays in both directions up or down, especially when the axle or the curves are moving so quickly as they are. And this is a result of some factors, such as the delays of which the price indexes are following the actual prices. We have been noticing that some of the indexes are taking up to 50 days to catch up. Also customers in geographic mix, which are now even more impacted due to all of the late shipments across the system as we also have been reporting, and also all the different by-structures that we have been offering our customers not only in China, but also throughout all the world. That's all we can say for now. But please, rest assured that all this announced prices, again, are being fully implemented and they will lead to higher realized prices for the coming quarter.

Operator

Our next question comes from Daniel Sasson, Itau BBA.

Daniel Sasson -- Itau BBA -- Analyst

Hi, good morning everyone. Thanks for taking my question and congrats on the approval of the project. My first question on the project comes from the -- in related to potential upside to this project. For instance, is there room for debottlenecking the pulp capacity, we think that volumes could be even higher than the 2.3 million tons that you -- that it is the nominal capacity of the project. In regard to the capex, at which point of the project, or in which of the following four years, do you think you would have more flexibility in regards to eventually postponing part of the capex, so as not to breach the 2.5 times net debt to EBITDA ratio of your policy? Then, my second question on the pulp price front, if you could comment on the ability of your final customers to pass through the recent increase you did mention that they have been seeing on pulp prices, which of your clients do you think are more pressured from a margin perspective? Thank you.

Carlos Anibal de Almeida -- Executive Officer-Forestry, Logistics and Procurement

Good morning, Daniel. With respect to your first question, the price follows return of general dimension of the plant in order to the total being from production capacity. Usually, following the learning curve, the Company access possible bottlenecks and can propose a complementary investment initiatives to seek to increase the production volume. But at this moment, the maximum capacity that we are foreseeing in this project is 2.3 million tons.

Leonardo Grimaldi -- Executive Officer-Commercial Pulp, People & Management

So now hoping Daniel -- this is Leonardo. When I go to your second question related to paper producers price increases or related margin. As we have been seeing paper and board producers are increasing their prices during this past months to recover the raw material inflation. And we also see new announcements being made for most grades and in all markets. The effectiveness of this price increases as well as their local currency fluctuation will allow us, and will allow them and all the market to be more supportive in terms of pulp price increases or levels that they are. In China printing, writing specialty every board are presenting -- have presented significant increases in RMB terms, reaching all-time high levels, even though recently, we have seen some fluctuations, but from this high levels again. In tissue, a first round of price increase has been done in December 2020, and the new price increase has been recently announced just before the Labor Day holiday. This new price increase is roughly RMB400 to RMB500 and that's being -- or at least the producers are trying to make this move as we speak.

In our view, the market share dispute in the tissue segment in China, among players has different sizes and their competitiveness can be a challenge to the speed of this price increase implementation. And we are watching very closely about their ability to do so and also the ability of the price implementations to happen in all other major markets as this will all be very important for the equation of the fundamentals to our business.

Daniel Sasson -- Itau BBA -- Analyst

Thank you, guys.

Leonardo Grimaldi -- Executive Officer-Commercial Pulp, People & Management

I think, Marcelo could answer a little bit about the second question that was not answered yet.

Marcelo Feriozzi Bacci -- Executive Officer-Finance and Investor Relations

Yeah, Daniel. On the capex flexibility, we are still negotiating with the major equipment suppliers, so the capex schedule still can be modified. But more important than that, one of the reasons why we are not, at this point, announcing the other capex items related to forestry or to outside the fence additional capex or logistics capex, it's because we are considering alternative structures to minimize the capex over time, if necessary. So we will have some flexibility. At this point, we have tried to minimize the capex volume in the first year in 2021, but we will have certainly room to manage the additional years.

Daniel Sasson -- Itau BBA -- Analyst

Perfect. Thank you.

Operator

Our next question comes from Leonardo Correa, BTG Pactual.

Leonardo Correa -- BTG Pactual -- Analyst

Yes, good morning, everyone. Thank you. The first question for Marcelo. Looking at the leverage numbers right, Marcelo, the -- When Suzano acquired Fibria back really and saw consolidating the numbers in 2019, Suzano's net debt number was about BRL54 billion, right? Since then clearly the currency changed and that had a -- an unexpected negative impact of BRL6 billion. So we've seen from BRL68 billion of net debt. And again, the currency has been a big headwind right, on the deleveraging assets. To get your thoughts on how are you seeing this evolution and maybe what type of targets do you -- speaking of in terms of absolute net debt, I understand that EBITDA generation has changed, has completely improved and changed. But as always, we never know the denominator, right? I mean we've lived through many cycles and prices go up and down quite aggressively in the markets, right. So just if you can focus on the net debt on an absolute basis and where you see that trending, especially now with this new BRL15 billion project being announced at a time where net debt is still very high, right, I just wanted to see your thoughts on that.

And the second question, maybe for Walter, just moving back to the basics, right, on the thought process on how you guys have been thinking and why the approval at this point -- I understand leverage is now more manageable from a net debt to EBITDA perspective when the cycle improves. But just thinking of the competitive environment, right, I mean, the main competitor in the region is still under turmoil with the big dispute between shareholders. So it doesn't seem that any competitors have been moving up to approval project in the region. So I just wanted to understand a bit more of the thought process on why now, and how you guys are viewing, let's say the environment for project execution? Thank you very much.

Marcelo Feriozzi Bacci -- Executive Officer-Finance and Investor Relations

Leo, thank you for your question. In terms of the debt, you remember that right after the merger, our net debt was around $13 billion. And we believe that we have to keep looking at it on the dollar terms, because this is the currency in which we generate our cash flow. This is the currency in which 100% of our net debt is denominated in directly or indirectly through all. So we came down from $13 billion on a sequence of reductions over the years. At this first quarter of this year, we posted a very significant reduction in the nominal number of our net debt. We have been doing that even in years of difficult scenarios like 2020 last year, where we had the lowest average pulp price of the history. And even saw in that year, we reduced by $1.2 billion, $1.3 billion our net debt.

So we've been moving very well along the direction. We gave -- by the time of the merger, we gave a number to the market that our goal was to have net debt of around $10 billion. We are approaching that number. And of course, when we talk about, on a per ton basis that $10 billion would be around $800 per ton of capacity. So if you adjust that the new capacity that would be about $11.5 billion to $12 billion. So we will be well below that, even during the execution phase of the project. We will be approaching $10 billion at the end of this year, and our idea is to keep the nominal that in a number that we believe is very well manageable to us, and also the leverage in relation to EBITDA, which at this point, of course, is favored by the fact that the EBITDA is very high. But even when we do our projections over time, we, of course, don't consider forever the positive scenario that we see today in pulp prices. And even in more difficult scenarios, we will be on an absolute and on a relative basis, well within the limits that we have established to ourselves in our financial policy.

Walter Schalka -- Chief Executive Officer

Leo, thank you very much for your second question. We believe that we have been preparing this project for a period of time, discussing not only the forest side but the logistics, industrial area and all of the social conditions in the region. We have the permits of the local government and not only, but addressing all the infrastructure and we believe that right now we reached almost all the precedent conditions to proceed with this project. We believe that this project is going to increase our competitiveness on the global system and our asset base as well. We believe that we have all the financial conditions to pursue. Respecting as Marcelo mentioned to you, our financial policy that always are going to be one very relevant and undisputable position of our ourselves in terms of our vision for the future.

And we believe that we can expand the addressable market in the years to come. That would allow the short fiber to gain market share over other materials. And we believe that with combining organic growth, with higher market share, will allow to have a balance demand and supply that could bring very good return to our shareholders. This is the reason that we have the decision right now. As you may see, our ambition is to have the commissioning of this plan in the first quarter 2024. Then, at that time, we believe that the market would be balanced and would be positive for this new project.

Leonardo Correa -- BTG Pactual -- Analyst

Thank you, Walter and Marcelo.

Operator

Our next question comes from Carlos De Alba, Morgan Stanley.

Carlos De Alba -- Morgan Stanley -- Analyst

Yeah, good morning, everyone. Thank you very much. So just on -- keeping on the discussion about the project, I would like to ask if you can comment a little bit more on the expected production cost, even if you cannot disclose maybe the number or the range for production cost, if you can comment how much lower than perhaps horizontal to line this could be, just to give us a sense of how much attractive this is? And also if you could elaborate a little bit more on the logistics options to deliver the pulp from the mill to Santos Port, and how much cost that would add to the production cost? And how that would compare to your average current logistics cost for the pulp system? Thank you.

Marcelo Feriozzi Bacci -- Executive Officer-Finance and Investor Relations

Thank you, Carlos. I will take your first questions. Our current average cost of -- cash cost of production in the last two quarters has been around BRL620 per ton. And we have a dispersion among our different mills, and therefore, strategic reasons we don't disclose the number on a mill-by-mill basis. But what I can tell you is that, after this new mill -- after the start-up phase of the ramp up, this new mill will be the lowest cost producing unit of Suzano, even lower than the current better one, which is line two of [Indecipherable]. And the reason behind that is, as Walter mentioned at the beginning, a combination of the scale of the mill, a very low average radios, and also the technology by the new equipment, and with your technology that always gets better over over time. This is as far as we can go from the strategic point of view in terms of projection of cost of production.

Carlos Anibal de Almeida -- Executive Officer-Forestry, Logistics and Procurement

Hey Carlos, good morning. This is Carlos speaking. Thanks for your question. On the [Technical Issues] we have different options and alternatives, which are being started now. We can say that we have already defined as part of the solution. It's done. It's concluded. But due to our current discussions for the whole system, we cannot disclose any further information for the time being. And also for the some reasons, we cannot make any comment about cost now. So I hope you can understand that.

Marcelo Feriozzi Bacci -- Executive Officer-Finance and Investor Relations

It's very important to -- Carlos, it's very important to mention that we are going to operate at Santos Port.We have two different terminals over there. There is the -- in the right side is still treating 32 [Phonetic] and the left side is Tres Lagoas [Phonetic] project. We do not decide from which of the sites we are going to operate yet. But as you may know, both of these terminals are extremely competitive. That is a very important to mention that we are going to move their volumes from rail from State of Mato Grosso do Sul to the Santos Port. And then we have two alternatives as you may know on this situation, this is the reason that Carlos do not want disclosure about this alternative at this point of time. But I can assure to you that the cost of logistic cost combining terminals, port terminals and rail are going to be at the same level that we have with Tres Lagoas today at this point of time.

Carlos De Alba -- Morgan Stanley -- Analyst

All right, thank you. And if I may squeeze a last question, and I appreciate your prior responses. How much was the production -- the pulp production in the first quarter?

Carlos Anibal de Almeida -- Executive Officer-Forestry, Logistics and Procurement

We are not disclosing. Go ahead, Marcelo.

Marcelo Feriozzi Bacci -- Executive Officer-Finance and Investor Relations

No, we have decided to not disclose anymore the production levels from now onwards. And we will be continuing to disclose the number to our associations and you're going to see the official statistics on a combined basis with the other companies, but we will not disclose individually as most of our competitors also do.

Carlos De Alba -- Morgan Stanley -- Analyst

All right. Thank you.

Operator

Our next question comes from Caio Ribeiro, Credit Suisse.

Caio Ribeiro -- Credit Suisse -- Analyst

Yes, good morning everyone. Thank you for the opportunity. So my first question is on the long-term sustainable prices for hardwood pulp. It seems that a lot of the projects that are coming online in the next few years are very competitive projects from a cash cost perspective. That should generate changes in the cash cost curve in the industry. But at the same time, there are discussions of new projects that could come online in China, which in many cases it seems that they would depend on imported wood chips and would naturally tend to be much higher cost. So in light of that, I wanted to ask you what you believe is sustainable long-term level of prices for hardwood pulp in China? And then secondly, on the pulp cash cost, I just wanted to see if you could talk a little bit about how you see that trending throughout 2021? And then looking further ahead, how this -- how the project could help you achieve your goals for 2024 of reaching a cash cost of BRL560 per ton? And whether the project what's contemplated in that guidance or not, or now that it's approved this cash cost could be even lower? And I know the project will still be ramping up in that year, but could it start to contribute to a lower cash cost that year itself? Thank you.

Leonardo Grimaldi -- Executive Officer-Commercial Pulp, People & Management

Caio, this is Leonardo. I will take your first question, regarding long-term prices for pulp. It's hard to foresee that, as obviously prices are determined by supply and demand fundamentals. We have shared with you guys in our Suzano Day, our view to that. Being the current market and the growth which is forecasted but also all the other opportunities in terms of new additions that we believe will create future demand for bleached chemical pulp or hardwood, such as what you mentioned in the fiber to fiber and even fossil to fiber alternatives. So again, very difficult to position in that sense. In our view, there will be an over-demand, which enables us to still be able to filling gaps in terms of needed production to fulfill all this additional demand.

Regarding your question about the Chinese production, we have been monitoring a lot of projects indeed have been announced for the region. We believe, big part of those projects are related to the incentives that are being given in the Hubei and Guangxi region. And we believe that also that some of this projects, maybe the part -- the paper part of the projects will be indeed going forward or moving forward, but it's very hard to understand how all the pulp capacity will come on board as we understand that woodchip is indeed a limited resource in China, or to China. So we have been monitoring. We have also been monitoring and trade of woodchips from other regions to the world of China, see it as a huge challenge to be overcome in order for the biggest part of all these announcements to become a true reality.

Carlos Anibal de Almeida -- Executive Officer-Forestry, Logistics and Procurement

Okay. In relation of your second question, we see our cash costs production ex downtimes rising in the second quarter, around 5%, 7% and then stable throughout the remaining quarters of the year. Such negative pressure on costs is mainly coming from the higher brand price, and consequently wood costs are affected by fossil fuel and freight. Relation with our guidance of our cash cost of total disbursement to 2024, see how the projects was not complete in that number, then in the following months, probably at the end of the year, as Marcelo mentioned in other meetings, [Indecipherable] updated this number for 2024.

Caio Ribeiro -- Credit Suisse -- Analyst

Okay, understood. Thank you very much.

Operator

Our next question comes from Marcio Farid, JPMorgan.

Marcio Farid -- JPMorgan -- Analyst

Thank you. Good morning, everyone. I have just a quick follow-up question on the project itself. I think there was couple of surprise last night during the announcement. The first one was obviously the timing of the announcement, I guess, consensus you are expecting this announcement to come later in the year. So just trying to understand why now? I mean, I know you have better visibility in terms of cash flow generation, but half of them tell you that this is the right time to make this announcement and this type investing, considering the long displaying conditions for the long-term, but also difficulties and challenges in the short-term with COVID, unfortunately still being around us. And the second point is related to the capex that has been announced. In US dollar terms, it is about 20% to 30% higher than the last quarter, it was basically Fibrias, Tres Lagoas, couple of years ago. So just trying to understand what is the main driver of this inflation? I understand that is equivalent inflation etc., but it's something a little bit higher. I was expecting that to be related to higher logistics costs, but logistic business seems to be prudent. So we found like we can extract more capex to come as well. If you can comment a little bit about that as well? That would be great.

And lastly, maybe a question to Leo on the pulp markets. Leo, I know you're not disclosing production anymore, but just wanted to understand that if you're still -- I know you mentioned order books are good, but are you still seeing a relatively tight market out there? I mean are you saying no to some clients still? Or is everybody getting a yes now? Obviously, you guys are [Indecipherable] at high pricing, but are you still saying no? Can we still see that tightness on the market? Thanks, everyone.

Leonardo Grimaldi -- Executive Officer-Commercial Pulp, People & Management

Thank you very much, Marcio, for the question. First, I would like to answer about the timing of the project. We -- if you have a deep analysis on our forecast disbursement of this project, you're going to see that this year we are going to have the minor effect just representing 9% of the total amount, meaning that end of this year, we are planning to have a very strong cash position since our cash generation has been very robust, and with higher pulp realized pulp prices in the coming quarters, we are going to have a very positive cash generation for the Company. And we believe that next year, we are going to be in a position, a much better position, not only in the sanitary conditions due to the COVID, but on the financial position as well to have higher disbursements early next year. Then we are well positioned at this year. The capex is going to be very limited and this -- we are very comfortable with that position.

Related with the capex per ton that you mentioned, I will bring to the surface two different issues. First, that the Tres Lagoas was a brownfield not a greenfield. Of course, we have certain difference on that. All the infrastructure that was necessary to do it. And the second point is that we are in the all-time high iron ore and steel prices that we consider on our project, combined with very high FX. If you believe that the -- in the coming quarters or months, the steel price will grow to be lower on our iron ore, we could have some benefit on that, that we are not considering at this point of time. We believe that BRL1,200 per ton that we have roughly inside the fence consider to this project, it's basically a little bit better than the average capex per ton of other projects in South America.

Walter Schalka -- Chief Executive Officer

Should I jump right now?

Marcio Farid -- JPMorgan -- Analyst

That's clear. Thanks, Leo.

Walter Schalka -- Chief Executive Officer

Marcio, thank you for your question. In order to answer that, let me give two setbacks. At first, it's important to say that we have reached our record low stocks in the end of 2020, as Carlos mentioned in the last call with all of us and we have been seeing increasing challenges in logistics, ever since then. So that brings us to two very clear priorities. The first priority is to implement price or the announced price increases that we have and made public. And as I have mentioned before, this is being done, there was no exception. And the second priority we have is to well service our customers, which obviously depend on us rely on us, and with all the supply chain challenge, we are really focusing on how to make sure that there will be no interruptions. So for the time being, we already [Indecipherable] into how to service better or make sure that there are no interruptions to our current supply chain, as our existing customers and we do not have additional tonnages to be sold in spot markets or in customers, which are not in Suzano's customer base as we speak.

Marcio Farid -- JPMorgan -- Analyst

It is very clear. Thanks a lot, Walter and Leo, and good luck on the quarter.

Walter Schalka -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Jonathan Brandt, HSBC.

Jonathan Brandt -- HSBC -- Analyst

Hi, good morning everyone. Just to follow-up on that last question. Leo, it seems like you're saying that the market is still really tight and you've implemented all of your price hikes, and we've seen significant price hikes in the first half of the year. So I guess I'm wondering why weren't you pushing for May price hikes? Is there something that has changed as the market is not as tight as it was before? Or is it simply there is this supply chain issue because it would seem to me, based on your comments that potentially there is room for further price hikes. So I'm just wondering what has changed? And if there is any concern on the prices maybe weaken a bit as we go into the summer months and the Northern Hemisphere?

And my second question, I guess, is for Marcelo. Obviously, you're in a pretty comfortable position now with leverage and even with some of the capex that's coming out. But certainly what we've seen over the past six months or longer is that pulp prices can change pretty quickly and have become more volatile. So I know you're pretty comfortable now saying you won't breach the 3.5 times net debt, but have you run the scenario analysis? What happens if pulp prices next year go back to $500 or $550 [Phonetic]? Are you still comfortable in that scenario that you wouldn't breach the 3.5 times net debt? And then just sort of related to that, because you're starting up this capex cycle, have you given any consideration to potentially trying to hedge pulp prices in some of the Asian exchanges? I know it's not a perfect hedge, but have you considered trying to lock in today's pulp prices, given the project? Thank you.

Leonardo Grimaldi -- Executive Officer-Commercial Pulp, People & Management

Hey, Jonathan, this is Leo. I will answer your first question related to price. Obviously, we do not give disclosure on our commercial strategy and the rationale behind it. But what I can say is that when we compare prices in China with other regions in the world we see that in other markets, there is still a lag behind it. And therefore, we believe that prices could continue to increase in other regions -- in these regions. Historically, prices stand to balance among market. And related to the levels our prices are now, it's very, very hard to foresee the new levels of what they should be in the next coming weeks, or months because there are several new variables that are coming into play, which are different from past cycles. First, as I have mentioned before, in the supply side, we are just entering the maintenance downtimes season in the Northern Hemisphere. And we have been tracking and we see a write-off production is being lost over what was originally as disclosed for this maintenance period. We know that this might be a new reality at least for 2021 after what happened with all the weakness downtimes during 2020.

On the demand side, there is a growing optimism with all the global economic recovery, which can result in a seasonality, which is completely different than in previous years as well. So the equation is still uncertain for the second half of the year. We are tracking the fundamentals closely and that's all I can say for now.

Marcelo Feriozzi Bacci -- Executive Officer-Finance and Investor Relations

Jon, this is Marcelo speaking about your second question. We -- of course, we have run different scenarios. We have run scenarios using prices around $500 [Phonetic] for the coming years. Of course, this is not an indication of where -- what we believe where the price should be. But of course, knowing that we are exposed to cycles in a capex decision of this size, we run all types of scenarios. We have run scenarios just to give you an idea that have according to best price behavior probability of occurrence of below 3%. This is the kind of stress that we do when projecting our cash flows. When we talk about prices around $500 for the coming years, we would still be within the limits of our financial policy. And of course, in more assets scenarios, we believe that they may happen, but it is not expected that very low prices could last for a long period of time. And last year was an example of those prices lasting for a year. But we don't believe that prices should be below $500 for a long period of time, for a longer than a year, for instance.

In terms of pulp hedging, there is this new instrument in the Chinese market that is available, but we are not considering at this point to hedge. Not so much because it's not a perfect hedge because it's a softwood contract, but mainly because the liquidity of that market is concentrated in the nearby maturities first. So it is not a good instrument to be used to hedge long term, which would be the need in this case. And second, because we still don't feel comfortable in operating in that market having no experience so far operating in markets of that nature, and not having in this case the ability to liquidate physically, because we don't produce softwood. So we are not considering hedging pulp for the time being.

Jonathan Brandt -- HSBC -- Analyst

All right. Great. Thank you both very much.

Operator

Our next question comes from Hernan Kisluk, MetLife.

Hernan Kisluk -- MetLife -- Analyst

Good morning, and thank you for taking my questions. I have two. The first one is regarding the Cerrado project and rating agencies. I would like to know if you have already had conversations with them, and what the impact on your credit ratings could be? That will be the first question. And the second question also linked to scenario analysis. Is there any kind of downside scenario, where you would have to take more debt to finance this project? These are my two questions.

Walter Schalka -- Chief Executive Officer

Thank you for your questions. The first, the answer is yes. We have discussed this with rating agencies. They have all the scenarios for the capex and for prices and everything. And they will -- and it seems to us, of course, they will react to that, but we don't foresee any ratings action coming from the announcement of this project, because we have been discussing this with the market and the rating agencies for long period of time. So this is not a surprise for anybody. In terms of new debt, we -- in our base case scenario, we don't need to take on any new debt. But we are analyzing the possibility of doing project related that instruments if they proved to be efficient in terms of cost and maturity, and in which situation we would prepay other pieces of that. So we don't need to take any new additional debt, but we will continue to look into market opportunities to further enhance the profile of our debt.

Hernan Kisluk -- MetLife -- Analyst

Okay. Thank you very much.

Operator

Our next question comes from Rafael Barcellos, Santander.

Rafael Barcellos -- Santander -- Analyst

Hey, good morning. Thanks for taking my question. My first question is about the project. Could you tell us if you will have any tax benefit or credit in the region related to the -- to these investment? And my second question is about your long-term strategy. I mean now that you announced a new low-cost pulp mill, would it make sense to convert to dissolving or even you can integrate one of your older and higher cost mills? In the end, I just would like to understand your thoughts on your production footprint going forward. Thank you.

Leonardo Grimaldi -- Executive Officer-Commercial Pulp, People & Management

Rafael, thank you for the question. On your first question about tax benefit, we have negotiated with the State of Mato Grosso do Sul in the city of Ribas. The usual tax treatment that the states and cities give to large investments, so nothing special. This is all public information and it will be available. But we don't have any benefit related to the monetization of our tax credits with other things. It's just the usual incentives that we get for large investments.

Marcelo Feriozzi Bacci -- Executive Officer-Finance and Investor Relations

On the second question, Rafael, thank you very much. I'm going to take that. Our vision for the future is that we have five different avenues as we presented during the Suzano Day, where we can create value with our stakeholders. And we believe that addressing different markets, address areas for the short fiber is critical for the future. But we are not ready to announce any kind of conversion of any of our mill to any other application. But I can assure to you that is in the analysis that we have been doing. We considered several alternatives including that. It's very important to mention to you that we will pursue this alternative of bio strategy, or in our ability, where we can enter on different markets, or different applications of our pulp and our lignin, and this is part of our strategy for the future.

Rafael Barcellos -- Santander -- Analyst

Okay. Thank you.

Operator

As there are no more questions, I would like to turn the floor over to Mr. Walter Schalka for final considerations. Please, Mr. Walter, you may proceed.

Walter Schalka -- Chief Executive Officer

Thank you very much for joining us on this session. It's a great pleasure to be with you, and it's -- we are very pleased with the announcement that we are doing today. We -- I'm sure that this year is going to be the best year of our history in terms of EBITDA and cash generation. But more than that, we are preparing the Company for the future. We have a major ambition to impact all the stakeholders. We are talking about our shareholders, but not only we are talking about our suppliers, our customers, the communities, our team and we'd like to have a very clear vision of creating and sharing value with all our stakeholders.

On the other hand, we believe that we have a major potential impact on the environmental side of the equation for the next coming years. And this project will allow us to have even more carbon sequestration to have -- to allow us to have even more renewable energy, to allow us to prepare the Company for the future in the bio strategy arena for the next coming years. We believe that Suzano have been improving our performance in the last many years, but our ambition for the future is going to be even more, to impact all the stakeholders and to create and share values with all of that.

Thank you very much. I hope everyone stays safe. I'd like, in the end of the session, to invite all of you to our first ESG call, is going to be then held on next June 25, when we are going to announce our next goal on biodiversity, is going to be our first ESG call, and I'd like to invite all of you to the session. Thank you very much, and stay safe and well.

Operator

[Operator Closing Remarks]

Duration: 77 minutes

Call participants:

Walter Schalka -- Chief Executive Officer

Marcelo Feriozzi Bacci -- Executive Officer-Finance and Investor Relations

Fabio Almeida de Oliveira -- Executive Officer-Paper and Packaging

Leonardo Grimaldi -- Executive Officer-Commercial Pulp, People & Management

Aires Galhardo -- Executive Officer-Pulp Operation

Carlos Anibal de Almeida -- Executive Officer-Forestry, Logistics and Procurement

Thiago Lofiego -- Bradesco -- Analyst

George Staphos -- Bank of America -- Analyst

Daniel Sasson -- Itau BBA -- Analyst

Leonardo Correa -- BTG Pactual -- Analyst

Carlos De Alba -- Morgan Stanley -- Analyst

Caio Ribeiro -- Credit Suisse -- Analyst

Marcio Farid -- JPMorgan -- Analyst

Jonathan Brandt -- HSBC -- Analyst

Hernan Kisluk -- MetLife -- Analyst

Rafael Barcellos -- Santander -- Analyst

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