Suzano (B3:SUZB3) Q3 2026 Earnings Call

0:00 Good morning, ladies and gentlemen. Thank you for holding and welcome to Suzano's conference call to discuss the results for the third quarter of 2026. We would like to inform that all participants will be in a listen-only mode during the presentation that will be addressed by the CEO, Mr. Beto Abreu, and another executive officers. This call will be presented in English with simultaneous translation to Portuguese. To change the audio, you can press the global icon on the lower right side of the Zoom screen and then choose to enter the Portuguese room. After that, you can select Mute Original Audio. Before proceeding, please be aware that any forelooking statements are based on the beliefs and assumptions of Suzana's management and on information currently available to the company. Faithful of risks, uncertainties and assumptions because they relate to the future events and the four depend on circumstances that may or may not occur in the future. You should understand that general economic conditions, industrial conditions and other breaking factors could also affect the future results of Suzano and could cause results to differ materially from those expressed in such a forelooking statement.

1:14 Now, I will turn the conference over to Mr. Beto Abril. Please, you may begin your presentation.

1:24 Good morning, everyone, and thank you for joining our third quarter earnings call. This is a special call for Susano, as it's the first one in which we are reporting RBEX results in our financial statements. The RBEX acquisition is perfectly aligned with the company strategy. We see a significant value creation opportunity, and it gave Susano a more resilient business portfolio. I'm happy to share that ARBEC's first quarter with us came fully in line with our plan, once again showing Suzano's ability to deliver as promised, since the transaction was announced more than a year ago.

2:11 Key 3 was marked by solid volumes, sales and pricing, a decline in cash costs, despite a challenging geopolitical environment, and Stable perform a leverage of 3.4 times in U.S. dollars, including ARBEC's last 12 months EBITDA. Management priorities are now fully focused on continuing to improve our structure competitiveness, advancing our fiber-to-fiber initiatives, reducing net debit and leverage, Starting already in Q4, our strongest quarter for 2026, and capturing the highly visible efficiency gains at ARBEX.

3:03 Nothing else is on our agenda at the moment. With that said, I turn the floor over to Fabio, who will continue the presentation. Thanks, Bessel, and good morning, everyone. Please, let's turn to the next page of the presentation. Before we start, I would like to highlight that Suzano Packaging results in this quarter over the June-September period. Since its inception, Suzano Packaging has been reported with one month lag for our Brazilian operations. Starting this quarter, reporting be fully synchronized across both businesses. Looking at our markets, in Brazil, print and write demand grew 5% versus Q2 and 2% year over year. Benefiting from seasonality in election-related cold paper demand. Paperboard demand remained under pressure, down 9% sequentially and 5% year-over-year amid softer domestic consumption environment in Brazil.

4:04 Imports continue to rise, with print and write paper and paperboard imports up 76% and 18% year-to-date through August, respectively, reflecting global oversupply and a stronger effect. During the international print and write markets, the PTC reported a 2% decline in unquoted goods free demand in North America and Latin America in the first eight months of the year, while Europe fell 4%. Now looking at the paper board in the U.S., Mark's fundamentals slightly improved during the quarter. Based on data from AFPA, FBS shipments were 2% or over 4% year-to-date, up Why the production disruption at Nippon Dining Wave tightened regional supply, especially the liquid packaging board, the name marked for Suzano Packaging.

4:53 FDS operating rate is now at 85%, better on a quarter-over-quarter, but still below on a year-over-year in historical levels. During the quarter, our Brazilian operations performed well, with a 3% growth in production quarter-over-quarter, even considering the annual planet shutdown at our Mucuri meal in August. Against last year, volumes from the Brazilian operations were stable. In our Suzano Paxson operations, the growth in production volumes in quarter-over-quarter and year-over-year reflected the additional month report that I explained before. Our sales volumes grew 10% quarter-over-quarter and remained stable year-over-year. While domestic volumes in Brazil were broadly stable, exports from Brazilian operations decreased 9%. versus Q2 and 27 year-over-year, reflecting non-recorded impacts related to the implementation of our new SAT system in July.

5:45 Export operations have since then improved, and we are now working to have our backlog cleared in Q4. Susana packaging sales grew on a quarter-over-quarter and year-over-year basis, but were limited to operational constraints at our final last year in Q3 and lower inventory levels. Despite higher import volumes in the Brazilian markets, our Brazilian operations delivered a price increase of over 2% p.o.p. At Suzano packaging prices increased 6% in dollar terms over the same period. Now looking at our EBITDA, our combined operations performed decreased 14% p.o.p. Our Brazilian operations delivered stable volumes in higher prices but higher SG&A in the period due to corporate expenses allocations, and higher logistics costs and COGS impacted by annual planned maintenance shutdown at Mucurimil, which affect our performance in the quarter. At Suzano Package, Q3 EDDA was significantly impacted by operation challenges at Pine Bluff Mill, mainly related to asset reliability and production efficiency, resulting in lower printing rates, higher production costs and reduced inventory availability.

6:55 In addition, raw materials and logistics costs increased in the quarter amid a more challenging geopolitical environment. Our price increase helped mitigate part of these inflationary pressures. They were not sufficient to offset the operation hazards. The operation issues faced in Q3 were substantially addressed by the end of September, and the mill has been operating more consistently since then. We continue to prioritize reliability, efficiency, safety, and cost competitiveness as we advance the turnaround of seasonal packaging, support and gradual improvement in EBITDA performance and our path to positive cash flow by 2028 in line with the original business plan. Looking ahead, in Brazil, we expect sales volumes to improve following historical seasonality, particularly in coated paper. Coated paper demand, on the other hand, should soften as the additional demand associated with the election cycle fades. For Paperboard, we export stable demand with stronger year-end consumption offsetting part of the software economic backdrop.

7:54 Now I'll head over to Leo, who will present the whole business unit's results. Thanks, Fabio, and good morning, everyone. Let's now turn to our pool business unit, where I'd like to share with you the highlights for our third quarter of 2026, as well as my view for the upcoming months. This past quarter was marked by solid invoicing by Suzano, in line with last year. In China, paper and board production posted a slight growth when compared to Q3-25, and as usual, our customers planned their pull purchases in order to support a higher production pace from September to December, the strongest seasonal period of the year.

8:40 Despite healthy demand, Market Pulp Dynamics reflected two distinct business environments as the quarter unfolded. In the first half of Q3, customers continued destocking, in anticipation of new pulp supply coming from OK2, at the time expected to start up in Q4 26. By mid-quarter, and with the announcement that the project had been delayed into Q1 27, Customers rapidly increased pulp purchases to meet their late Q3 and their Q4 production plans, creating a significantly more favorable environment for market pulp producers. This supportive scenario was also fostered by pulp inventories at Chinese ports, which continued to decline during Q3.

9:27 At the same time, low pulp price levels in China in July and August, below the cash costs of some local producers, led certain integrated players to reduce their own pool production rates and shift to market pool purchases. Despite hardwood softwood price spreads remaining below historic levels, especially in Asia, fiber-to-fiber substitution continues at a healthy pace as customers seek every possible saving and recognizing that the current weak softwood market is unsustainable long-term. As an example, in Europe, according to Europolp data, hardwood pulp consumption was stable in Q3 when compared to Q3-25, while softwood consumption fell 9%.

10:14 The quarter was also marked by growing reports of permanent pulp mill closures, as well as an increase in unexpected downtimes. According to market consultancies, more than 900,000 tons of bleach chemical pulp was removed from the market as Q3 unfolded. Again, improving S&D dynamics. On such contexts, we have sold 3.19 million tons in Q3, with an average export price of $591 per ton, a slight decline when compared to Q2-26, and 13% higher than Q3-25. Looking at the right side of my slide, the 4.8 billion reais in EBITDA, up 12% quarter over quarter, With a 50% EBITDA margin, was mostly driven by higher volumes, lower costs, and a more favorable FX when compared to Q2 26.

11:12 Now looking forward, I would like to highlight the following points. In October, we were able to implement our announced price increases globally while maintaining our planned sales volume. In China, at these new prices, our customers confirm their order intake with volumes at historic levels. At the same time, pulp production costs in China continues to rise. On top of the $30 per BDMT over 2025 lows, which translates roughly into $60 per ton increase on pulp production costs, as I have mentioned during our previous call, our sources on the ground report an additional $10 per BDMT increase From this July to September, or $20 per ton of additional cash costs, bringing our estimated cash costs in China to a range between the low $500 to $560.

12:08 And the cost pressure in our sector is not exclusive to China, for producers worldwide continue to face a broad cost inflation in their value chain, amid ongoing geopolitical tensions and weather-related events. Now talking about the supply side of the equation, we are closely monitoring the impacts of El Niño globally, and more specifically in Indonesia. Wildfires in this country, following a pattern similar to 2015, are reportedly affecting the forest base supporting the country's coal production, although the remains unclear. Depending on the severity of the wildfires and their impact with haze or on wood availability, The ongoing pulp project in Indonesia may face further startup delays or have lower ramp-up curves.

13:02 For the coming months, we also see the confirmation of our thesis that looking only at gross new capacity as a result of new projects in the pipeline is not enough to forecast price levels. Permanent closures already reached over 1 million tons of beach chemical pulp since the beginning of this year, Unexpected downtimes are rising and reaching 2.3 million tons so far. Several Pope projects, both market Pope and verticalization, have been delayed during 2026, and we are enthusiastic to share that the first cases of de-verticalization in Western markets are starting to materialize. Unfortunately, due to confidentiality agreements, we can yet publicly not disclose them.

13:50 For Suzano, The first quarter is seasonally marked by higher sales volumes to support our customers' increase in demand, and we are prepared to deliver another strong Q4. Today we are running with invoicing backlogs, in some cases reaching more than two months, and we seek to reestablish normal life levels until the end of the year. With that said, I would now like to invite Carlos. Welcome back, Carlos, to address our cash cost performance during the past quarter. Thanks Leo and good morning everyone. I will cover Pope Cash Cross, page 6 of our presentation. Our cash cross excluding downtime was 825 reais per ton in the quarter, down 2% versus Q2 26.

14:39 The improvement was mainly driven by operation efficience captured after the maintenance downtimes in the previous quarter, with lower specific input consumption, better Fixed cost dilution and lower wood costs supported by lower specific wood consumption. These gains were partially offset by higher chemical and energy costs reflecting both direct and indirect impacts of the conflict in the Middle East, as well as the stronger U.S. dollar. It is worth noting that approximately R$14 per ton of our cash costs in the quarter was related to commodity cost pressures associated with this conflict in the Middle East.

15:26 Adjusting for this exogenous factor, cash costs would have declined, and again, would have declined 4% port over order, highlighting the underlying operational improvements captured during the period. Looking now to the year-over-year performance, our cash costs excluding, again, downtime, included 3%, mainly reflecting Thank you very much. and Stronger Energy Sales.

16:21 The weaker US dollar against the Brazilian realm benefits the cash cost performance. Overall, we continue to demonstrate solid cost discipline, despite a more challenging geopolitical and commodity cost environment. As we look to the year end, our operation execution remains broadly in line with the assumptions underlying our original cash cost outlook. However, commodity energy cost pressures have proven more persistent than initially anticipated, as the conflict in the Middle East continues to affect global supply chains and commodity markets. Combined with a strong U.S. dollar, these exogenous factors have increased our cost base beyond our original assumptions.

17:13 As a result, We are updating our full year 2026 cash production costs excluding downtime guidance from R$800 per ton to approximately R$825 per ton. Important to say that absent these external pressures, we would be on track to deliver our original R$800 per ton cash cost targets. Now, I turn the floor over to Marcos who will continue the presentation. Good morning everyone, moving to slide 7. This is our first quarter after closing the Arbex acquisition, and the first time we report consumer goods as a separate segment. To make the quarter easier to compare, we also show pro forma Arbex figures for prior periods. The consumer goods division posted an EBITDA of R$ 803 million, with a 16% margin. Arbex contributed With 694 million reais, our Brazilian operations added 109 million reais, up 31% year-on-year, driven by strong volumes and lower costs.

18:25 Arbix is performing in line with what we underwrote. Over the last 12 months, Arbix generated a bid slightly above 530 million dollars, confirming that the business kept running smoothly between signing and closing, despite the negative impacts of the Middle East conflict. We remain highly confident that we will extract value from this division and we expect to see increasing efficiency gains in our results in the coming quarters. Moving to slide number eight, let me walk you through our net debt. Excluding ARBX, net debt for Suzana continued to decline from $12.8 billion in June to $12.5 billion in September.

19:12 Reported net debt, including ORBICS, reached $14.7 billion at the end of the quarter, impacted by the value we paid for Kimberly-Clark for our 51% stake and the full consolidation of ORBICS net debt. Important to mention that the leveraging remains our top priority, and we provided a guidance that our net debt should be under $14 billion by the end of 2026. Our pro-former leverage, which includes ARBIC's last 12-month EBITDA, remains at 3.4 times stable compared with June. Important to mention that we continue to have a very comfortable debt amortization schedule with 73 months of average and also a competitive cost of debt. Moving to slide 9, we would like to highlight our StrongFX hedging portfolio.

20:10 In third quarter 2026, we generated 294 million reais in positive cash adjustments, and in the nine months here today, we generated 825 million reais. At the end of the quarter, our zero-cost caller portfolio had a notional of 4.8 billion dollars, with an average put strike at 6.04 reais per dollar, and an average call of 6 reais and 95 cents per dollar. These hedges cover 65% of our FX exposure. As a sensitivity, if the FX rate stays at September's close of 5 reais and 18 cents, we expect more than 4.1 billion reais in cash adjustments throughout the next 24 months.

21:01 Now moving to slide 10, we will comment on our commodity hedges. Oil prices remained high during the quarter, with bread prices averaging $91 per barrel, which compares with $68 per barrel a year ago, and we closed September at $98 per barrel. This is the main source of pressure on our cost, given oil-linked inputs, chemicals, and logistics. Our hedging program for Natural Gas Embarker helped to offset it. In third quarter 2026, our hedges generated 91 million reais in positive cash adjustments, and year to date, this positive cash adjustments total nearly 300 million reais.

21:50 For 2027, we have coverage for nearly 65% of our hedgeable exposure, and if rent stays at $98, which was the level that it closes the quarter, we would expect around 477 million reais and total cash adjustments from this portfolio. With that, I will hand it back to Beto for his final remarks.

22:18 Thank you, Marcos. Looking forward, and it's kind of summary of the team just presented, our last quarter, we see a positive trend, and we are really expecting to be As I said before, our strongest quarter of the year. And this will allow us to keep focusing on deleveraging our net debit and keep focusing on strengthening our TOD competitiveness. And important to say that we haven't stopped yet gaining The efficiencies that was in the plan for ABEX, so in the fourth quarter, we will also be able to start gaining those efficiency that was planted in the business plan. So that's the main elements for the next quarter. So having said that, I will hand over for the Q&A session. Thank you very much.

23:34 We will now begin the Q&A session for investors and analysts. If you wish to ask a question, please click on raise hand. If your question has already been answered, you can leave the queue by click on put hand down. Our first question comes from Daniel Sasson from Itaú BVA. You can open a microphone, sir.

23:56 Hi everyone. Thank you for taking my questions. My first question is on prices and order intakes. You mentioned that the October price increases were implemented globally without impacting the planned sales volumes with intakes in China at historical levels at the new prices. You're also running invoicing backlogs of more than two months in some cases. Does this give you confidence that the market can absorb Another price increase in December. Are you seeing a meaningful difference between China and Europe in terms of the ability to implement further increases? And still on OK2, you mentioned the initial delay from 4-26 to the first part of 2027. Did that trigger a meaningful restocking cycle in China, as you mentioned?

24:46 You are now flagging the wildfires in Indonesia. Could it result in delays or further delays or a slower ramp-up? Has the recent events there changed your base case for the start of time, your rental curve of OK2? And if the project is pushed further out, could that materially change your top price outlook for next year? And my second question on cash cost, you reiterated your BTO guidance, which points to a pop cash cost of 787 per tonne next year, which includes Maintainance Stoppages You know, maybe if you could walk us through what would be the case if we use the same effects and commodity assumptions, rent price assumptions, for instance, in your updated 2026 guidance, what would the 787% guidance look like?

25:47 and, you know, how do you bridge the reduction from 2026 to 2027 between, you know, lower downtime or root cause or fixed cause dilution that would give us some comfort to, you know, factor in your guidance for next year despite a more challenging than anticipated 2026 trend. Thank you so much, guys. Hi, Daniel. This is Leo here. Thanks for your question. Just to tackle the first part of it and rephrasing what I have mentioned in my speech, we confirmed that during October our price increase announcements were fully implemented with no concessions and that our volumes are right in line with plan and that the order intake volumes with our Chinese customers and other Asian countries customers are also fully aligned with historic volumes with no decrease at all.

26:53 Looking forward, obviously sharing our price outlook is a very sensitive information and we won't do that, but there are several moving factors as we stand and which we are analyzing to decide directionally or to what intensity we will be moving. On the last few days and weeks, two main events happened both in Indonesia. First, obviously, the intensification of the wildfires affecting the wood base, which is needed for, in our view, to start up or to an efficient ramp-up curve of oxy-tumul. And a lot of issues with haze and sources that we have on the ground have also mentioned that That had, in a sense, also jeopardized for some days or weeks the construction of the site.

27:51 And more recently, during this week, you all know about the news on the fire at Oqui One Mill. That's still unclear in terms of how much of the mill has been affected. Up to now, what we know is that the fires and affected the cooling tower of Oki 1, which was unplanned downtime, so with expected return in November 8, November 9. So the sources that we have on the ground and also connecting with our customers in the region and with traders in the region, the information we have is that this company is going to try to interconnect the cooling system that was being built or built for Oki 2 With OK1, and that's this distance, as we understand, of approximately two, two and a half kilometers.

28:46 So they're going to try to do this interconnection to then restart OK1. So to that sense, the restart should take longer than expected. So there's a market poop loss just for that purpose. And then obviously, after a fire of this extent happens, there's always a worry on safety and what other parts of the mills were affected. So it is our estimation that the ramp-up of OQ1 post-maintenance downtime will be slower or more careful than originally expected, therefore also affecting availability of market pulp in the market. And our sources also show and present that the inventory levels at APP system, including the pulp needed for their paper mills in China and in the region, are Thank you very much.

30:06 And I would say that a bit more mid-term, critical for us is clarity on OK2. If it really starts in Q3, mid-Q3, the situation is as planned for Suzano, but any delay would also favor a better supply and demand dynamics looking forward. Hi Daniel, Marcos here, taking your second question. You mentioned about Our guidance for the TOD for 2027, which is 1,983 reais, and embedded on that, there is an assumption of the cash cost of 787, right? Remember that that assumption carries a oil prices of $70 per barrel, okay? We will soon update you with our TOD guidance for 2027.

31:03 As we always do by the end of the year. But just to give you a hint here, the revision that we did on our cash costs from 800 to 825 had two major impacts, right? The first one was the FX that we had before at 507 and we moved it to 520. And the other one was the changing the assumption of oil prices from $84 per barrel to $94 per barrel. The biggest contributor to the guide exchange was definitely the higher oil prices and its consequences and impacts on the other chemicals and logistics as well, okay?

31:53 Thank you so much, Leo and Marcos. Our next question comes from Marcel Farigi from Goldman Sachs. You can open the microphone, sir.

32:08 Thank you. Morning, everyone. Well, sorry, I want to follow up on Sasson's questions. I think you painted a very good picture on your earlier remarks to talk about significantly better market in the second quarter, fiber-to-fiber continuing, you know, cash costs rising, a slower ramp-up curve for local producers in China. Closure is happening, unexpected downtime, diverticalization happening, two months backlog. I mean, can it get better than that? And I wonder why you announced a price hike for Europe and not for China in that scenario. Obviously, you had, like you said, two new events with Foki fire being an issue last week, and obviously with the general fires in Indonesia as well.

32:56 So, obviously, two new news in the last week, not under your control, but you're painting a very good picture. Prices are struggling, or it wasn't easy, as I understand, to get to $600 in China, or not as easy as you would expect with this scenario. So, just wondering what else you need to see to push harder and to see further price momentum there. And then maybe a question to Fabio. Fabio... What's the plan with the U.S. operations? I understand you've done a lot of work, and I think things have, you know, the operations are a lot better than when you initially started, but obviously it's still a little bit behind where we would expect in terms of profitability as well.

33:41 So if you can talk a little bit about the plans for U.S. and when you expect those operations to be free cash break even, that would be great. Thank you. Hi, Marcio. This is Leo here. So, first of all, we had announced the second full price increase for Europe and not in China. And that, again, as you have mentioned, is important to say that's all pre-having a clear view on the effect of the wildfires in Indonesia and also pre-fire at OK1 events. So, that was a Before understanding the effects of these two important variables to the S&D dynamics in our sector.

34:28 We have actually announced two price increases for each region, so they are kind of walking simultaneously with a delay in Europe, as usual. And what makes us watchful in China, or made us prior to these two events, are two main points. First is timing for increasing margins of our customers. We all know that prices in uncoated wood-free, coated wood-free and ivory board are not doing well, are falling in China. But these three paper grades or paper and packaging grades are mostly integrated as we speak. And what really drives the demand of pulp and the dynamics of pulp in the market are tissue and specialty papers, which represent roughly 80% of the hardwood pulp demand in that country.

35:22 We know tissue prices are increasing in China. They have been on this positive trend for the last few months. So our intention was to give time For margin recoveries, and we see today margins at historic levels in tissue, a bit compensated also with fiber to fiber in that country. Second variable that we are watchful are prices of softwood, softwood pulp. We know the situation there is much more critical than it is for hardwood supply and demand dynamics. At China prices, there was just a recent update from one of the main consultants in the business. At China prices, 51% of all global softwood production would be losing money. And this is unsustainable, right?

36:15 So we're also waiting and seeing what will happen to softwood and if that will give us a better and Lee Wei in terms of our price strategy looking forward. As it is today, price differentials in China are much lower than historic averages, are roughly $50 plus minus $10 depending on the grade, in which we think is not sustainable. It's also important to say, as in my opening speech, I mentioned that closures have again got traction during the year. We are monitoring that closely. Again, with the adjustment of a mill who decided to get back in business, total closures of softwood from January to October, the announcements total roughly 1.1 million tons.

37:06 And when we factor that in, actually, their curves as of the moment they were stopping, of the 1.1 million tons of closures in softwood, the factory market up to now is 380,000 tons. So most of it is coming as of Q4 and into Q1 into 2027 as well. So we have to see how all these factors unfold. Again, margins of our customers, how much or could soft-tooth prices move or how quick they could start moving up in China. Then factor in these two new variables in Indonesia to decide what to do. Marcos, thanks. Thank you, Marcel. Thank you for your question.

37:52 I'm going to address our U.S. operations. You're right. It was a very challenging quarter for us. When we bought this facility here in the United States, the main bottleneck that we had in terms of operations was the paper part of the mill. That was the major bottleneck with lower operating rates. Thank you very much. which is now the main focus of our efforts here to bring stability to the mill. As I said in my speech in September, the mill has already stabilized.

38:52 In October we had a good month in terms of production. It was a normal level both on the pulp side and the paper side of the mill. And we are focusing on two fronts. The first front is to continue to stabilize the mill, increase operating rate levels at the mill, efficiency, quality of our products and reducing costs. and also we have a series of small projects that we are working on with the small projects higher returns that can help us to increase the EBITDA that we generate at the mills. So these are the two fronts that we are working on and we are still pursuing our business plan that we had prior to the acquisition which is to bring this mill to cash positive in 2028.

39:44 Thanks, Leo. Thanks, Fabio. I'll turn it over. Our next question comes from Lucas Laghi from XP Investimentos. You can open the microphone.

40:00 Hi, everyone. Good morning. I have two questions. First of all, I'm thinking of Arbex. With the differences on the accounting format that you are providing markets, I think it becomes easier to understand the level of integration of the pulp that you're selling into companies. So just thinking of what's the optimal level that you expect Arbex integration to become over time. I think part of it is already integrated by your own pulp production, but just trying to understand What's the optimal integration level that you pursue for these assets over time, and how should we think of this rent-up between the integration of the book that you'll produce internally?

40:50 And, I mean, thinking of the guidance of that below $14 billion, I think it implies a very, as you indicated, very strong pre-cash flow standpoint for Q. Just understanding it If there's any, let's say, cash enhancement initiative included in the guidance, or if it's only related to the operating pre-cash flow, related to secure robust expected sales and operating standpoint in Fort Q. And if there's any, I mean, just if you could comment on any assets, say, you expect for the short term, I mean, any other potential cash enhancement initiative that should Hi Lucas, Marcos here. If I understood well your first question.

41:58 I don't know if you had that information, but we were already basically the sole supplier of Kimberly-Clark in most of their operations. So that integration does not provide us with meaningful additional volumes. Remember that we mentioned when we acquired during the signing that fiber-to-fiber could be one of the drivers of value creation. So that's something that we will be pursuing in the future. But that wouldn't be the biggest synergies that we expect for that transaction. On your second question regarding the net debt reduction to $14 billion, there is nothing material regarding asset sale in the fourth quarter of the year.

42:45 We are expecting a strong free cash flow generation in the quarter, given the positive environment for both volumes, for both prices, and also considering, as you mentioned, the assumption of 540 as an average BRL for U.S. dollar. That's pretty much it.

43:07 Okay. Thank you, Marcos. Our next question comes from Marcelo Arazi from BTG Pactual. You can open the microphone.

43:22 Good morning, guys. Can you hear me? Thanks for the space. Two questions on my side as well. The first one for Leo, a follow-up on the poop topic. You mentioned that the cash cost in China has been rising. I would like to understand a little bit more on that point, if this inflation is more related to the war impact that you have been mentioning. or this is more related to the wood inflation that we have been seeing in the region as well, and how could these fires in Indonesia impact even further this wood availability in the region. So this is the first one, and on the second one, perhaps for Beto, we are finally seeing the first quarter with Arbex integrating in the company, and we should expect Susana to move towards A more de-leveraged balance sheet over the next coming quarters and years. How can we expect capital allocation when Suzano is back on more normalized leverage levels?

44:23 Could we expect further intentions to increase in the tissue business, especially since this environmental poop? And I wanted to hear your best thoughts about this environment. Thank you, guys. Marcelo, thank you for your question. Yes, the rising cash costs in China are mostly related to inflation on wood prices. If we consider, first of all, the lows that we saw in, let's say, the biggest part of the first half of last year, we come up with this increased cost, depending if they're buying more or less.

45:09 Imported wood in their ratio anywhere from $30 to $40 per BGMT, which is kind of a double effect when it comes to their full cash costs. We still have not factored in the effects of the fire or the wildfires in Indonesia. We have heard Thank you very much. If they were buying and sourcing only from China, as today China prices are a bit lower than imported, if they were sourcing China wood only, that would mean a 20% increase over their current wood purchases in China. So this is massive, and as this demand grows, obviously there's going to be more pressure on prices because it's, as we all know, a stable wood base in that country.

46:39 Marcelo, can you hear me?

46:51 Regarding ARBEX and your question it's related to capital allocation ARBEX is still a lot to do in the next two years so we're just starting as I said we are happy with the first quarter under our But there's a lot to explore and to gain in terms of efficiency. We have this value creation stream that we already put in place. So I'll say that the focus on Arbex and on the consumer goods business is in the next two years deliver the business plan. and capture all the efficiency that we were able to design during the business plan. And so in the end of the day, it's improving the business, it's deleveraging. This is the main focus, mainly on the next two years. So that's what we have to focus at this time in the Not just track your organization putting other elements in the agenda.

48:11 So that's how we see our plans in the, let's say, short and mid-term.

48:21 Thanks, Beto. That's very clear. The next question comes from Kyle Grainer from UBS. You can open your microphone, sir.

48:36 Hello, good morning everyone. Thank you. So, two follow-ups from me. The first one is still on Oki. Lau, I wanted to hear specifically about the initial reaction from your clients after the news on the Oki fire. Did you perceive already on day one or day two an increase in your order intake after this incident? If the market gets as tight as you mentioned, probably you're going to see, probably there's going to be room for higher prices still in November. There's news today of APPs not being at volume, all the volume available in China. So would you still be willing to raise prices for China in November despite weak paper prices or is this more of December or January?

49:30 So, two points on your order intake and higher prices for November. The second question, also a follow-up on costs, and also looking into 2027, and I know that you guys are only going to provide the official guidance at the Susano there later in the year, but based on the 825 per ton guidance for the year that you provided, the implied value for the fourth quarter is around 830. So, At current market conditions, is this number a good proxy for 2027? Or should your efficiency initiatives or other initiatives that you have still translate into a lower number versus 830? Again, at current market conditions.

50:15 Thank you very much. Hi, Caio. This is Leo here. So, regarding October, Our sales to China were closed before the OK1 event, and we, due to our backlogs, do not have space to reopen or to increase orders, which, as I mentioned, were coming and even with the price increase came at historic levels, so To that point, we did not increase our order books. Obviously, there were customers calling, but we did not leave space to reopen or increase previous orders with Suzano.

51:01 We do, however, see and hear a lot of news on APP these last 48 hours, very active on the resales markets in China, trying to buy Pope. From traders or buying from traders reflecting on increasing resale prices on this last one to two days. And that can pose an effect to market sentiment in general, not only for customers buying from traders. Regarding if we're going to increase prices till November, which we could, or December or January, this is obviously a very sensitive information. It's part of our commercial strategy. And unfortunately, I cannot open and share that with you at this moment.

51:53 Hi Caio, regarding your second question, we're actually in the middle of our budgeting process at this point in time. And as I mentioned, I think that the cash cost assumption will depend a lot on the macro variables that we commented with oil prices being very relevant because of its impact in our business through chemicals and also logistics. What I can say to you is that we remain highly committed to improve the efficiency of our own operations. We're studying and analyzing how can we create value and extract value from our own operations, from the nursery to the forestry business to the industrial business on the commercial and the logistics. So throughout the whole value chain, how can we extract value, and that should be Thank you both.

52:56 The next question comes from Paula Athanasics for Citi. The floor is yours.

53:02 Hi guys, thanks for taking my questions and congrats on the results and the incorporation of Aurebex. So, just a follow-up here in the pool cash cost. Actually, in the total operational disbursement, the last presentation of you guys, you had the bridge between 2025 and 2007 with 121 reais per ton of cost initiatives. I just want to Ask if there's any update on that, how these initiatives are going so far. And if you could ask about two more questions very quickly, quickly, sorry. Regarding Aurebex, we saw an increase in EBITDA sequentially.

53:55 What were the main drivers for this? Is there any surprise so far? Any updates on the timing for synergies? And lastly, if I could ask about the cash tax rate, is there any update on your view on what you could expect of the tax rate for 2027 and 2028? So these are my questions. If I understood you well on your first question regarding cost, The evolution from 2027 to 2025 to 2027, basically, we are incorporating inflation, right? The change in the macro variable of effects.

54:42 And we are also incorporating the efficiency gains that we expect for the business. And that's how we arrive at a TOD reduction from 2060 level that was realized at TOD for 2025 to 1,980 in 2027. As Carlos mentioned in his initial speech, if it was not for the change in the macro variables, we would be 100% aligned with our guidance on the cash cost side. So I think that remains the case. The main or the big difference that could arrive in the numbers for 2027 would be Depending on the marker variables that we will use, okay?

55:27 Second question regarding Parbix Beto also mentioned that we expect the value creation program to kick in in the upcoming quarters As we mentioned before, we see room for SG&A improvement We now have contracts that we have to To still, like, Kimberly Clark is offering some services to ARBICS, and as we get out of those services, we will probably be able to reduce the cost of the structure of ARBICS. On the procurement side, there is a lot of upside in our opinion.

56:14 We are starting the renegotiation of the contracts. Remember that some contracts have higher lead time to be and as they kick in and we are able to improve the efficiency of those contracts, we will obtain synergies as well. KC used to have a common practice of hiring large contractors and large suppliers. Sometimes they were even subcontracting smaller suppliers. We are going to bypass that. We're going to go for smaller suppliers. Local suppliers in order to extract value from our contracts. On the industrial side, there is also room to be more productive in terms of labor productivity. We see also a lot of room to be more productive on specific consumption, which is something that we follow very closely at Susano, and we are kind of exporting this technology to Arbix, and we expect a lot of upside from that as well. So, there are definitely opportunities. We believe that this will start to show up starting in the fourth quarter. There is no update regarding the full extraction of synergies, which we named that.

57:40 We would arrive at that in three years to reach the $175 million. There was no change to that, but as I mentioned, we are confident that we will reach that. Lastly, on cash, cash tax rate, no updates on that. If you like more details, you can ask our IR team, but no meaningful updates on that. Our next question comes from Julia Rizzo from Morgan Sterling. You can open the microphone.

58:26 Hello, good morning. Thank you for getting my question. I have two things that I would like to follow up. One, on the paper, can you quantify how much was the variable compensation or the one-off that you had in the third quarter? Maybe how much we can have an improvement from that normalization already on the floor for maybe a bigger view for next year. And the other will be on the fires. The wildfires, how does that impact the overall supply once the rain starts? The problem with the wood supply is you cannot harvest because it's on fire, so it's difficult to reach.

59:11 or the problem is that you kill the wood and you have a permanent supply loss that won't be able to use anymore. Once the rain starts coming, how much that disruption or impact on woodship costs can be normalized and how fast? Julia Thanks for your question. It's Fabio here. I'm going to take the first one. We had, quarter over quarter, we had the impact of higher SG&A due to higher, you know, ratio of corporate costs. And this is, the impact was about 30 million reais in Brazil in the quarter.

1:00:02 Okay, Julia.

1:00:03 That will say that for the fourth, right? That is the non-recurring normalization expected for... Okay, thank you. Okay, Julia, this is... Marcos, you want to compliment? Yeah, just to compliment on that, Julia. The variable compensation, the main impact of that was the change in the share price of Suzano. So, that's the provision for... Julio Almeida de Oliveira And the answer is all of three which you have asked and mentioned.

1:01:01 So first comes from, obviously, while the land is on fire and the haze that comes out of this burning wood. And that implies, number one, with regulations in Indonesia where these areas cannot be assessed by workers, so it impacts short-term harvesting. And second, obviously with the haze, you have a lot of safety issues with workers also at new sites close by. So the first impact is more deriving from the haze and all of the safety regulations around that, which are seen, I would say, immediately, right?

1:01:47 So I mentioned in one of my previous answers that it was our understanding that even in the case of this project being built, In a certain specific time, workers were not allowed to go in, so all of this is deriving from this haze and safety part. The second, obviously, is also a permanent loss. These trees are burned. From our understanding, again, this is very unclear. Information was clear, but I would say for a week to ten days, there was kind of a blockage of information. Coming from this country and through consultants or other sources as well. So this is, I would say, at least a week outdated, but at the time already we had foreseen and were able to track that Acacia wood bases, which is located very close and expected to support Okay True Project was being burned as well.

1:03:00 It is our understanding that that was not directly from APP but from partners of APP in their wood supply system. So in that case, it would affect either the ramp-up curve or how much pulp they would be limiting their total Once it starts raining, how much do you expect to impact the market? Sorry, I didn't tackle this. It is our understanding that these last days there was rain in Indonesia, so we understand that due to that fact There would be an easing off of wildfires, obviously, but the strong El Nino, just again, I think I talked about that in one of our previous calls, lasts until February, March 2027. So I would say that in the short term, rains have eased off what we were sensing and seeing before in terms of wildfires, but again, the El Nino lasts a couple of months ahead of us.

1:04:20 Thank you The Q&A session is over We would like to hand the floor back to Mr. Beto Abreu for his final remarks Thank you very much everyone for joining us in our third quarter on this call Any further information please our R.I. team is available and I'll see you in the next Thank you and have a good day.