Brazil’s Suzano to invest nearly US$3 billion in new pulp mill in Mato Grosso do Sul

RIO DE JANEIRO, BRAZIL – Suzano, the largest pulp and paper company in Latin America, announced on Wednesday, May 12, that it will invest R$14.7 (US$2.8) billion to build what it considers the world’s largest single-line eucalyptus pulp mill, scheduled to start operating in Ribas do Rio Pardo (MS) in early 2024.

The new unit will have annual pulp production capacity of 2.3 million tons.

The average distance of the wood to supply the unit will be 60 kilometers, compared to more than 100 kilometers for other company units, which will render the facility the most competitive Suzano has in terms of production costs, said executives during a video conference.

“We have already bought the wood needed for the first years of production. We have a significant eucalyptus planting program and are completely confident about wood supply,” said Suzano CEO Walter Schalka.

With the new plant, Suzano, currently the largest producer of eucalyptus pulp in the world, will increase its production capacity from 10.9 million to 13.2 million tons per year.

Preparations for the unit’s launch had been underway for months, with the company citing the need to reduce leverage before announcing the investment.

With the future new plant, Mato Grosso do Sul, home to important biomes such as the Pantanal and the Cerrado, will house four large pulp production facilities in addition to agricultural production, including two lines from Suzano itself and one from Eldorado Brasil, these three in the Três Lagoas region. New pulp projects in the state are being considered.

The production from the new Suzano plant in Ribas do Rio Pardo will be shipped through the Port of Santos.

Agriculture Minister Tereza Cristina during the presentation mentioned investment plans in the region’s railroad infrastructure.

The Suzano project’s financing, which will see disbursements until 2024, represents one of the largest private investments in the country, and will be carried out with Suzano’s own resources with no requirement to contract new financing, said the company’s financial vice-president, Marcelo Bacci.

“Our leverage will fall below three times by the end of the year, which is the limit of our debt policy. This trajectory makes room for new investments,” stated the executive. Suzano closed March with leverage in dollars of 3.8 times net debt over earnings before interest, taxes, depreciation and amortization (EBITDA).

“The timing is favorable,” Bacci said. In fact, in April, Suzano raised prices for pulp sold to China to a record US$780 a ton and raised prices charged to clients in Europe and the United States, citing a market with more demand than supply and still facing difficulties in finding containers to ship paper raw material.

In addition to Suzano, other companies in the pulp and paper sector have prepared expansion projects in the country. Suzano’s announcement on Wednesday came a week after rival Klabin approved an additional investment of R$2.6 billion for the expansion of its integrated pulp and paper mill in Paraná.

Results

In addition to the investment in Mato Grosso do Sul, Suzano also reported on Wednesday that it closed the first quarter with adjusted EBITDA of R$4.86 billion, up from R$3 billion in the same period in 2020. Analysts, on average, expected EBITDA of R$5.07 billion, according to Refinitiv data.

Net revenue totaled R$8.9 billion, a 27% growth over last year and 11% over the fourth quarter. Despite the increase in revenue, pulp production fell 7% year-on-year and remained stable in the quarter, at 2.65 million tons.

“The quarter was marked by the recovery of the pulp market, with a significant improvement in the fundamentals, which favored the continuity of the price recovery, particularly in China, and that gradually will be reflected in the company’s results,” said Suzano in the balance, referring to price increases.

Suzano stated that it sold cellulose at an average price of US$523 per ton in the first quarter, 13% above last year’s price.

The final line of the quarterly balance was a net loss of R$2.75 billion, an improvement over the negative result of R$13.4 billion a year ago.