Suzano S.A. (SUZ) Q3 2026 Earnings Call Transcript

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DATE

Friday, Nov. 6, 2026

CALL PARTICIPANTS

• Chief Executive Officer - João Fernandez de Abreu
• Executive Officer - Fabio Almeida Oliveira
• Executive Officer - Leonardo Grimaldi
• Executive Officer - Carlos Fernandes de Almeida
• Executive Officer - Marcos Assumpcao

TAKEAWAYS

• Net Revenue -- BRL 16.5 billion, representing a 42% sequential increase following the consolidation of Arbex operations.
• Adjusted EBITDA -- BRL 5.7 billion, a 21% increase compared to the second quarter driven by higher sales volumes and lower pulp cash costs.
• Net Income -- BRL 2.1 billion, representing 15% growth from the previous quarter.
• Pulp Sales Volume -- 3.2 million tons, increasing 8% sequentially behind higher demand from Asian customers.
• Average Export Pulp Price -- $591 per ton, representing a 13% increase compared to the third quarter of 2025.
• Consumer Goods Sales Volume -- 299,000 tons, a 351% sequential increase primarily resulting from the integration of the Arbex acquisition.
• Arbex Adjusted EBITDA -- BRL 694 million, contributing approximately 12% of the consolidated adjusted EBITDA for the period.
• Pulp Production Cash Cost -- BRL 825 per ton, declining 2% sequentially due to operational efficiency and lower wood consumption.
• Revised 2026 Cash Cost Guidance -- BRL 825 per ton, updated from BRL 800 per ton due to persistent commodity and energy price pressures.
• Reported Net Debt -- $14.7 billion, increasing 15% from the previous quarter following the $1.3 billion disbursement for the Arbex acquisition.
• Pro Forma Leverage -- 3.4x, remaining stable when including the last 12 months of Arbex performance.
• Operating Cash Generation -- BRL 3.8 billion, a 33% sequential increase driven by higher adjusted EBITDA.
• Paper and Packaging Sales Volume -- 374,000 tons, increasing 10% sequentially due to higher volumes from Suzano Packaging U.S. operations.
• Pulp Segment EBITDA -- BRL 4.8 billion, rising 12% sequentially behind higher volumes and more favorable exchange rates.
• Paper and Packaging Segment EBITDA -- BRL 277 million, a 14% sequential decline attributed to higher logistics costs and corporate expense allocations.
• Brent Oil Average Price -- $91 per barrel, representing an increase from $68 per barrel in the prior year and contributing to higher chemical and logistics costs.
• Net Debt Guidance -- Under $14 billion by year-end 2026, supported by expected strong seasonal free cash flow in the fourth quarter.
• FX Hedging Portfolio -- $4.8 billion notional value in zero cost collars, covering 65% of exchange rate exposure for the next 24 months.
• Free Cash Flow Yield -- 18.3% on a last-12-month basis, representing a slight increase compared to the previous year.

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RISKS

• Carlos Fernandes de Almeida stated, "commodity and energy cost pressures have proven more persistent than initially anticipated as the conflict in the Middle East continues to impact -- to affect global supply chains and commodity markets," noting this led to an increase in 2026 cash cost guidance.
• Fabio Almeida Oliveira noted that "Q3 EBITDA was significantly impacted by operational challenges at the Pine Bluff mill, mainly related to asset reliability and production efficiency," which resulted in lower operating rates and higher production costs.
• Leonardo Grimaldi warned that wildfires in Indonesia "are reportedly affecting the forest base supporting the country's pulp production," which could potentially lead to further startup delays for regional capacity projects.
• Leonardo Grimaldi indicated that wood prices in China are rising, with estimated cash costs for local producers now ranging between the low $500 to $560 per ton due to wood price inflation.

SUMMARY

Suzano S.A. (NYSE:SUZ) reported a 36% year-over-year increase in net revenue as the company completed its first quarter consolidating the Arbex joint venture. Management reported that pulp market dynamics improved toward the end of the period, supported by inventory declines at Chinese ports and delays in competitor capacity expansions. The company focused on integrating the Arbex consumer goods business while navigating higher logistics and energy costs influenced by geopolitical tensions in the Middle East. Management prioritized deleveraging and structural competitiveness, noting that the full capture of efficiency gains from recent acquisitions remains a focus for future periods.

• CEO Abreu stated, "The Arbex acquisition is perfectly aligned with the company's strategy. We see a significant value creation opportunity, and it gives Suzano a more resilient business portfolio."
• Management reported that paper and packaging demand in Brazil grew 5% sequentially during the quarter, benefiting from historical seasonality and election-related demand.
• Leonardo Grimaldi noted that customers destocked during the first half of the quarter in anticipation of new supply before a project delay triggered a restocking cycle.
• The company addressed operational constraints at the Pine Bluff mill by the end of September and anticipates reaching positive cash flow for the facility by 2028.
• Management expects the fourth quarter of 2026 to be the strongest period of the year, driven by historical pulp sales seasonality and the capture of planned efficiency gains at Arbex.
• The company generated BRL 294 million in positive cash adjustments from its foreign exchange hedging portfolio during the quarter.

INDUSTRY GLOSSARY

• Arbex: A joint venture between Suzano and Kimberly-Clark focused on consumer goods production and sales.
• OKI-2: A significant pulp project in Indonesia whose startup delay influenced global market supply and demand dynamics.
• SBS: Solid Bleached Sulfate, a premium paperboard grade used for liquid packaging and high-end consumer goods.
• TOD: Total Operational Disbursement, a financial metric representing the total cash outgoing for operational and sustaining activities.
• Zero Cost Collar (ZCC): A hedging strategy involving the purchase of a put option and the sale of a call option to protect against exchange rate volatility.
• NDF: Non-Deliverable Forward, a cash-settled currency derivative contract used to hedge against exchange rate fluctuations.

Full Conference Call Transcript

Operator: 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. [Operator Instructions] The presentation that will be addressed by the CEO, Mr. Beto Abreu and other executive officers. This call will be presented in English with simultaneous translation to Portuguese. [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 the future events and therefore, depend on circumstances that may or may not occur in the future.

You should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Suzano and could cause results to differ materially from those expressed in such forward-looking statements. Now I will turn the conference over to Mr. Beto Abreu. Please, you may begin your presentation.

João Fernandez de Abreu: Good morning, everyone, and thank you for joining our third quarter earnings call. This is a special call for Suzano as it's the first one in which we are reporting Arbex results in our financial statements. The Arbex acquisition is perfectly aligned with the company's strategy. We see a significant value creation opportunity, and it gives Suzano a more resilient business portfolio. I'm happy to share that Arbex'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.

Q3 was marked by solid volumes, sales and pricing, a declining cash cost, despite a challenging geopolitical environment and stable pro forma leverage of 3.4x in U.S. dollars, including Arbex's last 12 months EBITDA. Management's priorities are now fully focused on continuing to improve our structure, competitiveness, advancing our fiber-to-fiber initiatives, reducing net debt and leverage, starting already in Q4, our strongest quarter for 2026 and capturing the highly visible efficiency gains at Arbex. Nothing else is on our agenda at the moment. With that said, I turn the floor over to Fabio, who will continue the presentation.

Fabio Almeida Oliveira: Thanks, Beto, 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 cover the June-September period. Since its inception, Suzano Packaging has been reported with 1-month lag for our Brazilian operations. We started this quarter to report and be fully synchronized across both businesses. Looking at our markets in Brazil, Print & Write demand grew 5% versus Q2 and 2% year-over-year, benefiting from seasonality and election-related coated paper demand. Paperboard demand remained under pressure, down 9% sequentially and 5% year-over-year amid softer domestic consumption environment in Brazil.

Imports continue to rise with Print & Write paper and paperboard imports up 76% and 18% year-to-date through August, respectively, reflecting global oversupply and a stronger FX. Turning to international Print & Write markets. PPPC reported a 2% decline in uncoated woodfree demand in North America and LatAm in the first 8 months of the year, while Europe fell 4%. Now looking at paperboard in the U.S., market fundamentals slightly improved during the quarter. Based on data from AF&PA, SBS shipments were 2% quarter-over-quarter and 4% year-to-date up, while the production disruption at Nippon Dynawave tightened regional supply, especially liquid packaging board, the main market for Suzano Packaging.

SBS operating rate is now at 85%, better on a quarter-over-quarter, but still below on a year-over-year and historical levels. During the quarter, our Brazilian operations performed well with a 3% growth in production quarter-over-quarter, even considering the annual planned shutdown at our Mucuri mill in August. Against last year, volumes from the Brazilian operations were stable. In our Suzano Packaging operations, the growth in production volumes in quarter-over-quarter and year-over-year, reflecting the additional month reported as 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-recurring impacts related to the implementation of our new SAP system in July. Export operations have since then improved, and we are now working to have our backlog cleared in Q4. Suzano Packaging sales grew on a quarter-over-quarter and year-over-year basis, but were limited to operational constraints at our Pine Bluff mill in Q3 and lower inventory levels. Despite higher import volumes in the Brazilian markets, our Brazilian operations delivered a price increase of over 2% quarter-over-quarter. Ex Suzano Packaging prices increased 6% in dollar terms over the same period.

Now looking at our EBITDA, our combined operations performance decreased 14% quarter-over-quarter. Our Brazilian operations delivered stable volumes and higher prices, but higher SG&A in the period due to corporate expense allocations and higher logistics costs and COGS impacted by annual planned maintenance shutdown at Mucuri mill, which affected our performance in the quarter. At Suzano Packaging, Q3 EBITDA was significantly impacted by operational challenges at the Pine Bluff mill, mainly related to asset reliability and production efficiency, resulting in lower operating rates, higher production costs and reduced inventory availability. In addition, raw materials and logistics costs increased in the quarter amid a more challenging geopolitical environment.

While price increases helped mitigate part of these inflationary pressures, they were not sufficient to offset the operational headwinds. The operational 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 Suzano Packaging, supporting 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 expect stable demand with stronger year-end consumption, offsetting part of the softer economic backdrop. Now I hand over to Leo, who will present the Pulp business unit results.

Leonardo Grimaldi: Thanks, Fabio, and good morning, everyone. Let's now turn to our Pulp 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 pulp purchases in order to support the higher production pace from September to December, the strongest seasonal period of the year. Despite healthy demand, market pulp dynamics reflected 2 distinct business environments as the quarter unfolded.

In the first half of Q3, customers continued destocking in anticipation of new pulp supply coming from OKI 2 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.

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 pulp production rates and shift to market pulp 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 Europulp data, hardwood pulp consumption was stable in Q3 when compared to Q3 '25, while softwood consumption fell 9%.

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 bleached chemical pulp was removed from the market as Q3 unfolded, again, improving S&D dynamics. In such context, 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 BRL 4.8 billion 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.

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 volumes. 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 cost in China to a range between the low $500 to $560. And the cost pressure in our sector is not exclusive to China. Pulp producers worldwide continue to face a broad cost inflation in their value chain and the ongoing geopolitical tensions and weather-related events.

Now talking about the supply side of the equation, we are closely monitoring the impacts of El Nino 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 pulp production, although the impact remains unclear. Depending on the severity of the wildfires and their impact with haze or wood availability, the ongoing pulp project in Indonesia may face further start-up delays or have lower ramp-up curves. 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 bleached chemical pulp since the beginning of this year and expected downtimes are rising and reaching 2.3 million tons so far. Several pulp projects, both market pulp and verticalization, have been delayed during 2026, and we are enthusiastic to share that the first cases of the verticalization in Western markets are starting to materialize. Unfortunately, due to confidentiality agreements, we can yet publicly not disclose them. For Suzano, the fourth quarter is seasonally marked by higher sales volumes to support our customers' increasing demand, and we are prepared to deliver another strong Q4.

Today, we are running with invoicing backlogs in some cases, reaching more than 2 months, and we seek to reestablish normalized 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.

Carlos Fernandes de Almeida: Thanks, Leo, and good morning, everyone. I will cover pulp cash cost, Page 6 of our presentation. Our cash costs, excluding downtime was BRL 825 per ton in the quarter, down 2% versus Q2 '26. The improvement was mainly driven by operational efficiency 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 BRL 14 per ton of our cash cost in the quarter was related to commodity cost pressures associated with this conflict in the Middle East. Adjusting for this exogenous factor, cash cost would have declined and again, would have declined 4% quarter-over-quarter, highlighting the underlying operational improvements captured during the period. Looking now to the year-over-year performance, our cash costs, excluding again downtime, increased 3%, mainly reflecting higher chemical and energy costs once again associated with direct and indirect impacts of the conflict in the Middle East on the global commodity and energy markets. We also saw higher wood costs, mainly driven by labor and maintenance inflation in our harvesting operations.

These headwinds were partially offset by operational efficiency gains with better fixed cost dilution from higher production volumes and stronger energy sales. The weaker U.S. dollar against the Brazilian real benefited 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 operational execution remains broadly in line with the assumptions underlying our original cash cost outlook. However, commodity and energy cost pressures have proven more persistent than initially anticipated as the conflict in the Middle East continues to impact -- 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. As a result, we are updating our full-year 2026 cash production cost, excluding downtime guidance from BRL 800 per ton to approximately BRL 825 per ton. Important to say that, absent these external pressures, we would be on track to deliver our original BRL 800 per ton cash cost target. Now I turn the floor over to Marcos, who will continue the presentation.

Marcos Assumpcao: 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 BRL 803 million with a 16% margin. Arbex contributed with BRL 694 million. Our Brazilian operations added BRL 109 million, up 31% year-on-year, driven by strong volumes and lower costs. Arbex is performing in line with what we underwrote.

Over the last 12 months, Arbex generated EBITDA slightly above $530 million, 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 #8. Let me walk you through our net debt. Excluding Arbex, net debt for Suzano continued to decline from $12.8 billion in June to $12.5 billion in September.

Reported net debt, including Arbex 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 Arbex's net debt. Important to mention that deleveraging 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 forma leverage, which includes Arbex's last 12-month EBITDA, remained at 3.4x, 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 strong FX hedging portfolio.

In third quarter 2026, we generated BRL 294 million in positive cash adjustments. And in the 9 months year-to-date, we generated BRL 825 million. At the end of the quarter, our 0 cost collar portfolio had a notional of $4.8 billion with an average put strike at BRL 6.04 per dollar and an average call of BRL 6.95 per dollar. These hedges cover 65% of our FX exposure. As a sensitivity, if the FX rate stays at September's close of BRL 5.18, we expect more than BRL 4.1 billion in cash adjustments throughout the next 24 months. Now moving to Slide 10. We will comment on our commodity hedges.

Oil prices remained high during the quarter with Brent 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 and bunker helped to offset it. In third quarter 2026, our hedges generated BRL 91 million in positive cash adjustments. And year-to-date, the positive cash adjustments totaled nearly BRL 300 million. For 2027, we have coverage for nearly 65% of our hedgeable exposure.

And if Brent stays at $98, which was the level that we closed in the quarter, we would expect around BRL 477 million in total cash adjustments from this portfolio. With that, I will hand it back to Beto for his final remarks.

João Fernandez de Abreu: Thank you, Marcos. Looking forward, and it's a 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 debt and keep focusing on strengthening our TOD competitiveness. And important to say that we haven't started yet gaining the efficiencies that was in the plan for Arbex. So in the fourth quarter, we will also be able to start gaining those efficiency that was planned in the business plan. So that's the main element for the next quarter.

So having said that, I would hand over for the Q&A section. Thank you very much.

Operator: [Operator Instructions] Our first question comes from Daniel Sasson from Itau BBA.

Daniel Sasson: My first question is on prices and order intake. You mentioned that the October price increases were implemented globally without impacting the planned sales volumes with intake in China at historical levels at the new prices. You're also running invoicing backlog of more than 2 months in some cases. Does this give you confidence that the market can absorb another price increase in December? Or are you seeing meaningful difference between China and Europe in terms of the ability to implement further increases? And still on OKI 2, you mentioned the initial delay from 4Q '26 to the first quarter of 2027, that triggered a meaningful restocking cycle in China, as you mentioned.

We are now flagging the wildfires in Indonesia could result in delays or further delays or slower ramp-up. Has the recent events there changed your base case for the start-up timing or ramp-up curve of OKI 2? And if the project is pushed further out, could that materially change your price outlook for next year? And my second question on cash cost. You reiterated your TOD guidance, right, which points to a cash cost of $787 per ton next year, which includes maintenance stoppages. Maybe if you could walk us through your -- what would be the case if we use the same FX and commodity assumptions, Brent price assumptions, for instance, in your updated 2026 guidance?

What would the $787 per ton guidance look like? And how do you bridge the reduction from 2026 to 2027 between lower downtime or wood cost or fixed cost dilution that would give us some comfort to factoring your guidance for next year despite a more challenging than anticipated 2026, right?

Leonardo Grimaldi: 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 confirm 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. 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, 2 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 OKI-2 mill. 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 week the construction of the site. And more recently, during this week, you all know about the news on the fire at OKI-1 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 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 -- trying to interconnect the cooling system that was being built or built for OKI-2 with OKI-1. And that's a distance, as we understand, of approximately 2, 2.5 kilometers. So they're going to try to do this interconnection to then restart OKI-1. So to that sense, the restart should take longer than expected.

So there's a market pulp 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 OKI-1 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's system, including the pulp needed for their paper mills in China and in the region are below normalized levels. Most reports present lower than 15 days.

So obviously, there's this huge crunch that probably will happen in China and in Asian markets to be unfolded and to be known during the next, I would say, 5 to 10 days. So there's a lot of moving parts, a lot of unclarity and this is all key for us to position our short-term price strategy. And I would say that a bit more midterm critical for us is clarity on OKI-2. 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.

Marcos Assumpcao: Daniel, Marcos here, taking your second question. You mentioned about our guidance for the TOD for 2027, which is BRL 1,983. And embedded on that, there is an assumption of the cash cost of BRL 787, right? Remember that, that assumption carries an oil prices of $70 per barrel. Okay? We will soon update you with our TOD guidance for 2027, as we always do by the end of the year. But just to give you a hint here, our -- the revision that we did on our cash cost from $800 to $825 had 2 major impacts, right? The first one was the FX that we had before at BRL 5.07 and we move it to BRL 5.20.

And the other one was the change in the assumption of oil prices from $84 per barrel to $94 per barrel. The biggest contributor to the guidance change was definitely the higher oil prices and its consequence and impact on the other chemicals and logistics as well, okay?

Operator: Our next question comes from Marcio Farid from Goldman Sachs.

Marcio Farid Filho: Sorry, I want to follow up on Sasson's questions. I think you painted a very good picture on your earlier remarks. You talked about significantly better market in the second quarter, fiber-to-fiber continuing, cash costs rising, a slower ramp-up curve for local producers in China, closures happening, unexpected downtime, deverticalization happening, 2 months backlog. I mean, can you 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, 2 new events with the OKI fire being an issue last week. And obviously, with the general fires in Indonesia as well.

So obviously, 2 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. What's the plan with the U.S. operations?

I understand you've done a lot of work, and I think things have -- the operations are a lot better than you initially -- when you initially started, but obviously, still a little bit behind where we would expect in terms of profitability as well. So if you can talk a little bit about the plans for U.S. and when you expect those operations to be free cash breakeven, that would be great.

Leonardo Grimaldi: Marcio, this is Leo here. So first of all, we had announced the second pool price increase for Europe and not in China. And that, again, as you have mentioned, it's important to say that's all pre having a clear view on the effect of the wildfires in Indonesia and also prefire at OKI-1 event. So that was before understanding the effects of these 2 important variables to the S&D dynamics in our sector. We have actually announced 2 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 2 events are 2 main points.

First is, timing for increasing margins of our customers. We all know that prices in uncoated woodfree, coated woodfree and ivory board are not doing well, are falling in China. But these 3 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. We know tissue prices are increasing in China. They have been on this positive trend for the last 2 months. So we -- 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 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? So we're also waiting and seeing what will happen to softwood and if that will give us a better leeway in terms of our price strategy looking forward.

As it is today, price differentials in China are much lower than historic averages or roughly $50 plus/minus $10 depending on the grade and 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 totaled roughly 1.1 million tons.

And when we factored that in, actually their curves as of the moment they are all stopping of the 1.1 million tons of closures in softwood, the effect to market up to now is 380,000 tons. So most of it is coming as of Q4 and into Q1 and 2027 as well. So we have to see how all these factors unfold. Again, margins of our customers, how much or could softwood prices move or how quick they could start moving up in China, then factor in these 2 new variables in Indonesia to decide what to do.

Marcos Assumpcao: Marcio, thank you for your question. 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 that with lower operating rates, higher cost, low quality. And since then, we have put a lot of efforts and we have improved a lot the paper side of the mill. Last year, we had no major issues on the paper side. This year, we had no major issue on the paper side.

The issues that we have had this year were on the pulp side of the mill and our utilities, 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. 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 all 2 fronts. First front is to continue to stabilize the mill, increase operating rates levels at the mill efficiency, quality of our products and reducing cost.

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 that's -- these are the 2 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.

Operator: Our next question comes from Lucas Laghi from XP Investimentos.

Lucas Laghi: I have two questions. First of all, thinking of Arbex, I mean, with the differences on the accounting format that you are providing the market, I think it becomes easier to understand kind of the level of integration of the pulp that you're selling into your company. So just thinking of what's the optimal level that you expect Arbex integration to become over time? I mean, 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 this asset over time? And how should we think of this kind of ramp up between this -- the integration of the pulp that you produce internally?

And I mean, thinking of the guidance of net debt below $14 billion, I think it implies a very -- as you indicated, very strong free cash flow standpoint for 4Q. Just understanding if there's any, let's say, cash enhancement initiative included in the guidance or if it's only related to the operating free cash flow related to your robust expected sales and operating standpoint in 4Q? And if there is any -- I mean, just if you could comment on any asset sale you expect for the short term, I mean any other potential cash enhancement initiatives that should drive this leverage downwards over the upcoming quarters? Just those 2 topics.

Marcos Assumpcao: Lucas, Marcos here. If I understood well your first question, 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 additional -- 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.

We are expecting a strong free cash flow generation in the quarter, given the positive environment for pulp volumes, for pulp prices and also considering, as you mentioned, an assumption of BRL 5.40 as an average for U.S. dollar. That's pretty much it.

Operator: Our next question comes from Marcelo Arazi from BTG Pactual.

Marcelo Arazi: Can you hear me? Two questions on my side as well. The first one for Leo, a follow-up on the pulp topic. You mentioned that the cost -- 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 Suzano to move towards a more deleveraged balance sheet over the next coming quarters and years. How can we expect capital allocation when Suzano is back on more normalized leverage levels? Could we expect further intentions to increase in the tissue business, especially since this environment on pulp? And I wanted to hear better thoughts about this environment.

Leonardo Grimaldi: 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 are buying more or less imported wood in their ratio anywhere from $30 to $40 per BDMT, which is kind of a double effect when it comes to their pulp cash cost. We still have not factored in the effects of the fire or the wildfires in Indonesia.

We have heard from more than one sources in the market that Indonesians are even more active looking at wood from Vietnam to their country, but we still do not see a reflection on price indexes for this, I would say, recent event. And looking forward, with the verticalization projects in China alone that are expected for 2027, that would mean 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.

Marcelo Arazi: That's very clear. Thanks, Leo.

João Fernandez de Abreu: Marcelo, can you hear me? Regarding Arbex and your question that's related to capital allocation. Arbex, there's still a lot to do in the next 2 years. So we're just starting, as I said, we are happy with the first quarter under our control, but there's a lot to explore and to gain in terms of efficiency. We have this value creation stream that we're already putting in place. So I would say that the focus on Arbex and on the consumer goods business is in the next 2 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 2 years. So that's what we have to focus at this time and do not distract the organization putting other elements in the agenda. So that's the -- that's how do we see our plans in the, let's say, short and midterm.

Operator: The next question comes from Caio Greiner from UBS.

Caio Greiner: So two follow-ups from me. The first one is, so on OKI, Leo. 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 1 or day 2, an increase in your order intake after this incident? Because if it gets -- 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 APP mopping up 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 a December or January negotiation going forward? So 2 points on your order intake and higher prices for November. The second question, also a follow-up on costs. So also looking into 2027, and I know that you guys are only going to provide the official guidance at the Suzano Day or later in the year. But based on the BRL 825 per ton guidance for the year that you provided, the implied value for the fourth quarter is around BRL 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?

Leonardo Grimaldi: Caio, this is Leo here. So regarding October, our sales to China were closed before the OKI-1 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.

We do, however, see and hear a lot of news on APP this last 48 hours, very active on the resales markets in China, trying to buy pulp from traders or buying pulp from traders, reflecting on increasing resale prices on this last 1 to 2 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 still in 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.

João Fernandez de Abreu: 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 included whenever we provide the guidance for DTO or TOD, sorry, for 2027 by the end of the year.

Operator: The next question comes from Paula [indiscernible] for Citi.

Unknown Analyst: Congrats on the results and the incorporation of Arbex. So just a follow-up here in the cash cost. Actually, in the total operational disbursement, the last presentation of you guys, you had a bridge between 2025 and 2027 with BRL 121 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, sorry, regarding Arbex, we saw an increase in EBITDA sequentially. What were the main drivers for this? Is there any surprise so far? Any update 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 we could expect of the tax rate for 2027 and 2028? So these are my questions.

Marcos Assumpcao: 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 FX, 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 2,060 level that was our realized 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 will 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 will be depending on the macro variables that we will use, okay? Second question regarding Arbex. 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 still like -- Kimberly-Clark is offering some services to Arbex. And as we get out of those services, we will probably be able to reduce the cost of the structure of Arbex. On the procurement side, there is a lot of upside in our opinion. We are starting the renegotiation of the contracts.

Remember that some contracts have higher lead time to be renewed. And as they kick in, and we are able to improve the efficiency of those contracts, we will obtain synergies as well. There were a couple -- 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 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 Suzano, and we are kind of exporting this technology to Arbex 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 we would arrive that in 3 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.

Operator: Our next question comes from Julia Rizzo from Morgan Stanley.

Julia Rizzo: I have two things that I would like to follow up. One on the paper. What -- can you quantify how much was the variable compensation or the one-offs that you had in the third quarter? Maybe how much we can have an improvement from that normalization already on the 4 or maybe a bigger view for next year? And the other will be on the fires -- the wildfires. How that impacts the overall supply once the rain starts? The problem with the wood supply is you cannot harvest because it's on fire.

So you have -- it's difficult to reach 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 wood chip costs can be normalized and how fast?

Fabio Almeida Oliveira: 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 ratio of corporate costs. And this is -- the impact was about BRL 30 million in Brazil in the quarter.

Julia Rizzo: Do you think that will save us for the fourth, right? Is that is the non-recurring normalization expected for?

Fabio Almeida Oliveira: Yes.

Leonardo Grimaldi: Okay. Julia, this is -- Marcos, do you want to complement?

Marcos Assumpcao: Yes. Just to complement 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 labor variable compensation that we have, and that depends a lot on the price of the share. So at the end of the third quarter, we have higher prices than -- higher share price than in the second quarter. So that had a negative impact, as Fabio mentioned.

Leonardo Grimaldi: Julia, this is Leo here. I will answer your question related to the wildfire impacts. And the answer is all of 3 which you have asked and mentioned. 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's a short -- 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? 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 10 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 we were able to track that Acacia wood basis, which is located very close and expected to support OKI-2 project was being burned as well. 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 capacity in for months or years. So actually, wildfires can go and reach all of the 3 hypotheses that you have risen.

Julia Rizzo: Once it starts rains, how much of that -- do you expect that to [indiscernible]

Leonardo Grimaldi: Sorry. I didn't tackle this. It is our understanding that the last day, there was rain in Indonesia. So we understand that due to that fact, there would be easing off of wildfires, obviously. But the strong El Nino, just again, I think I talked about that in one of our previous calls, last 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 last a couple of months ahead of us.

Operator: The Q&A session is over. We would like to hand the floor back to Mr. Beto Abreu for his final remarks.

João Fernandez de Abreu: Thank you very much, everyone, for joining us in our third quarter earnings call. Any further information, please our IR team is available, and I'll see you in the next quarter. Thank you very much.

Operator: The Suzano S.A. Third Quarter of 2026 Conference Call is concluded. The Investor Relations department is available to answer further questions you may have. Thank you, and have a good day.

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