Suzano SA, the world's largest producer of hardwood pulp, is considering selling its products to China in yuan, as the Chinese currency gains importance in commodity markets. According to Walter Schalka, CEO of Suzano, smaller customers in China are requiring deals linked to the renminbi, and the country is the largest commodity buyer, accounting for 43% of Suzano's pulp. While the US dollar remains dominant, the use of the renminbi in contracts for commodities such as oil and nickel is accelerating, with the sanctions on Moscow following its invasion of Ukraine contributing to this trend. Schalka believes that the dollar will become less relevant in the future, although there has not yet been a "major transition" to China's currency.
Schalka is concerned about the increasing tensions between the US and China, as it could dampen the demand and prices of pulp for a prolonged period. He believes that China will become more relevant in the global market, but acknowledges that tensions are currently on the rise. In an interview with Bloomberg, Schalka and CFO Marcelo Bacci discussed the outlook for global pulp markets, the company's strategy regarding lower prices, and its stance on environmental policies in Brazil.
Regarding global pulp markets, Schalka noted that prices are currently below the marginal cost of many producers in the world, and a lot of integrated players are scaling down their production of pulp and buying from non-integrated players. However, he believes that this situation is not sustainable and that prices will go back up in a matter of months. Schalka and Bacci also discussed the company's strategy in response to lower prices, stating that they are not going to change their inventories and that some of their plants are not providing enough return on capital. They also expressed concern for their competitors in China, Scandinavia, Canada, and Iberia, as their costs are higher than market prices and they may be forced to shut down some of their facilities.
Schalka is a vocal opponent of Amazon deforestation in Brazil and believes that zero illegal deforestation is critical for the world. He has been in contact with the Brazilian government, which has the right speech regarding environmental policies, but their action plan is not as quick as expected. Regarding green bond issuance and green investments for Brazilian corporations, Bacci noted that Suzano has issued several bonds in recent years, but the premium they received has decreased due to changes in interest rates. Schalka expressed disappointment with the financial market, as the "greenium" is close to zero, making it difficult for companies to offer green bonds with a premium.
Finally, Schalka and Bacci discussed the company's potential expansion into the consumer packaged goods (CPG) market in other regions. However, they noted that they would only consider investing in businesses that are differentiated and scalable, and they do not see any differentiation in CPG outside of Brazil. Overall, Suzano is closely monitoring global pulp markets and the increasing tensions between the US and China, while also focusing on sustainable and responsible business practices.