Suzano Stock

Suzano S.A. (Suzano) operates as a vertically integrated producer of pulp and paper in Latin America.

The company operates mainly in the pulp (paper grade and fluff) and paper (paperboard, printing and writing and tissue) segments.

The company’s eucalyptus pulp production satisfies 100% of the company’s requirements for paper production, and the company sells the remaining production as market pulp. As of December 31, 2022, the company’s total eucalyptus pulp installed capacity was 11.9 million tons per year.

The company’s Limeira, Suzano, Rio Verde and Jacareí mills are located near the city of São Paulo, the largest consumer market in Brazil according to data from IBÁ and RISI. These mills are located approximately 150 km from the port of Santos, an important export hub. They can supply both domestic and international markets in a competitive manner.

The company’s Mucuri and Aracruz units are focused primarily on export markets. Mucuri is located approximately 250 km from Portocel, a port specialized in exporting pulp located in the state of Espírito Santo, in which Suzano holds a 51% stake, while Aracruz is located only 3 km from Portocel.

The Imperatriz unit, in Maranhão, is also focused primarily on export markets. Its gateway for the external market is the Port of Itaqui, 600 km far from Imperatriz. Exports are carried from the company’s mill to the ports by train, which allows for very competitive transportation costs.

The Três Lagoas unit, in Mato Grosso do Sul, is focused on export markets, and most of its volume is transported by train to the Port of Santos, where all exporting volumes are shipped. The relatively short distances between the company’s planted forests, its mills and most of the company’s Brazilian customers or export facilities provide the company with relatively low transportation costs.

Pulp and Paper

The company produces a variety of eucalyptus pulp and paper products, including pulp used in the company’s paper production processes, as well as market pulp. The company sells pulp to the Brazilian market and to the export market. The company produces coated and uncoated printing and writing paper, paperboard, tissue paper, market pulp and fluff pulp. Within the printing and writing paper category, the company produces products of different sizes and shapes, such as cut paper for general purposes (cut-size), folio size and reels.

Pulp and Paper Production Process

The company’s production process comprises the three main stages: planting and harvesting forests; pulp manufacturing; and paper manufacturing. Consistent with the company’s strategy of conducting its business in accordance with the highest environmental standards, the company uses plantation and harvesting techniques that are environmentally friendly and sustainable, such as minimum-impact cultivation and soil preparation techniques that avoid erosion, maintain soil fertility along generations and promote high levels of efficiency and productivity.

Planting and Harvesting Forests

The development of the company’s planted forests starts in the company’s nurseries, where the company uses the most modern cloning technology available, and in third-party nurseries that use the company’s genetic materials. The saplings the company produces in its nurseries are a variety of eucalyptus that increases the production of pulp and are well suited for the climate and other geographic aspects of the micro-regions in which they will be planted. A harvester is used to cut, de-limb and de-bark the trees, and to cut them into logs. Part of the bark and leaves of the harvested trees is left in the planted forests. A forwarder carries the logs to the edge of the planting area, where a loader loads the logs onto a truck for transportation to the mill.

As of December 31, 2022, the company owned or leased approximately 2.7 million hectares of land, of which approximately 1.4 million hectares were used for eucalyptus cultivation and 1.1 million for forestry reserves, ensuring compliance with Brazilian law that determines the percentage of area required for legal and permanent preservation reserves, located mainly along the rivers. Remaining 0.2 million hectares are related to other uses, such as roads. The company’s production units are in compliance with or exceed environmental standards – both Brazilian and international – for the production of pulp and paper.

Pulp Manufacturing

The pulp manufacturing process takes place in two stages:

The ‘Kraft’ Cooking Process. The logs received in the company’s pulp mills are first de-barked, if not already de-barked in the field, and chipped in small pieces. The wood chips are screened by size and then transferred with conveyors to the impregnation stage followed by a pressurization and feeding system to the digester where they are ‘cooked’ with sodium sulfide and caustic soda. This ‘kraft’ cooking process is known for minimizing damage to the pulp fibers and allows the recovery of chemicals, thereby preserving high uniformity and strength of the fibers for subsequent paper production or other uses. During the cooking process, the cellulose fibers are separated from lignin and resins to produce unbleached pulp fibers. The unbleached pulp is screened and washed and then submitted to a pre-bleaching stage where oxygen delignification takes place. The Kraft cooking combined with the pre-bleaching removes approximately 95.0% of the lignin. At this point, the pulp can already be used to make certain types of paperboard like in one of the paper machines of the Suzano mill. Although not the company’s main product, unbleached pulp grades can be commercialized or used for specialty of packaging papers or boards. The lignin and by-products of the Kraft process form a substance known as ‘black liquor’ that are separated and piped to evaporators, to increase the concentration of solids. Thereafter, the concentrated black liquor is burned in recovery boilers. In the recovery boilers, the black liquor is the main source of fuel to produce steam and electricity for the whole production process. Also, approximately 99.0% of the chemicals used in the kraft cooking process are recovered for reuse in a closed chemical recovery process loop. Only make up chemicals are required to recover losses.

Bleaching. To produce bleached pulp the unbleached pulp is submitted to a chemical bleaching process. The bleaching process promotes further selective delignification and increases brightness of the fibers. This process consists of a series of medium-consistency bleaching stages in towers. In each bleaching tower a different mixture of bleaching agents is applied and after each stage, the pulp is washed. Three or four bleaching stages are required to obtain a fully bleached pulp. The company’s modern and low environmental impact bleaching processes are elemental chlorine free (ECF). The bleaching process is designed to be harmless and utilizes chlorine-dioxide, sulfuric acid, caustic soda and oxygen peroxide and does not use elemental chlorine. At the end of the bleaching stages, the diluted bleached pulp, in its fluid state, is pumped to storage towers. Thereafter, the bleached pulp may be transferred directly to integrated operations in the company’s own paper production or tissue paper facilities. Suzano produces paper in the Mucuri, Suzano and Limeira mills and also supplies slushed pulp to integrated paper producing customers in Jacareí (Ahlstrom) or Três Lagoas (Sylvamo Corporation). The tissue paper production takes place in the Mucurí and Imperatriz mills. The majority of bleached pulp is, however, sold as raw material after drying in big capacity drying machines and converted to bales. In the Suzano mill the company are also producing dried pulp in rolls for fluff applications.

Paper and Tissue Paper Manufacturing

The company produces uncoated woodfree printing and writing paper at the company’s Mucuri unit, Limeira unit, Suzano unit and Rio Verde unit; coated woodfree printing and writing paper at the company’s Suzano unit and Limeira unit; paperboard at the company’s Suzano unit; and tissue papers at Mucurí, Imperatriz and Belém. The company starts the paper production process by sending the pulp to refiners, which increases the fibers’ resistance. The pulp slurry is then fed into the paper mill, where it is mixed with fillers and additives to provide the necessary properties required by paper grade and the end users. These additives include synthetic sizing, precipitated calcium carbonate, optical dyes, and others. During the paper and paperboard production, the sheet is formed, pressed and dried in a continuous process. At the end of the process, jumbo rolls are obtained and then converted into reels, folio sheets or cut-size paper. In the case of coated paper, the paper receives additional surface treatments with coating and additional drying before converting to reels or sized papers. Tissue papers are produced in dedicated tissue machines, different from other paper machines and seek for other characteristics like softness, volume and absorbance. Tissue paper production requires very little additives and mechanical preparation of the fibers (refining). The produced tissue paper mother rolls can be converted on site, converted in dedicated conversion units or sold.

Computerized systems control or monitor all process stages. The marketing, sales and production, personnel work close together to manage the programming and control of the company’s paper production process. In this manner, the company is able to plan, optimize and customize different product runs and to anticipate, respond and adapt to seasonal variations and customer preferences.

Pulp and Paper Production Schedule

The company’s integrated pulp and paper mills operate three shifts, 24 hours a day, every day of the year, with the exception of scheduled maintenance periods. The dates of these maintenance periods are flexible and may be moved as a result of factors such as production, market conditions and supply of materials. The company keeps an inventory of certain spare parts that the company considers critical to the production process or that are difficult to replace. The company has also developed a close relationship with the company’s suppliers to ensure access to spare parts.

Pulp Sales

In the year ended December 31, 2022, the company sold 10.6 million tons of pulp as market pulp, of which 7.1% was sold in the Brazilian domestic market and 92.9% was sold in the export market.

Pulp Customers

In 2022, most of the company’s sales were made under contracts to customers with whom the company has a long-term relationship in the Brazilian and export markets. Most of the company’s customers are tissue, printing and writing and specialty paper producers that value the high-quality pulp produced and the reliability of supply provided by the company. The majority of deliveries to final customers during last year were made from the company’s overseas terminals in the United States, Europe, – and direct shipments to Asia.

Suzano has a diversified customer base for its pulp products.

Paper Sales

The company sells its paper products in Brazil and abroad.

Paper Customers

The company’s customers generally purchase its products using commercial credit provided by the company’s company. The company has a diversified customer base for the company’s paper products.

Port Operations

The pulp produced for export is shipped on dedicated vessels or partial-service vessels by carriers hired through long-term or spot contracts to the company’s terminals overseas and is then delivered to the company’s customers.

The company conducts operations in the port of Itaqui, (state of Maranhão), port of Santos (state of São Paulo) and port of Barra do Riacho (namely, Portocel - state of Espírito Santo).

Port of Itaqui

The port of Itaqui is located on the coast of the state of Maranhão. From this port, the company exported in 2022 pulp produced at the Imperatriz mill, which is located approximately 670km away from the port of Itaquí. Since 2014 the company has operated a warehouse within the port area to guarantee the continuity of its operations with Empresa Maranhense de Administraçao Portuária (‘EMAP’), a public company held by the state government of Maranhão.

On July 27, 2018, the company participated in a public auction conducted by ANTAQ for the concession of public areas and infrastructure for general cargo, especially pulp and paper in the port of Itaquí, for an initial period of 25 years. The company was awarded the contract due to the company’s proposal for Itaquí General Cargo Terminal (IQI 18), in the amount of R$0.1 million. In 2020, the company hired the companies responsible for building a warehouse of 73,000 tons, and a berth, to support long-term planning of the Imperatriz mill. In 2021, the company concluded the construction of the berth in the port of Itaqui, which will be managed by EMAP and the company will have preferential berthing rights. The berth was first tested in February 5, 2022, and the warehouse’s operations started on September 2, 2022.

Port of Santos

The port of Santos is located on the coast of the state of São Paulo. From this port, the company exports pulp produced at the Jacareí and Três Lagoas, which are located approximately 150, and 750 kilometers away from the port of Santos, respectively. Through a concession, the company operates terminal 32 (T32) of the port of Santos and at Vertere (DP World Santos) An expansion process is expected to start in 2023 in both ports to attend the demand for a new mill in Ribas do Rio Pardo (Cerrado Project).

Paper produced by the company for export is mainly shipped out of the port of Santos, which is located approximately 80 kilometers from the Suzano unit and about 250 km from the Limeira unit, where most of the paper production designated to export markets comes from. The company also operates with containers at the port of Santos, mainly used in the paper and fluff business.

Portocel

The pulp produced for export at the Aracruz, Mucuri and Veracel pulp mills is shipped out of the port of Barra do Riacho (Portocel), which is located approximately 3 kilometers, away from Aracruz, approximately 250 kilometers away from Mucuri and 260 nautical miles, from Veracel’s barge terminal. The company owns 51% of Portocel, the company that operates the port terminal of Aracruz. The remaining 49% of Portocel is owned by Cenibra, another pulp manufacturer.

The Portocel is a modern facility that has the capacity to handle approximately 7.5 million metric tons of pulp and wood per year, from their owners and other players, and different types of material like aluminum, steel coils, granite and project cargo. Warehouse facilities at Portocel are capable of storing approximately 220,000 metric tons of pulp (static storage).

Marketing and Distribution

The company has its own sales teams for the company’s pulp and paper business units, which sell the company’s products in both the Brazilian and international markets, to final consumer or distribution intermediaries. The company sells its products in both the Brazilian and export markets. Domestically in Brazil, the company has a sales staff consisting of employees operating in various regions of Brazil.

Pulp

The company’s pulp business unit’s commercial strategy is based on three pillars: strong relationships, long-term partnerships and differentiated services. To ensure proximity with the company’s national and international customers and to ensure that the company’s products are tailored to their needs, the company uses a Brazilian sales team, which services Latin America, and local sales teams in the United States, Austria and China. In Brazil and in each of the company’s international offices, the company has technical assistance departments that focus on the company’s customers’ needs, with the purpose of providing the company’s customers with smart technical solutions for their transition from other types of fiber to eucalyptus fiber. The company organizes annual technical workshops, in Brazil and in each of the countries where the company operates, to share with its customers and international offices the company’s innovative initiatives, technical developments and market strategy.

Paper

In 2022, 69.4% of the company’s paper net sales were made to the Brazilian market. In order to better serve this market, the company has divided it into six segments, designing different commercial and marketing strategies for each segment:

Packaging: This is the main end use of the company’s paperboard sales and involves production of packaging for the pharmaceutical, cosmetic, tobacco, toys, clothing, shoes, food, beverage, hygiene, and cleaning industries.

Advertising and Catalogs: This segment mainly involves coated paper sales and production of promotional flyers, catalogues, displays and signs.

Books: This segment accounts for the production of books, magazines and newspapers and involves the sale of all of the paper types that the company produces (coated, uncoated and paperboard).

Notebooks: This segment involves the production of notebooks and diaries in both the local and export markets, and uses uncoated paper and paperboard.

Mailing: This segment mainly involves the production of forms and invoices, which use uncoated paper.

Copy Paper: This segment encompass office end uses and retail channel, which involves the commercialization of uncoated paper in cut-size format (e.g., letter and A4 sizes) in stationery stores and self-service businesses.

In order to serve the first five segments listed above, the company combines different distribution channels: large paper volumes are sold directly to publishers and converters and small paper volumes are sold through publishing distributors. In the copy paper segment, sales are made indirectly, through paper distributors and directly through the company’s call center and e-commerce.

The company owns distributors for its paper and graphic products, one in Brazil and one in Argentina, Stenfar S.A.I.C. Importadora y Exportadora and Stenfar. For Brazilian distribution, the company relies on four regional distribution centers: two in São Paulo, one in Serra (Espírito Santo) and one in São Jose dos Pinhais (Paraná), as well as the company’s local distribution centers, in the cities of Campinas and Ribeirão Preto (state of São Paulo), Belem (state of Pará), Brasília (federal district), Campo Grande (state of Mato Grosso do Sul), Londrina (state of Paraná), Fortaleza (State of Ceará), Goiânia (State of Goiás), Manaus (State of Amazonas), Porto Alegre (State of Rio Grande do Sul), Recife (state of Pernambuco), Rio de Janeiro (state of Rio de Janeiro), Salvador (state of Bahia) and Uberlândia (state of Minas Gerais).

Other than distributing the company’s own line of paperboard and printing and writing paper, the company also distributes other product lines to reach the graphics, editorial and consumer segments and to public agencies. Stenfar is a company-owned distributor of paper and computer supplies operating in Argentina through which the company conducts such distribution operations. Stenfar has been operating for more than 58 years and has an important and active presence in the market. Stenfar has three subsidiaries in Buenos Aires, Córdoba and Mar del Plata. Stenfar services the graphics, editorial and consumer segments and public agencies, working with printing and writing paper, paperboard and computer supplies. According to market estimates on paper and computer supplies distribution, Stenfar is one of the largest distributors in its market in the area.

In addition to providing the company’s customers a more complete portfolio of services and products, the company’s distribution operations in Brazil and Stenfar’s distribution operations in Argentina reinforce the company’s commitment to strengthen the company’s distribution channels, enlarging the company’s network and directly benefiting the company’s clients through greater proximity and agility in serving them.

In addition to the company’s own lines of paperboard and writing and printing paper, the company distributes other product lines, for the graphics, publishing, consumer, converter and government entities segments.

Competition

The company faces substantial competition from numerous producers of paper and hardwood market pulp, including major Brazilian producers, such as Bracell, Eldorado, CMPC and Celulose Nipo Brasileira S.A. (Cenibra).

Environmental Matters

The company’s industrial units are ISO 14001 certified, which attests to the company’s environmental management system.

The company’s forests units are certified by the Forest Stewardship Council (‘FSC’) and the Programme for the Endorsement of Forest Certification (‘PEFC’), which attests that the company’s forest management is environmentally correct and socially just.

The company’s environmental commitments are supported and monitored by relevant organizations and coalitions. The company also maintain a strong partnership with recognized forums and organizations to discuss and share knowledge on sustainability issues. Some examples are the UN Global Compact, Climate, Forest and Agriculture Brazilian Coalition, the Alliance for the restoration of the Amazon, One Trillion Trees (1t.org); the World Wildlife Fund / New Generation Plantation, The Brazilian Forest Dialogue, Brazilian Tree Industry (IBÁ), the Brazilian Corporate Council for Sustainable Development (CEBDS), GHG Protocol Brazil.; Capitals Coalition and the Taskforce on Nature-related Financial Disclosures (TNFD).

The company’s forest management practices follow all the legislation, standards and commitments undertaken, being certified by international widely recognized standards, the Forest Stewardship Council (FSC) and the Programme for the Endorsement of Forest Certification (PEFC), both auditable certification schemes.

The company’s forestry activities are regulated by the Brazilian federal government and the state governments of the states of São Paulo, Bahia, Espírito Santo, Minas Gerais, Rio Grande do Sul, Mato Grosso do Sul, Piauí, Tocantins and Maranhão.

History

The company was founded in 1924. It was incorporated in 1987. The company was formerly known as Suzano Papel e Celulose S.A. and changed its name to Suzano S.A. in 2019.