Biggest Wood Pulp Maker Sees a Recovery as Just a Matter of Time

(Bloomberg) -- It's just a matter of time before wood-pulp prices recover, according to the world's biggest producer, Suzano SA.

Large global inventories have kept prices 40% below a 2018 peak despite a pandemic-fueled surge in demand for tissue paper and food packaging. While Sao Paulo-based Suzano is still turning a healthy profit, some of its competitors are losing money, Chief Executive Officer Walter Schalka said.

“Prices will have to rise to balance supply and demand,” he said in an interview.

His view is based on low prices restraining supply at a time when demand remains firm, albeit below panic buying levels when lockdowns were imposed. Countering the bright outlook for tissue and packaging is the prospect of ongoing weakness in printing and paper as the home-office trend becomes more permanent for many companies.

Suzano's share performance in the pandemic has tracked shifting pulp sentiment. In a first-quarter sell-off, the stock was one of Brazil's most resilient thanks to surging demand for tissue and packaging and as dollar strength swelled export revenue in local currency. In a second-quarter rebound, Suzano was one of the worst performers as pulp stayed cheap, undermining its deleveraging efforts.

Schalka said the company is well positioned even with the current pulp price of $460 a ton in China given its cash cost is equivalent to $120 a ton.

JPMorgan Chase & Co. analyst Marcio Farid said in a report this week that prices are still in decline in Asia, while there are signs of “quite difficult” China price talks. An “abundance of low-priced pulp” from non-regular sellers is also pressuring the market.

Even Schalka said the U.S. is the only market with demand that has remained above levels before the pandemic.

©2020 Bloomberg L.P.