Brazilian company Suzano SA is cutting wood-pulp production after negotiations with clients in China, its biggest market, were hit by uncertainty over US President Donald Trump’s trade tariffs.
The world's top exporter of the raw material used in everything from packaging to toilet paper is reducing output for the next 12 months, Suzano said in a statement on Wednesday as it released second-quarter results. Production will be cut by 3.5%, or roughly 450,000 tons.
"I wouldn't say that the geopolitical instability has reduced demand, but it has obviously put the brakes on discussions about pricing,” Suzano Chief Executive Officer João Alberto Abreu said in an interview. “Having the expectation of reducing the supply of pulp to the US generates the expectation of having to increase the supply to China, and obviously this is not an ideal environment to discuss price increases.”
Brazil was hit with 50% US import tariffs announced by Trump in early July. While pulp was later included in a list of exemptions released toward the end of last month, the uncertainty was still enough to affect the trade, Abreu said.
The outlook for prices is seen improving ahead as a result of declining global supplies, Suzano's executive vice-president Leonardo Grimaldi said during the company’s earnings conference on Thursday. Cuts to supply by the company’s competitors are “both likely and imminent,” the executive said, adding that current prices are below the marginal cost of some competing mills.
Suzano shares climbed as much as 4.3% in Sao Paulo following the comments, reaching the highest level in three weeks.
On Thursday, Suzano announced it is increasing prices to Asian clients by $20 per metric ton. Benchmark prices in China fell to $495 per ton as of last week, according to data compiled by analysts at BTG Pactual led by Leonardo Correa. That compares with $527 per ton in May.
In the US, pulp imports increased ahead of the implementation of tariffs. Suzano built up inventories in US warehouses in order to serve clients, a strategy Abreu says is adequate for the moment.
