Ladies and gentlemen, thank you for holding and welcome to Suzano's conference call to discuss the results for the second quarter of 2022. We would like to inform that all participants will be in a listen-only mode during the presentation that will be addressed by the CEO, Mr. Walter Schalka, and the other executive officers. After the company's remarks are completed, there will be a question and answer session when further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. 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 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 would like to turn the floor over to the company's CEO, please. Mr. Walter Schalka, you may proceed.
Good morning and good afternoon, good evening to our colleagues all over the world. Welcome to the second quarter results discussions of Suzano. I'm pleased to have with us here all the C-level of the organization in this the Q&A session. Feel free to ask us about everything on the company. I learned in the past that happiness is equal to results less expectations. I would like to, despite the reviews of the sell-side analysts that we are in line with the results, we are very pleased to announce an outstanding results of the company. I'm very pleased to announce that to everyone. We had and I'm going to highlight several KPIs of the organization from the last quarter.
First, in terms of the pulp volumes, we had almost 2.7 million tons of sales on pulp. Leonardo is going to address this issue with you in his part of the presentation. On the paper side, we have extremely good volumes, around 290,000 tons on paper, and Fabio will share with you. We would like to tell you that we reached BRL 6.3 billion on EBITDA this quarter. We have operating cash flow of $5.1 billion. Aires is going to share with you as well our efforts to despite of the inflation that we are facing, we have keep the cash costs in line with the previous quarter. Our liquidity position is $5.2 billion at this point of time, with a very robust balance sheet.
Our net debt, despite of the fact that we had dividends, we had cash returns on buyback program. We had Parkia BRL 1.7 billion. We had Cerrado. We were able to cap the net debt at the same level of the previous quarter with $10.5 billion. Our leverage right now is 2.3 times.
We are not going to share any further detail on the Cerrado Project today, but the good news is that we are on time, on budget with the project, with the physical progress on 21%, in line with the expectations in the fence that we have right now. We are developing on a very good pace at this point of time, keeping the same previous projection or forecast that we are going to have our commissioning period on the second half of 2024. Now I'm going to pass to Fabio that is going to share our view on paper and packaging business.
Thanks, Walter. Good morning, everyone. Let's turn to the next page on the presentation. Today, I'm glad to share with you that the paper and packaging business unit, through a combination of operational excellence and assertive pricing management, has had its best quarter ever. As we have seen in previous quarter, demand for print and writing papers and carton board has continued to be solid in the domestic and international markets served by Suzano. Paper supply has been limited by logistics bottlenecks, which has continuously imposed operational challenges in shipping, terminal operations, and inland logistics. In most markets, demand recovery has been capped by limited supply for certain paper grades. Moving forward, we continue to see inflationary pressures over paper producers' cash costs. Figures for the whole Q2 from IBÁ related to print and writing domestic demand are yet not published.
Considering the first two months of the second quarter when comparing to the same period of 2021, the available data shows a 4.6% decline. Mainly due to an impact of 29% drop of imported paper, as well as a reduction of sales of paper directed by, to the container board market. By looking only into print and write applications, we estimate that local sales have increased 11% year-over-year. As IBÁ's public data on paperboard demand shows a 3% shrink in the first two months up to the second quarter of 2022, given the strong comparison period in 2021. Focusing on Suzano sales volumes, the Q2 performance was 9% higher than the same period of last year. As seen in the graphic, a record volume for the second quarter.
Domestic sales reached 68% of our total sales in the quarter, totaling 198,000 tons, also a 9% increase on a year-over-year basis. Inflation has continued to cause negative impact on paper costs during the quarter. Still, we were able to manage our prices effectively to more than offset inflation impact during the period. Our margins have expanded 2 percentage points on a year-over-year and a quarter-over-quarter basis. Our average net price during the quarter was 11% higher than our average price in Q1, and 34% higher than the same quarter last year. As a result of strong volumes and prices, revenue management and operational stability, our EBITDA has reached BRL 633 million, a 52% increase on a year-over-year basis, and a 20% increase compared to last quarter.
Our Q2 EBITDA and EBITDA per ton are new all-time highs for the paper and packaging business unit. Due to strong sales in the first half of 2022, our paper inventories have been reduced, and we are running below our optimal level. It should continue to do so for the remainder of this year. Looking ahead, our major short-term challenge still resides in minimizing the exceptional pressure of inflation while overcoming the continuous logistics disruptions in maritime shipping and ports. On the demand side, the second half of the year is the strongest season for paper demand in Brazil, and we continue to see supportive demand for our products in the export markets.
Last but not least, sales of products from our innovation pipeline have progressed well in the first half of 2022, and we are on track to deliver on our goals for this year. Now I will turn over to Leonardo, who will be presenting our pulp business results.
Thanks, Fabio, and good morning, everyone. Let's move to page 5 of our presentation so that we can address the results of our pulp business unit for the second quarter of 2022, marked by a record EBITDA for a second quarter. As you can note from the left graph, our sales performance was very strong, as mentioned by Walter, and totaled 2.7 million tons in the second quarter 2022. Despite persisting logistic challenges, not only affecting international shipping, but also internal logistics in key regions and markets, our strong performance shows Suzano's ability to navigate in this adverse scenario, taking advantage of our differentiated supply chain setups, ensuring effective supply fulfillment to our customers. Since our inventories are still below optimum operational levels, we keep withdrawing from offering volumes to spot markets.
The second quarter was marked by the continuity of the tightness of the supply and demand balance, mainly as a consequence of supply disruptions all over the world, such as new unplanned downtime events and the initial effects of the sanctions on Russian wood impacting European hardwood pulp production, as well as the persisting logistics constraints, which consequently resulted in low hardwood pulp stocks. Pulp inventories throughout the chain are trending at low levels, and in our view, they are mainly concentrated on softwood pulp, which translates into a tighter availability scenario for hardwood grades. This scenario keeps placing challenges to paper and paperboard producers globally, our customers, as they are also running with low hardwood inventories while their production figures continued during the quarter quite strong and steady, even with COVID-related lockdowns in China.
The continued tightness of the S&D balance has led us to announce new rounds of price increases in all markets throughout the quarter, which were fully implemented with absolutely no concessions and with no reductions to our order intake levels. Coming back to the slide of my presentation, you can note that our average price for export markets has increased to $732 per ton during Q2, which is 15% higher than the first quarter of 2022. This price basis still does not reflect all our price increases during the quarter, due mainly to the lagging of invoicing of our order books.
As we have been reporting, our order intake has been strong during these past months, and our lower production figures in the first quarter, due to a concentration of our planned maintenance downtimes, has generated backlogs, and the current tight logistics scenario is not allowing us, up to now, to recover timely deliveries, making us run approximately 60 days late on invoicing to Asia. Our EBITDA of BRL 5.6 billion, a new record for a second quarter, was mainly a result of higher invoice volumes and higher prices, despite FX appreciation and cost pressures. Now looking forward, I would like to highlight the following points.
We continue seeing a scenario of low hardwood inventories throughout the chain as a consequence of logistic constraints, lower European hardwood pulp production due to war-related sanctions affecting hardwood inventories, which should more intensely impact supply on upcoming quarters, as well as no major volumes from new projects coming into markets in 2022. On top of these factors, there are always the upside risks related to new unplanned downtime. Diving deeper into unplanned downtimes and how they have been increasing during past years, our year-to-date estimates have now reached 1.9 million tons of bleached chemical pulp losses. 1.9 million tons. This is almost equivalent to the historic full annual figures for 2020 and 2021 when unplanned downtimes reached their all-time highs.
We recognize the lower visibility and greater uncertainty for future midterm demand due to macroeconomic developments, most of which related to the Russia and Ukraine war. We can state that the demand for pulp continues strong in Europe and in North America, where our customers are reporting solid order books for the quarter, with pulp purchases and forecasts trending at high or even, or even higher set points of their contractual volumes with us. In China, paper production of segments which are more linked to BHKP are expected to continue to post solid figures as paper producers are planning for a higher seasonality period of the year, as well as the continuity of the recovering of their paper and board exports. Order intake is expected to continue to come at these high levels, which we have been reporting.
What we're seeing on the ground is that the main current concern of paper producers globally is still the guarantee of their raw material supply chains despite higher costs. With that said, I would now like to invite Aires to present our cash cost performance for the quarter.
Thank you, Leonardo. Good morning, everyone. We are in slide 6. Cash costs excluding downtime in the second quarter stood at BRL 854 per ton, decreasing 2% in relation to the first quarter, performing as expected and shared with you on the last earnings call. The main positive highlight was the higher dilution of fixed costs backed by the production increase of mills under maintenance downtimes in the first quarter. The average FX appreciation in the period also contributed to the cash cost performance. Energy sales increased in the second quarter, linked to the higher operation rate of the industrial assets, including the full capacity reach of our turbogenerator at Imperatriz Mill.
Looking now to the factors that pressure cash cost up, the wood cost increase was mostly related to the higher forestry mill distance in the quarter and the increase in the Brent price, which affects harvest and transportation operations. The input costs also took a toll due to higher chemical price, especially caustic soda and Brent price impact on energy consumption, mainly natural gas. It's worth mentioning that the commodities price pressure of BRL 44 per ton was partially mitigated by the higher operational performance. On the year-over-year comparison, the cash production cost ex downtime was 26% higher than the second quarter 2021 due to the well-known and unforeseen inflationary pressure, mostly on commodities, mainly by relevance, Brent on industrial and forest operations and caustic soda.
Wood cost hit was particularly offset by the shorter average forest to mill distance and lower share of third-party wood in the period. The increase on fixed cost is explained by higher costs with labor and maintenance. Looking ahead to the second half of 2022, we still see cash cost production costs being pressured by exogenous factor of inflation, mostly on commodities, as described above, also relate to the same lagging effects on inventories turnover. In other words, it means that our performance going forward, considering information currently available on the macroeconomic scenario, would be hovering low single digits over on the first half of the year average. Now I pass the floor to Marcelo Bacci to continue the presentation.
Thank you, Aires, and good morning, everyone. Moving to slide seven, we show that we managed to keep our net debt at $10.5 billion, despite the significant CapEx, acquisitions, dividends and share buybacks that we had during the quarter. That's a result, of course, of our very strong cash generation. With that, our leverage came down to 2.3 times, and our liquidity keeps very solid with $5.2 billion between cash and RCFs. Our debt schedule continues to be very light in the next 3 years, and we have 7 years of average tenor and above 90% of our debt at fixed rate, which protects us from the rising global interest rates. Moving to page eight, we see how much we have advanced in our FX protection strategy.
The curve today is a lot steeper than last year, providing us with the hedging opportunities and at very interesting levels.
We now carry more than $4 billion of operational hedges with an average put of 553 and an average call of 655. In addition to that, we have a portfolio of Cerrado project hedges that is approaching at the end of the quarter $700 million with an average put at 598 and an average call at 743. This strategy has yielded for us a cash flow of BRL 400 million during the second quarter since the FX was below 5 most of the time during the quarter. Moving to page 9, we are announcing a revised CapEx guidance to 16.1 billion for 2022. That already incorporates the already announced Parkia and Caravelas acquisitions, which accounts for most of the change.
A small change in sustaining CapEx that will allow us to make some payments in advance to take advantage of our sizable cash position and to reduce financial costs. This is a lot discretionary to take advantage of our current situation. We have executed BRL 7.1 billion year to date, and we expect to execute BRL 9 billion of total CapEx in the second half of 2022. On page 10, we intend to show how much we are advancing in our strategic avenues, taking advantage of this excess cash generation that we have according to the positive market scenario. We have the land acquisitions that will enhance our cash competitiveness over time. We have the share buyback now increased to 40 million shares.
We have a very good execution of the Cerrado Project on time and on budget and already with 21% completion. Important to keep our leadership involved. The potential new tissue plant in Aracruz monetizing tax credits and helping us advancing vertical integration. The launch of Suzano Ventures that will support and potentialize our expansion into new markets. Many other initiatives we have been pushing forward, always respecting our financial discipline. Finally, we wanted on slide 11 to make some relevant points related to the pulp market. We believe pulp significantly differs from other commodities in four main aspects. First, there is structural demand growth. Second, most of our pulp goes to tissue producers, which have a growing and very inelastic market, resilient through economic cycles, as we saw during the COVID crisis.
Third, the marginal cost producer of pulp is under significant cost pressure due to inflation, limiting for the future the price downside. Fourth, the pulp volatility has been a lot lower than other commodities, as we can see on the chart. Therefore, our decision to increase the share buyback program is based exactly on this set of fundamentals. With that, we close the presentation and open the floor to Q&A.
The floor is now open for questions. If you have a question, please press star one. Our first question comes from Daniel Sasson from Itaú BBA.
Hello, good morning, everyone. Congrats on the strong results. Thanks for taking my questions. My first question is on pulp demand, mainly in Europe. Leonardo, you mentioned that the backlog for which you have visibility on is strong, which is great. How concerned with potential paper capacity shutdowns in the region are you, given that we've read about some tissue producers having to shut down and maybe already being affected by rising energy costs in Europe, right? That's the region where we've seen more resilient demand. I'd like to know if you are concerned at all or if you see potentially a pulp demand from that region looking or weakening ahead. My second question maybe on the same lines.
I mean, we've been talking to many investors who are more concerned with a synchronized global deceleration, right? The U.S. just reported negative GDP for the second quarter. Europe could suffer with rising energy prices. China is, you know, trying to beat a GDP growth target that is looking challenging, and more challenging by the day. Do you think that we could see a second half that is maybe slightly weaker than seasonality would suggest? Thank you.
Hi. Hi, Daniel. This is Leonardo here. Thank you for your questions. Before obviously touching demand, let me tell you a little bit about how we were forecasting and planning our second semester of 2022. Obviously, we always do that considering not only demand, but also the supply side of the equation. Initially, during the first months of the year while we were planning, supply was one of the key aspects that we were following and points of attention. As of today, this is no longer a point of attention to us. I mean, pulp supply, right? What's the reason behind that?
Because as these first months of the year have been going on, we have seen so many unprecedented, unexpected downtimes, which, as I mentioned in my speech, we're adding almost already 2 million tons of losses during the year.
That markets are tight. When we add on top of that the effect of the hardwood restrictions to European pulp production, the delays in upcoming projects and also the continuing constraints in logistics, we see that supply should remain very tight for the upcoming months. Just on top of that, always when we have price differences between softwood and hardwood, especially in a moment where our customers are very pressured with other inflationary points, they will tend to seek how to even maximize more than historically the hardwood consumption.
In this sense, as this scenario has changed completely for us, and demand is now the greatest point to be watched, and its uncertainty in some regions and paper weights is the main variable that we are monitoring for the upcoming months, especially due to war-related energy restriction events going on and discussions going on in Europe, as well as an eventual and uncertain possible recession looking forward. In this sense, I would like to point out two things.
First of all, it's important to say that the demand, as we see and as we have seen in other recessionary moments, in our case, are partially or mostly mitigated with the fact that tissue, as well as other essential paper and packaging products, are key off-takers of hardwood pulp, and they represent more than 60% of the total demand for hardwood pulp, and they tend to be quite resilient in difficult times. Coming into the gas curtailment discussions, obviously there is risks, and we are monitoring that closely with our customers, to ensure a successful reaction to any eventual plan that has or that will be announced, maybe in the future months, in the upcoming months in Europe.
It's also important to say that gas curtailment not only affects demand, but also affects the supply side of the equation. We always relate to pulp production as being able to produce energy from the pulping process. It's important to note that gas is needed to run specific processes at the pulp mill, such as a lime kiln, as well as to control stabilities on the recovery boiler. That will also and could also impact pulp production on upcoming months. For the short term, as I mentioned in my speech, customers are reporting full order books for this third quarter of the year and are tending and trending at historical high levels of purchases, and in our case, on the utmost levels of their supply agreements or purchasing agreements with Suzano.
Thank you, Leonardo.
Our next question comes from Thiago Lofiego, Bradesco BBI.
Thank you. Thank you, gentlemen. Two questions here, back to Leonardo. Leonardo, just continuing to look at downside risks here for pulp prices, which are definitely, you know, very close or at the highest level ever here. Just looking into the next six to 12 months, right? The first question is, you mentioned the 1.9 million tons of unplanned downtimes this year, up until now, right? How much of that do you think will return in 2023 or in the next, let's say, 12 months? And then the second question is, with China resuming paper and board exports, do you think this may be a risk to paper production in Europe, and therefore a risk to pulp demand in Europe, and then, of course, a risk to prices? Thank you.
Thiago, thanks for your question. Coming to the issue related to downtime, it's very interesting to see that year-over-year, this number tends to be increasing, right? Historically, downtimes or unplanned downtimes in the pulp sector added up to 700,000 tons annually. Then in 2021, they had reached peak at 2 million tons annually, and today we already have close to that in 6-7 months of the year. It's very hard to say how much will come back to the market. What we're seeing is that as producers are getting bigger and bigger, any of these events has a much bigger impact in terms of market supply than there was when producers had a smaller production scale.
Coming to the question related to China resuming exports, indeed they are, especially on print and writing papers and on ivory board. We have been tracking that, and they have gaining more exports volume month by month. But due to the still very high container rates and logistic rates, we see that most of this volume is being allocated and concentrated in other markets in Asia or in Southeastern Asian markets. We still see very little effect of that on European markets, North American markets, or even South American markets.
That's clear, Leonardo. If I may, you also mentioned about low inventories across the board, right? Is there. We often hear about floating inventories because of the logistics situation. You know, there's a lot of inventories, you know, that are actually not visible. What can you tell us about, you know, the inventory situation from a broader perspective, when we think about pulp?
Yeah. First of all, when we analyze inventories in the hand of producers or at ports, we come up to numbers which are trending at low levels or even in some markets like Europe at below historic levels as well. Very tight. When we look forward to our customer bases or to the paper producers' point of view, stocks are also low in the hands of paper and board producers. We recognize that part of a global stock should be on the waters due to the longer lead times to markets that we have, not only from South America to markets, but globally.
This is very hard to forecast, and any eventual effect of that coming into markets, in our view, is very limited because we don't expect, first of all, that logistics will be solved or improved significantly in the next months or quarters. Second, once it starts to be resolved, it's not gonna be resolved at once and to all markets at the same time. We're gonna have a cadence of how this product will eventually come to market. Again, we don't see any of that coming back to markets in the short term, as our view in logistics is still of a very tight situation for upcoming months.
Thank you. Leonardo Grimaldi, do you have a number for that floating inventory or maybe a range?
We don't. We forecast consultancy companies are forecasting anywhere from 700-1.5 million tons, but it's very hard to account for.
Very clear. Thank you, Leonardo.
Our next question comes from Leonardo Correa, Banco BTG Pactual.
Yes, good morning, everyone. Thank you. My first question, bringing Bacci into the discussion. Bacci, on the buyback, right? I think, I mean, clearly it's small, right? I think everyone agrees with that on a comparison to some other companies in the market. When it was announced in May, there were pretty much zero expectations on that announcement. Now, I didn't see people also expecting that this would be so quickly renewed, right? A second buyback being announced, given the pace of repurchase has been accelerated, right? My question is, can we think of this buyback more as an indefinite program, just given the undervaluation of the share price?
Can we see this potentially being renewed over the medium term, or are you viewing this more as a tactical move, super short term move? I just wanted to understand your logic and how the company is viewing this buyback, if it's more tactical or if it's more of a longer term issue for the company. My second question, moving into one of the critical points, I mean, running away from this market discussion for a second. The cash cost levels over the past quarters for Suzano and for the industry have been a key source of concern, right? My impression is that this has been one of the main sources of pushback and concern and negative revision to earnings, right? The cost inflation, which has been impacting everyone.
Last quarter, you guys clearly spoke out to the market saying that we could see cash cost levels peaking and stabilizing. I think there were many doubts at the time because commodity prices are so volatile, right? I mean, looking ahead, we're already seeing a pretty severe correction in several commodities, right? Even oil prices, which you mentioned during the introduction, have corrected a bit. But some other commodities correcting even further, right? Thinking of your pulp cash costs over the second semester, how can we view the path? I mean, is there a clear path towards declines which are more aggressive than just the stability, or you think this high level will be maintained? Those are the questions. Thank you very much.
Leonardo, this is Marcelo speaking. On the buybacks, we executed around 75% of the first program so far, according to published data. We decided that it would be important to increase the size of the program because we believe this is one of the most accretive and among the best returns that we can have in terms of capital allocation. As you know, we have been generating a lot more cash than we had planned, and we have this continuous challenge of where to allocate the capital. We believe that the share buybacks have very high returns according to our view of the market and the fundamentals that we see on the pulp market, as I said, when presenting the last slide of the presentation.
It is a strategic move, and it is also a tactical move, given the short-term availability of cash that we have now.
Hi, Leonardo, it's Ira speaking. As I mentioned, considering the information currently available on the macroeconomic scenario, especially related to forecast of rains and the cost of caustic soda in international market, associated with our strategy as part of preparing our wood supply in multiple so that it could make us increase our third-party wood in the coming quarters. We see that will be very challenging to have any significant reduction in the cash cost. When you see
Our structured cash cost to the coming years, we consider a significant reduction in the forest to mill distance in the woods. We have perspectives of reductions in the Brent and the cost side that could bring us a significant reduction in the coming years. Considering the second part of the year, it will be a challenge and we are confident that we will keep the same level of cash costs.
Okay. Just to see if I understood the answer correct, you're saying that pulp cash costs will probably stabilize at these levels over the second semester, given that you're gonna acquire more third-party wood over the upcoming months, right? But your structural
Okay.
Um.
Okay. This part of the wood, we could consider maybe a lower single unit increase in average of second half. Just making a summary on that, it's Walter talking. Leonardo, is that on the long term, we are seeing lower structural cash costs due to the activities of retrofitting that we are doing, with the improvement on the wood supply. On the short term, it depends on what would be the commodity prices and the Brent and chemicals. In addition to that, we are seeing some lagging effect on our costs since we have been increasing commodities in the last quarters. It depends what would be the potential implication of the recession on these commodities on the short term.
Okay, that's clear. You're basically saying that there could be minor inflation in the second semester between, let's say, 2%-5%, quarter-over-quarter.
Yes, exactly.
Okay.
Exactly this.
Okay. Thank you very much.
Our next question comes from Carlos de Alba, Morgan Stanley.
Yeah, thank you very much. Good morning, everyone. Just to make sure, coming back to Leonardo's question. What you are saying is that you expect low single-digit increase in cost in the second half of the year on average versus the second quarter? Just to clarify this, please. I think for the benefit of everyone in the audience.
Over the average of the first half.
Understood. Okay, great. Thank you. Just two questions. On selling expenses, we saw an increase. Obviously, the supply constraints continue, and I think that is pressuring your expenses. Can you comment as to how you see the outlook for the remainder of the year in terms of selling expenses? And then on prices, a couple of questions. One is, spread prices in China, softwood versus hardwood, have now come down quite significantly from the recent peak that we have seen. Still a little bit above the average for the last 10 years, but coming down. In Europe, the current spread is now below the average of the last 10 years.
Do you think that that move of that spread, high spread that had benefited the consumption of hardwood is now done given where we stand in terms of the spread and the relatively higher cost of softwood versus hardwood and or eucalyptus? Then on prices, sorry, my ignorance, but maybe could you help us identify a period in time where hardwood or eucalyptus pulp prices, because of the exposure to tissue, didn't come down when we saw a global recession or a strong, meaningful deceleration in global prices? Sorry, in global GDP. Thank you.
Hey, Carlos. This is Carlos Anibal de Almeida . Good morning. The higher selling prices can basically be explained by a higher bunker due to higher prices. Just to remind you, we have a long-term contract for our break bulk shipments. According to those contracts, the bunker will back the freight rates. We have no exposure to the spot market. Basically, again, all the variation can be explained by a higher bunker.
Thank you, Carlos.
Carlos, this is Leonardo here. I'm gonna answer your questions regarding the spread among fibers and also about why we believe we should be, again, more resilient in a recessionary moment. First of all, we recognize in the market the greatest tightness in hardwood than in softwood, which as a consequence should mean that this gap between prices of fibers should or would reduce if this scenario persists. In our view, due to all other cost pressures that customers are facing, our customers or paper and board producers are facing globally today, not only related to pulp, any positive gap still will favor hardwood, or softwood substitution into hardwood.
We believe that yes, it's coming down closer to historical levels, still a bit over historical levels, but any positive gap will favor fiber substitution in favor of hardwood pulp, obviously. What we can say regarding recession, obviously, we cannot relate to prices and how they will occur, but what we have monitored in past cycles like in 2008, 2009 is that tissue demand is much more resilient in that sense. There was a slight reduction to tissue demand during that year, which recovered quickly, already on the next year. The reduction on tissue demand was even only part of what was the global GDP reduction at the time.
The fact that hardwood is so dependent on tissue, we believe that makes all our models much more resilient in case of an eventual recessionary moment. All right. Thank you very much, Leonardo.
Our next question comes from Rafael Barcellos, Santander.
Hey, good morning, and thanks for taking my questions. My first question is related to the new tissue plant that you announced and which will be integrated into your operations in the state of Espírito Santo. Should we continue to expect the company to integrate its older mills or even switch them towards more niche products such as dissolving pulp? And of course, I mean, what are the main opportunities in terms of changes in your production footprint that you see going forward? My second question is related to pulp affordability. I mean, I'm sorry for going back to the pulp discussion again, but I would say that pulp affordability has been a key issue in the main question mark is whether or not the current pulp price level can start to destroy demand.
Could you please share your thoughts on this? Do you believe that pulp affordability could represent a real risk to prices in the short term? Thank you.
Rafael, thank you very much for your question. It's Walter answering here. I'd like to answer to you that vertical integration is one of the pillars of our long-term strategy already announced to the market. Does not mean that we are going to do in every single plant, but meaning that we are reaching full capacity right now in the tissue business. We are considering to expand our tissue operations, and we have a very good possibility of monetizing our credits in the Espírito Santo state. At this point of time, the project is not already fully approved. We have some precedent conditions. One of them is the approval of the board to that, but we are forecasting that we are going to proceed with this investment that would create value to our shareholders.
Rafael, this is Leonardo here. On your questions related to pulp pricing and eventually how that can affect demand. We see today that pulp is not the only issue in the agenda of paper producers when they're analyzing their cost structure. Actually, in several markets like Europe, for example, all energy related materials or cost components are of the top priority in the agendas of the producers. We have been seeing that paper price increases are going on in several markets like North America and Europe during past months, with new increases already being announced for the upcoming months, with the objective to mitigate this effect from high costs. Again, not only related to pulp, mostly related to energy.
In China, despite several news related to prices or margin of producers, our view is that their margins, especially the larger paper and board producers, are still at supportive levels because due to this lagging shipping lead times, they are still receiving lower cost pulp. Price increases are indeed taking place in the market. I'm not sure if you're aware of that, but we follow that closely with our customers. Tissue prices in China have moved up 30% versus the lows in September and even 20% over the prices in December. Printing and writing as well is moving up more than 16% over the lows in September and 10% in December.
Now relating that to an eventual demand destruction, it's very difficult to associate directly, especially again, take into consideration that big off-takers of hardwood pulp is tissue, which is less elastic in demand in terms of their price points to markets. Maybe that will affect a bit more printing and writing grades, but we believe that tissue grades, specialty papers and packaging grades are resilient in that sense, and we don't expect demand destruction to them in that sense as well.
Okay. Thank you.
Our next question comes from Caio Ribeiro, Bank of America.
Yes, good morning, everyone. Thank you for the opportunity. My first question is on in-transit pulp inventories. You know, some industry consultants, they estimate that there's around 1-2 million tons of pulp inventory in transit to end markets, and which once logistics normalizes, that's gonna allow those inventories to reach ports and create this perception that supply has become more bountiful. I'm just curious if you also see this as a downside risk for prices ahead. My second question is on forestry asset acquisitions. You know, given some of those latest transactions that you've announced with Parkia and Caravelas, do you envision any additional transactions of this nature? As you assess, you know, your forestry asset requirements for the Cerrado Project, where are you right now?
Thank you. Those are my questions.
Caio, thank you for your question. This is Leonardo here. Again, assessing this issue related to stocks in transit. We recognize a longer lead time to markets. We obviously expect that more focus in transit to markets, but we see that as a very small downside risk to our model. First, because if we analyze strictly the number of available break bulk vessels globally, there is no additional increase to that. The same vessels are on the system.
Second, that even in an improvement of a logistics scenario, which again, as I have stated, we do not see any, or very little, not to say any chance of improvements on the upcoming months, it's very hard to see that this additional boat-owned vessels will come to markets and might influence the S&D scenario coming forward. Again, for this to happen, everything will have to come up at once and to all markets at the same time, which is very improbable. We don't see that as a downside risk to be monitored.
Caio, good morning. This is Carlos. Thank you for your question. We have been studying, analyzing opportunities to expand or to go expanding our land bases. That is already included in the CapEx guidance that we just provided.
It's very important to mention that this opportunity on Parkia and Caravelas was to buy back something that belongs to the company in the past. At that time, for different reasons and for different strategic scenario, the company decided to sell their assets. We have the opportunity now since we merge Fibria and Suzano at the same land banking, that would be very important to us to buy back these areas. We are not seeing any major new buyback programs in the land banking, but we are foreseeing some opportunities already included on the CapEx of buying, again, expanding our land banking for the future.
Perfect. That's very clear. Thank you, gentlemen.
Our next question comes from Marcio Farid, Goldman Sachs.
Thank you. Good morning, everyone. I guess my first question is to Marcelo Bacci. Bacci, when we look at the numbers in the second quarter, free cash flow after expansion, maintenance, CapEx, and all the expenses, plus buybacks was zero, right? It sounds like, or it looked like, buyback was you know, the excess cash was invested in the buybacks, right? Obviously the company is a very comfortable balance sheet position to navigate this higher CapEx cycle. Just trying to understand, should we consider that excess cash going forward, obviously third quarter is expected to be strong as well, can be diverted into cash returns, buybacks and maybe dividends as well in the next couple of quarters? That's the right way to look at it, Marcelo.
My second question, maybe to Leonardo. Leonardo, I think we've discussed a lot about price realization in the past quarters, but I think investors still asking us a lot about that. I guess it's important to get more details from you. How should we think about price realization versus benchmark going into the next quarters? Should we expect Suzano to get closer to the benchmark levels and especially to peers as well, as second half approach and as we see price stabilizing as well, right? Because obviously when prices are going up, the lag effect is more pronounced. Those are my questions. Thank you.
Marcio, thank you for your questions. Marcelo speaking. Free cash flow was zero, not only because of the buybacks, but mainly because of the CapEx program. We had an acceleration of the Cerrado Project, and we had the settlement of the Parkia transaction, which is BRL 1.7 billion. That was an extraordinary event on the CapEx side. We had the dividend payment that impacted the cash flow in the period. Looking forward, I think most of the excess cash flow that you generate will be diverted into CapEx. As I said, BRL 9 billion of CapEx in the second half of the year. For the additional buyback program that we just announced. The dividends are, you know, to be discussed for 2023.
You know, with the cash flow generation that is at this point a lot guaranteed given the buyback, the backlog that we have at very good prices that will enable us to have very good results probably in the third quarter as well. We expect to generate a sizable amount of cash and to have these returns or this additional cash both coming back as a cash return through the buyback program and with additional investments that we're making, given the fact that we are in a growing market.
Great. Thank you.
Marcio, this is Leonardo here. I'm going to talk about our price realization a bit, recapping what I have mentioned in my presentation and bringing some additional information as well. As I have mentioned in my presentation, our prices in the second quarter still do not reflect all our price increases during the quarter. The main reason obviously is the lagging of the invoicing of our order books. Before coming forward with that, it's important again to restate that we have announced price increases during the quarter every month to all markets, and all of them were fully implemented with no concessions and with absolutely no reductions to our order intake level. Coming back to our price realization, this order intake has been recurrently very strong during all these past months for several months already.
The fact that we had lower production figures in the first quarter due to the concentration of our planned maintenance calendar has generated backlogs, which we are now managing to better make them and the orders reach our customer base. The challenging logistics scenario is placing obviously even more challenges on us as we are not being able to timely recover these deliveries. We are running approximately 60 days late on invoicing to Asian customers. On top of that, which I had not mentioned in my speech, we have been advocating for several years, and we believe that reducing volatility in pulp pricing is positive in general to the sector.
In some of our contracts, we already have been incorporating different price mechanisms, which obviously then will impact our price realization in moments of price spikes like the ones that we're seeing now. Last but not least, when comparing to our peers, obviously I cannot comment on their price strategy or in their regional mix or what they're doing, but we expect much higher price realization during the third quarter due to these facts that I have mentioned before. Thank you very much. Thanks much.
Our next question comes from Jonathan Brandt with HSBC.
Hi. Good morning. Thanks for taking my questions. Marcelo, first, and sorry if this was already discussed, I joined a bit late. But I'm just curious about the BRL 2.6 billion realized tax benefit that was recorded this quarter. Is that exclusively or predominantly due to the exchange rate losses during the quarter or was there something else going on? Should we, you know, assuming no significant exchange rate losses going forward, how should we think about tax rates in the future quarters? Then my second question, maybe just kind of picking up, Leonardo, where you left off, you know, we talked about the 13% volatility of pulp.
If I remember correctly, you know, going back 8-10 years ago, that was probably around 6% or 7%. Volatility, while it's still low compared to other commodities, has certainly increased versus where it's been historically. I'm just wondering how you see that, you know, in the future, given that Asia is growing market share in pulp and consuming more than other markets. You know, certainly we've seen more volatility over the past, you know, 8 years than I can remember. I guess, you know, one, if you could comment on that.
Two, if you could just comment a little bit about, you know, would you consider trying to lock in longer-term prices, maybe 12-18 months, with certain customers that you have long-standing relationships with in order to reduce the volatility? If you could, you know, and I know it's a sensitive topic, but if you could shed any light on that would be great. Thank you.
Hi, Jonathan, this is Marcelo speaking. The BRL 2.6 billion is not exactly a tax benefit. It's a deferred tax asset, which is due to the time difference between the FX variation and the realization of the FX variation in transactions that are settled during the period. It is a time difference that is recorded as a deferred tax asset.
Okay. Thank you.
Jonathan, this is Leonardo here. We recognize this increasing volatility in pulp, but we also see that going on in other commodities. Just in addition to what Bacci had said before, we see pulp, and we have noticed that in several other downturn cycles as well, that pulp is more resilient. In our view, big part of that is due to the fact of its close relationship to downstream consumption and end user demand, as tissue and packaging grades are of huge relevance to pulp demand. When we look at the future market in China on the SHFE and what's going on, we recognize there is a lot of volatility, and there's a lot of speculative action going on.
A lot of or most of the trade that's going on is not truly related to actors in the pulp and paper market. Again, that's a future trend. Absolutely, today, if customers need pulp, they obviously cannot buy at those price levels. They will have to rely on resale prices, which are all trending much higher than what we see on SHFE. Last but not least, also related to SHFE, which obviously is softwood pulp rather than hardwood pulp, we see that current prices or market prices, as our customers have been reported, that are being announced by North American producers, European producers, and also South American producers, are not pegged to what we see on SHFE.
The price difference exceeds $150 per ton compared to what we track daily on the SHFE future markets as well. We see that of small relevance to the day-to-day dynamics of the pulp markets in China and globally.
Okay. Thank you very much.
As there are no questions, I would like to turn the floor over to the company's CEO for the final considerations. Please, Mr. Walter Schalka, you may proceed.
Thank you. Thank you very much for joining us for the session. I would like to thank you as well, the 17,000 team members of the company and 20,000 indirect team members that is helping the company to be better every single day. We are very pleased with the results, but very humbled that we continue to work to deliver shareholder and stakeholder value to everyone. Thank you very much and have a good day.
This is Suzano's conference call for the second quarter results is finished. Have a nice day.