Klabin SA
BOVESPA:KLBN4
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Good day. Welcome to Klabin’s Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded and being broadcast simultaneously via webcast, which can be accessed through Klabin’s Investor Relations website where the presentation is available. Forward-looking statements eventually made during this conference call in connection with Klabin’s business outlook, projections, operating and financial targets and potential growth should be understood as merely forecasts based on the company’s management expectations in relation to the future of Klabin. Such expectations are highly dependent on market conditions, on Brazil’s overall economic performance and on the industry and international market behavior and therefore, are subject to change.
Present with us today are Mr. Cristiano Teixeira, Marcos Ivo, Chief Financial Officer and Investor Relations Officer as well as company officers. Initially, Mr. Teixeira and Mr. Ivo will comment on the company’s performance during the first quarter of 2023. After that, the officers will be available to answer any questions that you may have.
Now, I will turn the call over to Klabin’s CEO, Mr. Teixeira. Go ahead.
Welcome, everyone to Klabin’s conference call to discuss the first quarter of 2023 earnings results. Facing a challenging market scenario with macroeconomic and geopolitical uncertainties that led to loss of profitability in the market due to falling product prices and cost inflation for producers in the pulp and paper sector having achieved EBITDA of BRL1.9 billion, up 13% compared to the same quarter last year and 2% compared to the fourth quarter of 2022, which reinforces our dynamism to face the most different scenarios in Brazil and globally.
In the pulp business, Klabin differential is having on fiber softwood proved once again to be strategic and efficient in diversifying our product portfolio, linked to that Klabin privileged as long-term contract and diversification of the geographic mix offering different solutions such as bond and [indiscernible]. This strategic positioning ensured solid and resilience in the business results. In the context of a weakened global market, our packaging and container board over this business, such as kraftliner, recycled paper and spacecraft, broad security relative to the results showing the importance of our creative business model was reinforced with the startup of the new corrugators in the State of Sierra in addition to a new line of stack of bags in large state of the Catarina in the consumer division, the consolidation of [indiscernible] 28 through long-term contracts and the expansion of the portfolio for white coated board brings good expectations for a market that remained heated in the first quarter, especially in the beverage segment such as beer, milk and liquid food, which translated into improved profitability in the quarter.
I now turn the floor to Marcos Ivo who will bring the financial details about the first quarter.
Thank you, Christiano. Good morning, everyone and thank you for joining our conference call. In the first quarter of 2023, we delivered consistent results reaffirming the strength of Klabin’s business model. Among the highlights of the period, I would like to mention three, net revenue of BRL4.8 billion in the quarter, up 9% year-on-year. Adjusted EBITDA of BRL1.9 billion, an increase of 13% over Q1 2022 and return on capital invested measured by ROIC of 19.4% in the last 12 months.
On Page 4, sales volume in the quarter was down 2% compared to the same quarter of 2022. This dropped and mainly from lower demand for kraftliner in the foreign market. Net revenue in the period was BRL4.8 billion, up 9% year-on-year. This increase is explained by price adjustments implemented over the past quarters, which more than offset a reduction in sales volume and the appreciation of the Brazilian currency against the dollar. With this, adjusted EBITDA totaled BRL1,942 billion, benefiting from the rate net revenue, which more than offset the increase in cash cost.
Please turn to Slide 5. Net revenue for the pulp business was BRL1.7 billion in Q1 2023. A highlight in the period was once again the flexible sales mix between geographies and the portfolio with three types of fiber: short fiber, hardwood and fiber softwood and froth, which positively impacted the average price in the period and net revenue. The cash cost of production was BRL1,355 per ton in the quarter, same level quarter-on-quarter leveraged by net revenue, pulp segment’s adjusted EBITDA reached BRL945 million in the quarter.
On Page 6, in the coated board segment, which continues with healthy demand, production volume was 172,000 tons in the quarter. Net revenue for – net price per ton of coated board was BRL5,621 billion in Q1 2023, up 14% and 8% year-on-year and quarter-on-quarter, respectively, driven by a price adjustment, net revenue of coated boards reached BRL965 million in Q1 2023, an increase of 11% year-on-year.
Moving on to Slide 7. Adjusted free cash flow with disregards discretionary factors and expansion projects was positive by BRL872 million in the quarter. In the last 12 months, adjusted free cash flow was BRL4.6 billion, representing a free cash flow yield of 20.6%.
Moving on to Page 8. At the end of March, Klabin’s net debt was BRL21 billion, stable when compared to December 2022. Leverage measured by net debt over EBITDA ratio in dollars ended the quarter at 2.6x, stable in relation to the previous quarter at close to the minimum level of the company’s financial indebtedness policy.
Moving on to the next slide. Klabin’s liquidity remains robust and ended the quarter at BRL9.6 billion. This liquidity is made up of BRL7.1 billion in cash and the rest in our revolving credit facility. Company’s cash position is sufficient to amortize the debt that matures in the next 47 months. The average maturity of the debt at the end of March 2023 was 105 months equivalent to almost 9 years. Company has contracted financing that has not yet been drawn down and are now superior to the CapEx that will still be disbursed until the completion of the Puma II project as detailed in our earnings release.
Moving on to Slide 10, according to the notice to shareholders published yesterday, Klabin approved the payment of dividends amounting to BRL389 million to be paid on May 16. In an accrual basis, the dividends distributed to shareholders in the last 12 months totaled BRL1,671 billion. This amount represents a dividend yield of 7.8%, a clear evidence of Klabin’s ability to combine growth, payment of dividends and at the same time, maintain discipline in its capital structure.
In the last page, the first phase of the Puma II project, MP27, continued its learning curve, having reached production of 369,000 tons in the last 12 months. The second phase of the project, which will include a pooled board machine, is under construction. On schedule, having reached 72% of physical execution in a measurement performed on April 23 and has its production startup planned for June. Since the beginning of the project, BRL11.6 billion have been disbursed, of which BRL521 million in the first quarter of 2023.
Now Cristiano, the other officers and I are here for the Q&A session.
Thank you. [Operator Instructions] My first question on from Rafael Barcellos with Santander Bank. Go ahead, sir.
Good morning. Thank you for taking my questions. I guess my first question would be to Cristiano. I just want to understand your mid to long-term vision for the company. We have seen a most severe cycle given initial expectations with Kraftliner and pulp faced adjustments in recent months. I’d like to understand how this cycle and recent pressure can affect my investment decisions and capital allocation mainly? My second question is about Kraftliner. In new release – well, the other segments are performing well. So I’m going to focus on understanding one of the most sensitive parts, which is Kraftliner. In your release, you mentioned some market stoppages in Kraftliner. It would be interesting if you could give us more detail on this. We’d like to understand the stop it, what the conditions are and if market conditions remain unchanged in Q2. We knew that Klabin has the flexibility between Kraftliner and conversion. But depending on the drop in demand of kraftliner conversion will not be able to offset that. I’d like to understand how you’re planning this mix looking forward.
Thank you, Rafael. I’ll start with the second part of your question. I have you in Douglas with me. And if they want to add anything, they may do so. You see this market upges are normal. They happen all over the world. You’ll probably filter this in conference calls with other companies. But basically, this decision is made given a vision of marginal prices. When you have spot prices out of contract declining, we try to face that the variable costs that you can somehow manage. For example, third-party would. That’s a combination. When you have a combination of out-of-contract declining prices with raw material in the case of clubbing word, from third parties, we can – maybe on the cost of – we can offset a higher price of wood that has to travel longer distance with a lower price. And of course, it’s a calculation of profitability. There is a dilution of fixed cost and the integration with our boxes unit. So we manage both in the integration and again, convert more or less recycled paper, depending on the production cost, depending on the price of OCC where I can convert more or less hyperliner, depending on the spot prices that I mentioned. It is very common. Of course, I’m not going to say that this is normal because we only do this in difficult and challenging market situations as is the case now. But it is a tool in which we see great value. In practice, it is Klabin’s flexibility. It is our integrated business model, having our packaging unit to be able to convert part of the paper at a higher transfer price than the marginal price and being able to manage part of production with this reduction. In a relationship with more distant work price, this preserves the profitability. And our main focus is to preserve and protect our profitability.
Now, focusing on the first part of your question and move straight to the point, capital allocation, in a market that isn’t driven with high interest rates, inflation pressures because we haven’t got to the end of this attempt to fight inflation globally. In other words, even yesterday, we saw an increase of [indiscernible] rates in the United States. So this trend continues in Brazil and globally. So in this context of scopes still upward trend of inflation, increased interest rates to control for inflation. This has led to a loss of income in Brazil and in the world. This has led to a deterioration of prices. First interim leads companies to stiffer efficiency as much efficiency as possible. This is the time when difficulties show up on the results of companies – for companies that have less of commodity. So any signaling of capital allocation for big transformational investments, it is at this point respond. I mean it has nothing to propose and submit to a Board of Directors regarding investments at this point.
Thanks for the answer. Thank you very much, Cristiano.
And next question comes from Thiago Lofiego with Bradesco BBI.
Hello. Good morning, everyone. And I have two questions. First has to do with the cost dynamics of Klabin as a whole. You have been talking about an increase in the cost per ton per year of 12% to 13% increase. So I would like to see if you see any downside what your guidance is? Is there any potential for gains here? My second question is addressed to Nicolini. Nicolini, how do you see the pulp market in China where as specifically? Actually, if you could speak as a whole about pulp, but in China, we understand that inventories remain low in hands of paper players, but even at a lower price range, we see a marginally better demand. But as far as we understand the volumes are not strong in the general market. So I’d like to get your sense of this. We have seen in the market, if you think that there is more room for correction or have we achieved the bottom? I’d like to get a sense of how you’re thinking about this.
Thank you. So I’ll let Marcos Ivo to speak about costs and then Nicolini.
Okay. Thiago, regarding costs, we continue to see the same level of production cost incremental tons. COGS per ton that we indicated in Klabin in December and in the conference call of the fourth quarter, which is in the low two-digit range, and we continue to envision that for the rest of the year. Looking at Q1, we had some good and some worse things, but the range remains at this level. Some costs started reducing, as you could see, chemicals and fuels, on the other hand, with the effect of a lower dilution of fixed costs given the market stoppages. The second quarter of this year has the same level of market stops that we had in Q1. So putting everything in the basket, we continue with the same cost indication for 2023.
Hello, Thiago. Good morning. This is Nico speaking. As you have followed the market remains very challenging. The market has been deteriorating since the end of Q1 and a little more intensely now in Q2, particularly in China, where we had a more abrupt price reduction. Given the whole context of pent-up demand, the level of new capacities, the macroeconomic context, increasing costs overall and with inflation pressure, all this has made the market remain challenging from the standpoint of demand. As you know, Klabin has less exposure to China, which does not mean that we do not sell to China, on the contrary, we do. But given the whole context of contracting production volumes from last year to this year, our focus was to concentrate sales in mature markets such as Europe and the United States as well as our position in Brazil, which is quite relevant.
So looking at the whole market context in China, we see price levels are very depressed below the multiple cost of production, which led paper producers to stop pulp production and the state buying some market pulp, still very timid in my review. This process of restocking has not happened in the main paper producers, although the level of inventories that these producers are considered very low. But this process of restocking should happen in the coming months. We don’t know at what intensity this will happen, but the expectation is that this will happen in the coming months.
European and North American markets, the printing and writing market remains very challenging. We see some integrated producers putting some pulp volume competing with non-integrated producers. This has led to additional pressure in terms of price. The upside is that the tissue segment continues to operate with a high machine occupancy rate. We have a greater concentration of sales for the Tissue segment. And this, in a way, has helped us in our sales volume with no great problems.
Thank you, Nicolini. Perfect. I just want to understand what is the price level for imported eucalyptus in China?
In China, $470 to $480.
And do you see a hard negotiation looking forward in the next month?
Well, this level of price led to the normal volumes that we had allocated to that market. And we will have to see what will happen in June.
Okay, thank you. Thank you, Ivo. Thank you, Nicolini.
And Thiago, I just want to, based on your question, say that since our greatest exposure to China is not in short fiber pulp. So I just want to add an observation, which I believe is important. Let’s do a quick math here. Our 4.7 million tons, including Paper Machine 28, which will have the start up in June of this 4.7 million, 1.65 million tons would be pulp. However, of these 1.65, 1.1% is short fiber and 550,000 tons of long fiber, and most of it goes to the pulp market. So it’s 1.1 million as part of 4.7 million and would be our exposure in short fiber pulp. In this exposure of 1.1 million of short fiber pulp, the exposure to China is very limited because we work with long-term contract offering. As you know a diversification of fibers we do have. So the breakout exposure to China for Klabin is limited in coated board for liquids and in the China exposure. I think that we can give you an idea of the contracts for our customers of liquid fluids in China for PB. So I have over 1 minute. So I apologize Thiago, but I just wanted to add information about China regarding our exposure.
Hello, Thiago. Good morning. If we look at China and I will include all Southeast countries over there, the main composition of our experts would be in liquid packaging. Over there, some market that grows the most, substantially, including a part of India, we allocate volumes recently contracted for the big players in that region of the world. So we have Singapore, Vietnam, Thailand and the big China as major destinations of volumes have continued to grow. India is a special chapter. In this is a chapter that has been enhanced in recent years where they are building new factories. So a good part of what we’re going to produce in paper machine 28 is going to go to India. And I remind you that Klabin will be a play of 1.2 million tons of coated board, particularly due to the beverage world, special coated boards with long fiber, which is what we are envisioning for the pulp world. Okay.
Okay, thank you very much.
Next question, Daniel Sasson with Itau BBA
Hello, everyone. Good morning, everyone. Thank you for the opportunity. My first question is maybe a follow-up Thiago’s question about prices. Nicolini, you mentioned the price of hardwood, not so relevant for Klabin, 470 or 480 in China. But resilience points that you mentioned in the results in the call is precisely the mix in different fibers and pulps. And the geographical exposure to other regions may be not so focused on China vis-a-vis some of your players. And ForEx, even if we consider a higher discount, we don’t see a price adjustment in Europe as strongly as we saw in ForEx before. So could you tell us more about the price or maybe the price differential if it exists in the actual current Chinese market, how many more dollars per ton for instance, can you sell in Europe vis-a-vis prices of 470 or 480 million that you mentioned for China.
My second question maybe for Cristiano. It was very clear about capital allocation. As we speak, well, this is not a provocation for you about the approval of this project, it seems to be taken into account, and you’re focused on NP28. However, Cristiano, considering the macro conditions that are slightly more complex and tough, particularly in Brazil, in the domestic market, do you see opportunities to consolidate, for instance, M&A or corrugated box or the movement that we already saw before as you did in a recent past. Thank you.
Thank you, Sasson. Nico will begin answering the questions.
Sasson, thank you for the question. Look, we have a significant price differential if we compare mature markets in China. Like I said, the drop in price in China was more sudden and faster than expected, considering the whole scenario and the economic scenario in China in general, with low growth, particularly after the Chinese New Year, we expected to see a new demand, which didn’t happen. However, in Europe, the price index is a benchmark is a reference. It doesn’t mean it’s 100% accurate considering we are competing in the global pulp market. I can tell you our differential in price is still significant in these regions. And our strategy to focus on those markets with long-term agreements, which include multiple years. They allow us to maximize our price result as a whole.
Thank you, Nico. Sasson, when it comes to M&A, I think you particularly mentioned corrugated box. I would like to consider like this. For instance, Klabin’s position is consistent when it comes to integration and the intention to increase integration of our actions and papers specifically, I am referring to four boxes. When it comes to bags, we’re already 90% integrated. To what extent we will manage to have this integration 70%, well, if the number is not correct, maybe Marcos and Douglas please correct me if I’m wrong.
But to what extent can we evolve to 19% to 95% integration for packaging? That’s the question for the future. Maybe for the coming years. I guess the intention is to reach a level of integration around 80% or 85%. This percentage cannot be totally settled now, but we just want to say that our intention is to improve integration. However, despite having grade corrugated box manufacturers in Brazil, the level of technology from all manufacturers with modern machines and corrugators. At the end of the day, Brazil stands out, if you follow-up the market for 30 years, for instance, today, Brazilian corrugated – corrugators, they are second to none, including family companies or SMEs. We are always keeping our eyes open. Nothing right now, I think we don’t know if Klabin will consider an M&A right now. But when it comes to structure and the concept of our business will stick to our vision.
Thank you, Cristiano.
Next question, Guilherme Rosito with Bank of America.
Good morning, thank you for taking my question. My first question is about wood cost. This quarter, we had a significant increase year-on-year, quarter-on-quarter. So what’s the idea of the cost per ton for pulp in general? Is it to maintain the coming quarters? Or do you expect to see an increase or a drop? What is the magnitude? And the second question is about the container board market. Could you give us some color about domestic and foreign markets? Kraftliner are a little bit weaker. So should we expect the conversion rate to be higher in 2023 compared to 2022 for example?
Thank you, Guilherme. Marcos is going to answer your question, and we also have our forest officer, Sandro Adelaide, he may also add something. So Marcos Ivo is going to talk about wood cost.
Guilherme, first, answering your question being to the point, the total cash cost at Klabin or total COGS, we follow with this indication of growth in 2023 vis-a-vis 2022 of low two-digit, like I said in the first question in the call or answering Thiago Lofiego’s cost. And this includes wood. Now just diving deeper into wood, we remain consistent in our explanation about wood because we’ve been actually working within our plans and our forecast. If you recall, Klabin days in December, Sandro, our Forest Officer, he made a deep presentation about the mix of third-party and our own wood over the years. We could clearly see that the peak of share of third-party wood and Parana system is for 2023 and ‘24. This is where we expect to see the peak in wood price. And it begins to go down 2025, which is a small drop. And this drop comes more strongly as of 2026. And the essence behind all that was a means to deliver efficient capital allocation and therefore, the full first supply cycle for Puma to start with third-party wood. And as of the second cycle, we use our own wood, which was planted in areas that we already purchased and therefore, are close to our plans.
So we remain consistent within our plans are scheduled and very bullish about the future of wood. Guilherme, Douglas Dalmasi, our Packaging Officer, is going to add some comments to your second question. You said it makes sense to have container board and packaging, but Flávio, who is the Paper Officer, he could also make some comments.
Good morning, Guilherme. Let me thank you for the question. Let me talk about conversion for bags and corrugated box. For banks Cristiano already said that we had high integration levels. start-up of the new line and the volume behavior is expected to be similar to what we had in the first quarter. We work with full capacity, and the behavior will remain as such for the full year. So funhouse, domestic market for market will remain as usual.
For corrugated box, similar behavior to what we saw in the first quarter for the market, growth of 2% in the market, and that’s what we consider for the rest of the year, including paper, and we consider to keep on following up the market growth. So our repeat remark that I made – in the previous quarter, we have to keep our eyes open, not only for tons when we consider corrugated box prep Klabin. We have to focus on square meters. For square meters, the behavior was similar to the market behavior when it comes to growth. So for the coming quarters, we also follow-up the market behavior and growth market, which achieved 2% growth. That’s our outlook, and this allows us to measure our integration level.
Can I just add to the comment Guilherme about Douglas answer ported per meter. And for those of you who haven’t followed this up, let me explain the merit behind this. MPP27, as you know, was the EcoLiner product, a product that being launched 100% with Eucalyptus and also with stat-of-the-art equipment. As a result, it was state-of-the-art equipment, process with highly qualified people and naturally the pulp and fiber, which allowed us to come to Parana’s plant with 100% ecolyptus running in the machine.
This machine and EcoLiner delivers from 10% to 15% less fiber or pulp per square meter. So the box made from this paper. The structure is preserved with less raw material. Therefore, here, we can see the competitive cash cost of the product. At the same time, this product offers to box manufacturers, further efficiency, like, for instance, a reduction of energy used in the corrugators. So when Douglas says that we will focus on square meters, that’s because Klabin has reduced the weight of gram in Brazil with a more technological paper. This is important in terms of cost reduction and also important when it comes to CO2 emission from transportation or trucks with fewer tons with the same efficiency in transport. So I just decided to touch upon this, and I hope I haven’t affected your as answer Guilherme.
Crystal clear. Thank you.
Next question from Marcio Farid with Goldman Sachs.
Hello. Thank you for the opportunity. My first question is a little more structural, thinking about coated boards and kraftliner in the global competitive market. Everything we see in here makes us excited with the expected demand. I think that most companies and your customers would agree with that. What we have seen in recent years are announcements of great capacity expansion in all regions, in Latin America, United States, Europe and particularly China? So, I would like to see how do you envision demand? I mean I think that demand should be positive, but we could be a little worried with supply because China, every month, there is a new ton being produced of coated board or in Russia, the United States and also in Latin America. So, how can we understand this? How should we think about this scenario looking forward? And my second question, perhaps to Marcos Ivo. Ivo, the forest piece, I just want to understand the conditions of supply and demand. Is it in a worse margin or less tight than in the last 2 years because the competitive landscape is a little bit tighter, so how do you see this? Should we expect any significant change? And finally, on the side of costs, I think you spoke a lot about this, but we have been positively surprised with a decline in the price of diesel oil and chemicals. So, perhaps we could see a better cost landscape than three months, four months ago when you gave us a guidance. Could we expect a reflection of these lower commodities prices on your results, perhaps improving your guidance a little bit? Thank you very much.
Farid, the sound was a little hard. So, let me make sure I understand your question correctly. The first part of your question addressed to Marcos Ivo would be regarding wood. And then you talked about a tight market of wood supply is that it?
Actually, I had talked about wood. But my first question was regarding coated boards and kraftliner. And then I spoke about wood in Brazil.
Okay. It is clear now Farid. Thank you. I just wanted to make sure I have understood. Alright. I will ask Flavio to speak a little about coated boards, and then I will answer the second part.
Hello Farid. This is going to be a little longer explanation regarding your structural question in splitting the consumer market and the container board. The kraftliner container board market is facing some new entries of recycled fibers. But in another recent announcement, they talked about closing down less competitive assets. So, the supply that is coming in less market stops kind of balanced the price landscape that we see now, which is at the limit of the marginal cash cost. So, we have Brazil that continues to be very competitive. We see specialization of products, so Klabin operating, particularly in the exports market, where it makes sense. In other words, fruits, vegetables, protein exports markets that talk directly with the virgin fiber market. But of course, naturally, now we have a more difficult balance in the horizon of the next 12 months for this market with the fact that Klabin is operating here, producing coated board at very competitive prices. And I am not going to repeat Cristiano’s comments on New Carolina. Now, let’s talk about coated board. You talked about coated board with greater capacity from China folding box board, most of it not integrated. So, part of the acquisition of fiber and wood from abroad. So, that capacity will get into the last quartile of the cash cost and it competes in the world of more general boards. Short fiber and of course, experts will depend on the logistics possibilities. And Klabin, with this 1.2 million tons of coated boards considering paper Machine 28. We are in the long fiber board for liquid, foods and beverages, experts are linked to beer, milk, etcetera. That’s its essence. And we have another important piece that is gaining momentum, which would be boards with barrier. So, special coated boards linked to industrialized cold chain products. That’s where we are growing a lot, and that’s where we do not have direct competition from typical coated board produced globally. Here, there is another important element regarding demand. Even in a market where demand starts to settle, we have an important substitution. The main winner “to replace plus next single use” is board that is taking up important space and again, in the beverage world. And to bring one last element, Klabin made an investment, and this is underway, the transformation of the Machine 28 production, adding white boards. So very soon, we will be acting in the market of special boards with long fiber and also in white boards. And that with those earlier signed contracts come into play regarding this paper machine. So, we don’t see any important issues in this world where we are navigating. Thank you.
Farid, I will continue with the answers. I will start talking about wood and then Marcos Ivo will speak about inflation. I will probably add somewhere to that, taking advantage of a trip that we took last week, and we were speculating about inflation from of our peers. And Sandro is also here that can add to my wood comments. So, let me get started. You see, I have a relatively controversial view regarding wood availability in Brazil. Regarding with planted area in Brazil, I see an opportunity, and I think I have mentioned this in earlier calls, perhaps after productivity and I ask for a poetic lies to speak a little about structural aspects of countries. But I think that the first point to unlock capacity in Brazil is productivity, and this involves education and so on and so forth. But in terms of creating value in the country, specifically in Brazil, given our characteristics, I see that if we have more planted areas, this would be one of the main ways to unlock value in this country through planting in pasture areas. Pasture productivity in Brazil is very, very low. And this is one of the major protein produced as Klabin. I know that Brazil is a continental country. I know that every Brazilian region has a different real will move. But in the context of time and perhaps we can talk more about that in another moment. Brazil in productivity, it’s less than one cow per hectare. And this number could slightly triple or reach 4x given the reality of the country. So, with just information alone, we have 9 million hectares pointed in Brazil data from our EBA, the association of our industry. What we foresee, just considering 9 million of hectares planted compared with and I am not going to mention any names, but the biggest protein produced in Brazil, alone manage in terms of buying cattle from pursuers, something like 19 million hectares in time. The pasture area is 10x the size of planted help areas with plants planted for our industry and some other industries such as Industrialized Wood and Stelo. Why I am I mentioning all of this, because countries like [indiscernible] the government has an expectation of opening planted an area and there are opportunities and other items of Brazil. So, you see our sector is pretty much abide by the regulation of the industry abides by global certifications. We are benchmark around the world in a Brazilian or foreign player operating in Brazil. Our main marks in terms of forestry management and unlocking this value was gained with the tapering transferring areas to planting a forest. This will put more productivity for the current capital rating experience and it would bring us an opportunity to increase the area of planted trees in Brazil. So, especially speaking, I see this as a great opportunity in Brazil in the coming decades. I truly believe that planted area in Brazil for our industry should double in size. Now, that does not mean that in the short-term, we will not view circumstantial cost pressures. And now speaking more about Klabin, Klabin in the south of Brazil, I would like to remind you that we have two fibers, 50% long fiber, 50% short fiber. And we operate primarily in the state of Santa Catarina and Parana. In these states, well, MAZU exports to the United States linked to several construction numbers or housing construction in Brazil. So, the south of Brazil is the export. This kind of wood would impact the demand and the price of wood in the South of Brazil. And it’s kind of a forecast. And everybody is hoping that this will not happen. But in this forecast of the reduced economic activity in global markets, including in the United States perhaps there will be an opportunity or a balance of prices and third-party wood in the next 12 months to 18 months. Of course, this depends on many other circumstances. I will talk about the wood forward in Brazil with consumption in the United States, and you probably understood the relationship. But in this context, I should say that right now, the worst is behind us in terms of wood price. And in the long-term, I see an opportunity. My last point is that in terms of the cost of wood. The cost of wood has an economic relationship with the cost of land. I am not going to get into the merit of that, so – because this would be too long. But let’s talk about economic cost, land cost, and I am going to speak about distance. Distance is the same for everybody to see these new pulp units, which is to have one single product. Now, they are trying to pursue very high production capacities, having wood traveling long distance and this long distance is perpetuated in regions with relatively or productivity compared to the south of Brazil. And they have wood travel long distance to maintain the production, the dynamic of better machines. In the case of Brazil, we have said this over and over, and we have shown this in our numbers. And Marcos has spoken about this. As we get third-party wood in the first retention in the wood, this fetch rotation, therefore, third-party wood traveling longer distances, so cost increases due to longer distances. But in this interval of time, we have acquired areas near Klabin, in which we are already planting. And for the second rotation, the structural cost will drop. It’s due to discuss. I have spoken a lot in my answer. Sandro, if you want to add anything, but I just wanted to explain this to you, Farid and I apologize for being too long. But I think that the debate regarding wood price in Brazil, seems confused with planting and path even opportunities that exist in our industry. I will turn the floor for the Marcos to speak about inflation.
I will just add to that, Farid, we continue with the same indication of increase in cost per ton for the year of 2023. Of course, if we have a price reduction that is more intense in commodities, which are raw materials for Klabin, this will also be reflected in our cost. But right now, from what we can see at the beginning of May, we continue with the guidance that we gave you in the prior conference call as well. It is important to remember that part of the cost per ton in the second quarter of the year, in April we had the general shutdown our biggest site Puma, where we have the production of pulp and Puma two in the first phase already in production. We had a stoppage – a scheduled stoppage with a greater scope, which means more days of downtime, and that impacts the COGS per ton because we are going to have a lower dilution of production and fixed costs in the second quarter. This is just as a reference, our general shutdown in the Puma unit asset fixed more days than last year, especially because of interconnections, there were planned debottlenecking for the startup of the promotion trending. And Farid, I will just make a comment on something that I forgot regarding cost and inflation. Monaco’s NI last week Klabin era, we were visiting six of the major players of our industry in Europe. I just wanted to understand global view of the world, expectations, threats, geopolitics and how each company sees all these. We kind of normally do this to maintain healthy understanding of the world in our industry. And in that context, we left ending with an impression, which is no different from ours. We were concerned about cost of labor, Europeans and Americans of say salary adjustments, and we are not exactly how should I put this. They are routine after or in the post or context, and of course, an increase in the cost of power, etcetera. And all of that has a reflection on us. So, our concern regarding inflation continues to exist for all of us in the industry here and globally.
Thank you very much for all the good, super clear. Good luck and keep up the good work.
Thank you. This concludes the question-and-answer session. We will move now to the final remarks.
As for the second quarter of 2023, our outlook remains of a challenging market, for the global scenario of inflation and continued deterioration in pulp and kraftliner prices minimized by Klabin’s integrated business model in the packaging unit and the demand from the consumer segment. Additionally, in April, early second quarter, we had a general shutdown of the expanded Puma plant reduced slightly our production volumes, but successfully interconnected with the new coated board machine. For that, we achieved 92% of the implementation schedule for MP28 with start-up schedule for next June, strengthening Klabin’s position in highly resilient segments with growing global demand. Given a complex market context, we remain vigilant in our focus on operating efficiency with cost control and optimization of the mix of products and markets. I thank you all for your participation, seeing you all in Klabin’s next earnings conference call.
This concludes Klabin’s S.A. conference call for today. Thank you very much for joining us and have a great day.