Klabin SA
BOVESPA:KLBN4
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Good morning. 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 also 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 industry and international market behavior and therefore are subject to change.Present with us today are Mr. Cristiano Teixeira, CEO; Marcos Ivo, CFO and IRO; as well as company officers. Initially, Mr. Cristiano Teixeira and Mr. Marcos Ivo will comment on the company's performance during the first quarter of 2024. After that, the officers will be available to answer any questions that you may have.I now turn the call over to Klabin's CEO, Mr. Teixeira. Please go ahead.
Thank you. Good morning. Welcome to Klabin's earnings conference call to discuss the results of the first quarter of 2024. I'd like you to be with me on Slide 3. I will make some comments on the first quarter '24 performance. And then you will hear more detailed information by our business officers.For starters, let's speak about long fiber. At the top on the left-hand corner, I'd like to draw your attention to the fact that 1/3 of the shipment of fibers in Q1 '24 was on fiber with a price differential of almost $300 premium of one fiber over the other. We have been debating this thesis with you. It's kind of a conceptual thesis, but it takes into account some factors, which I will mention here with a direct link with Klabin's intended to expand our long fiber product portfolio, which combines and couples our Caete Project.Last year, we had about -- well, the fiber -- the long fiber market had about 25 million tons a year. Last year, almost 3 million tons were out due to shutdown of production, basically following companies in the North Hemisphere manufacturing long fiber. And with this price differential, this was a relatively stable curve, considering the price of fluff worldwide. We saw a price deterioration mainly because of the North Hemisphere cash cost. So this started happening last year, and there has been no announcements of investments in long fiber worldwide. So it's a sector of 25 million tons.And in this context, the Klabin stands out with a product with the same quality characteristics as the long fiber in the Northern Hemisphere. And we can -- and we are among the main brands that use our long fiber products. So considering the strategic design of the company and our resilience, we operate in niche markets, which are more resilient, more stable with greater competitiveness vis-a-vis the Northern Hemispheres.We are the only company in the Southern Hemisphere, offering this kind of differential. So one of the things is it's not that there are no possibilities of replacement of long fiber by short fiber. On the contrary, we benefit from that. We showed that in Eukaliner, as you know. And I will be talking more about that. But in the replacement of fluff, which will benefit us as well, we like to draw your attention to the fact that in this market, we've been working more and more products with greater added value of fluff with greater competitiveness. This is indeed the differential that we have, that we always like to draw your attention to.In short fiber, just for your reference, it's a market of about 145 million tons. We always like to point out the loss of more than 1 million tons last year due to unscheduled stoppages, which shows that we can consider this in our calculations. We believe that this will be more and more reflected in the curves of the companies that work with pulp price curves. This will be considered. This will be a reference in the price curve. In other words, this nonrecurring loss in short fiber.So we had an important quarter, and Marcos Ivo will speak more about this in terms of pulp cash cost, and it shows efficiency that we have been pursuing at the company, not just in G&A and the word, but also in other areas of the company.As regards coated boards and kraftliner, of course, we have to mention the moment we had in Brazil and in Latin America. This is a theme that has been debated in many segments, the overcapacity of China and its effect in many regions of the world. This was not an exception in this context. We also suffered just like other industries with the offering of Chinese products in Brazil.This will be mentioned by our coated board's officer later, but I'd like to point out that even in this scenario, with deflation due to an over production in China, which has impacted many sectors around the world and also ours, in this kind of situation, still Klabin posted growth in Brazil in the shipment of coated boards, showing that the Chinese coated boards that arrived in Brazil competed with less added value products and Klabin now focusing with the technology of PM28 with more added value products.So this reinforces what I said about pulp. We are going to niche products with higher added value, and of course, this also applies to coated boards, not to speak about LPB, which we know is the high-end product of every sector.Speaking a little about kraftliner. We're now transitioning also to packaging. I would also like to mention the level of integration and conversion at Klabin, 63%. It's -- I'd like to point out something that you should not overlook. We have been using as much as possible the paper of paper machine 27, which is a highly technological paper. And again, we spoke about that fiber transition, right, using short fiber. And this used to be long fiber in the past. But leaving this for products they can and need to work with a lower paper weight and especially because of market conditions, there is a demand for better surface quality for printing. So again, it's another niche product. So I'd like to mention how the conversion of Klabin's paper integrating the whole benefit of a low paper weight, but the value that this can represent to you by the measurement in square meters.So I'd like to point out the benefit we've been able to deliver in competitiveness in cash cost. We followed the market in terms of shipment, the market of packaging and paper. So we followed the market in terms of growth in Q1, but the box sold in area, in square meter or considering units, we followed the market in volume of 5.6%, but we produced less in tons. So the differential between the area in a lighter box in fewer tons, this differential is caused and its competitiveness that we can include in our results.And lastly, I'd like to make a reference. We will soon be getting some information from our packaging officer. I'd like to draw your attention to Figueira Project. Well, Figueira Project, I had the pleasure of visiting Project Figueira just yesterday. We started production and billing. We have a first-line team, another great project team at Klabin being able to deliver the project before the deadline.In the last 15 years, Klabin is seen as an excellent company in terms of delivering projects. And I'd like to mention something about this project. I hope that soon you will have an opportunity to see it in person. But we were able to make some -- one of the great leaps in productivity in packaging, most likely the biggest leap in Klabin's history because at this site, we'll produce double what the same high-technology unit at Klabin will produce, but with half the team. So the productivity by tons shipped by person at this plant is most likely the most efficient in the world, it's most likely the highest, the greatest leap and competitiveness that Klabin ever had. You'll get more data on the project soon.So I will end my part, and I will turn the floor to Marcos Ivo to speak about the quarter, and then we'll come back.
Thank you, Cristiano. Good morning, everyone. Thank you for joining us. On Page 4 of the presentation, net revenue in the quarter was BRL 4.4 billion, down 8% year-on-year. This decrease is due to drops in pulp and kraftliner prices in addition to the appreciation of the Brazilian currency against the dollar, which was partially offset by the higher sales volume. Adjusted EBITDA was BRL 1.652 billion in the first quarter of 2024 with a margin of 37%.Moving to Page 5. Pulp sales volume was at 362,000 tons in the period, impacted by a nonrecurring maintenance stoppage in the production line. The average price of long fiber and fluff, driven by fluff was $949 per ton in the period, representing a spread of $290 on short fiber, showing the high added value of long fiber fluff that Cristiano talked about extensively in the opening remarks.The cash cost of pulp production was BRL 1,263 per ton in the quarter, down 7% from the same quarter last year and down 4% quarter-on-quarter.On Page 6, in the Paper and Packaging segment, the highlights are the increased output of paper machines 27 and 28 and the strong demand for kraftliner and corrugated boxes. In paper, the volumes sold increased 16% year-on-year, reflecting this production ramp-up, the strengthening of kraftliner demand and access to new markets in coated board. Net revenue of the segment grew 3% in the first quarter of '24 versus the same period in 2023.In packaging, the sales volume of corrugated boxes rose 6% in Q1 2024 versus Q1 '23, mainly driven by increased demand from processed foods and dairy products. Net revenue of corrugated boxes grew 1% year-on-year.Moving on to Slide 7. Total cash cost per ton was BRL 2,984 in the quarter, representing a 9% decrease year-on-year and a 1% decrease quarter-on-quarter. Note that this cost is below our total cash cost guidance of BRL 3,100 per ton for the year of 2024.Moving on to Page 8. Klabin ended the first quarter of 2024 with net debt of BRL 21.3 billion, an increase of approximately BRL 1.2 billion quarter-on-quarter. This increase is substantially explained by the negative effect of the appreciation of the U.S. dollar against the BRL on our net debt in foreign currency, with no material cash effect in the period and also by the negative free cash flow in the quarter.Leverage measured by net debt over adjusted EBITDA ratio in U.S. dollars ended the quarter at 3.5x within the parameters established in the company's financial indebtedness policy.Moving on to the next page. Klabin's liquidity remains robust and ended the quarter at BRL 14.3 billion. This liquidity is made up of BRL 11.8 billion in cash and the remainder in an undrawn revolving credit facility. Note that this cash position already reflects the funds in dollars that will be used for the payment of the Caete Project scheduled for the end of Q2 2024, as mentioned in a material fact of December 20, 2023.It is worth remembering that the closing of Caete Project still depends on the usual suspensive conditions for this type of deal. As for the average maturity of the debt at the end of the quarter was 90 months and the maturities of 2024 and 2025 totaled BRL 3.1 billion.Moving on to Page 10. According to the notice to shareholders published yesterday, the company approved the payment of dividends in the amount of BRL 330 million to be paid on May 16. On an accrual basis, the dividends distributed to shareholders in the last 12 months ended in March totaled BRL 1,281 billion. This amount represents a dividend yield of 5.3%.I now turn the floor to Douglas Dalmasi, who will bring us details about this important project, that is Project Figueira.
Thank you, Marcos. Good morning to everyone. We are on Slide 11. And we're very happy to share with you another major milestone in Klabin's history, the opening of the Figueira -- the startup of the Figueira Project, our new corrugated box plant that started operating on last Monday, April 22, on time, on schedule, on budget and at a moment where there's demand in the market.On the last of the slide, as you can see, we have the production information. The new unit has a production capacity of 240,000 tons as we showed before. And now we're talking about an added capacity of 190,000 tons for this year. We're expecting 70,000 tons of additional production for our 2024 capacity.At the center of the slide, the investment plan for the plant is also important information. Considering what has been done and what's going to be disposed at the end -- towards the end of the project, we've seen a reduction of 4% of the planned investment, so BRL 1.5 billion. At today's value that we approved in the beginning of 2022 -- so in addition to the 4% reduction, there is the monetary correction at today's value at 500. So it's an important effect, an economic effect for the project.On the right side, we're showing that the plant is coming at a very good moment at high heated demand. We always follow that this is an industry that grows above the GDP. The market according to data from Empapel grew 5.7% in the first quarter in terms of square meters compared to the same period of last year. And what's projected for the GDP this year is 2 percentage points of growth.And according to projections by Empapel, who projects the sector for the year and even RISI, they're both projecting higher growth; 3.4% projected by Empapel, 1.4 percentage points above the expected GDP growth and RISI estimates growth of 4.3%, so 2.3 percentage points higher than the GDP. So as I said in the beginning, on time, on budget and in a very good moment for the market.I'll now move on to Slide 12 with some important pictures that make us very proud. In the upper left-hand corner, there is a photo of our team, the project team and operations at the plant.On the right, we see the corrugator machine, a state-of-the-art equipment with optimization and monitoring features for performance quality. This machine has a speed of 450 meters per minute. It's a German machine running -- it's a new technology that is capable of running up to 3 orders simultaneously. So it's a triple output that brings important efficiency gains for the equipment and for the operation. Noting that we're opening -- starting now with 1 corrugator machine, but the site who have 2 corrugators and the second is expected to start operating in the second half of this year.At the lower left-hand corner, we have the conversion equipment, the Flexo Folder Gluer Printer, that's a Japanese machine with 4 printing colors, a speed of 21,000 boards per hour. The factory will have 5 printers like this.On the other side, we see a Rotary Die Cutter Printer. This equipment brings leading technology with high capacity that can print on the inside and outside of boxes. It's an additional technology for us.And I'd like to take this opportunity to thank everyone involved in this project, our Board, our directors, all of our employees, investors. We're very happy to deliver this achievement for Klabin, and this reinforces our belief in our integrated business model. We are confident that this plant will be a fundamental pillar for Klabin's future growth, very competitive and one of the best in the world, as Cris said in the beginning.I'll turn the floor back to Cristiano, who will continue with the presentation.
Thank you. Actually, thank you, Douglas. Thank you, Marcos. Now we will turn to the Q&A, and we'll get back to you at the end.
[Operator Instructions] Our first question comes from Rafael Barcellos with Bradesco BBI.
My first question is to Cristiano. I would like to understand if this more favorable pulp cycle could bring forward a decision for a new project that would require more significant investments for the company now that we've had the startup of Figueira Project? That's number one.Second question to Nicolini about the pulp market. I'd like to hear from you, what is your expectation regarding the implementation of pulp prices announced for May? And in long fiber, I understand [Indiscernible] Klabin opted for not announcing a price increase. And still in long fiber, we saw some players announcing an increase, but it was more concentrated in China, not in Europe. So perhaps if you could comment on this difference between China and Europe, that would be much appreciated.
Thank you, Rafael. Regarding new projects, the answer at this point is we are 100% focused on the ramp-up of PM28. Of course, now as Douglas presented, we are focused on using as much as possible the ramp up of corrugated boxes. So we are always pursuing efficiency, particularly in the forestry area. We are consolidating a work to reduce fixed costs that started last year. So we are truly focused now. We are not considering at this point, taking anything new to the Board of Directors. Nico?
Rafael, thank you for the question. As regards price announcements for the month of May, these were recent announcements made last week by Klabin. The expectation is that we will implement these prices in all geographies, given the current market context that you've been following. Basically looking at the geographies, Europe or mature countries in general, continue to perform above the expectations.I'd like to remind you that we always were with a quarterly consumption forecast. So the numbers for Q2 are very positive numbers, above what Klabin can supply today in terms of eucalyptus. So the trend continues to be very positive. It is a little different than the current situation in China. I'd like to remind you that in terms of demand, China is not at the same par of Europe, United States and even Latin American countries, but China involves a supply restriction.You have followed this, inventories in China remained low. There were volume deviations from China from South Pacific to other geographies because of a higher demand elsewhere. So there's a supply restriction. And also, there are some logistics involved in the supply chain, which remains very challenging. The expectation remains positive for the implementation of new price adjustments in May.As regard to your question on long fiber, unlike eucalyptus -- in eucalyptus, we don't hear official announcements of price increases in long fiber. So these announcements were made last month. You should remember that in the prior earnings conference call by Klabin, I mentioned that the trend is that the spread of prices between long and short fiber will increase. We already see this happening. More than 2 million tons of capacity was shut down [ in the last 2 years ] in this first quarter alone because of also supply restriction and operating problems, basically 600,000 tons to Spanish from the market.The expectation is that for the coming months from now onwards, we'll start seeing a gap difference between long and short fiber in a range of about $150 per ton. This should have an impact on fluff prices. And just to answer your probable next question, fluff prices have been shown to be resilient. The price increases announced were more timid compared to pulp in bales, but soon we will start seeing the effect, the impact of long fiber being transferred to new price increases for fluff.
Our next question is from Caio Greiner with BTG Pactual.
I have 2 questions. First, about packaging. You mentioned your growth forecast on demand forecast for this year, 3% to 4% by Empapel and RISI. So could you share your volume growth expectation for this year for Klabin? Specifically, what your strategy will be with the startup of Figueira? You mentioned that you're expecting to have 70,000 tons from Figueira and have that in the market. So comparing it with what you produced and sold in 2023, that will be an 8% increase. Is this a fair statement? Or did I misunderstand?Yes, we tend to perhaps turn on another machine and growth will be lower. I just want to understand the strategy of the company this year for packaging. Will you focus on gaining market share? And if so, you might have to give up some of the price. I want to understand your strategy.Second question about cost. Ivo mentioned in his initial remarks, a cost falling 1% quarter-on-quarter. The cost is below the company's guidance for the year. And perhaps this was mainly driven by pulp and instead it's because of a reduction of third-party wood. And I'd like to know if this is a reflection of the initiatives related to Caete Project. In this first quarter, below the guidance of the year, can we end up having an upside or revision downward in terms of cost expectations for the year? Does the guidance continue to make sense? Or do you think it's too conservative? These are my questions.
Thank you, Caio. Douglas?
Well, Caio, thank you for the question. You see, we will monitor market conditions and market growth, and we'll seek efficiency in our other operations, which were included in Project Figueira from the start. Figueira comes in as a satellite in Sao Paulo state. It brings us great efficiency in the region. It supplies a little bit of the South, the Midwest and Sao Paulo, Minas Gerais. So we choose higher costs, and we follow market growth. This is how we will operate during the year with this expectation of market growth. Marcos?
Well, regarding costs, well, we need to connect this with what we have been talking to you about since mid-last year. Since mid-2023, we've been saying that with the startup of paper machine 28, we will have a dilution of fixed costs impacting the cash cost of the company. Since then, we've been explaining a number of initiatives, both in administrative functions and in operational areas here, particularly in forestry.In Klabin Day, we spoke at length about this, about what we were doing in the forestry department. And these initiatives are now showing in Klabin's numbers. This has definitely been helping us. It's a pool of effects in our cash cost per ton.As regards to the expectation for the year, we maintained the guidance that was published on December 20, when we mentioned the cash cost per ton of BRL 3,100 per ton for the year. This number is maintained. As for Q1, of course, we went below that, but that's not the right timing to review this, because as you know, along the quarters, there is some seasonality of costs involved. So we maintain the cash cost guidance for 2024.
Next question, Daniel Sasson, Itau.
My first question maybe for Ivo. It's just a follow-up about Caete. Ivo, you said that the conclusion is still pending and that suspensive conditions is usual in this type of transaction. But if you could try and share with us a little bit whether you're already thinking about strategic alternatives to eventually accelerate the monetization of the excess hectares that you acquired -- of the land acquired in this negotiation? Or if what you intend to do is to do this a little bit later? So that would help us understand and maybe price a little bit better, the value that you have to unlock.And my second question is a follow-up maybe to Douglas. With the startup of Figueira, congratulations for the startup on time and on budget, even below. But if you can talk a little bit about the market conditions? Do you think there's room for maybe a consolidation movement or the large scale of informality in this industry more with family-owned companies that are not as structured that, that would prevent it and growing in this sector is organically? Indeed, I think it would be nice to understand. And on the same point, if you could share with us how it's been, I mean, 1 year since the ramp-up of Horizonte, if you're already on the level of using the capacity that you expected or if there's any lessons learned from that ramp-up of Horizonte that could help in the Figueira ramp-up?
Thank you, Sasson. Marcos?
Sasson, as for Caete, the suspensive conditions are being met in time. Everything is moving along as expected. We continue to estimate the conclusion to the end of the second quarter.As for the strategic alternatives to monetize the land surplus or maybe partnerships with [indiscernible] we've been working. We have been looking at it. We have studies and ongoing discussions about this, and we're using time to our favor so that we can get to good designs for the company.What we can say is that as for the base scenario, that's the business case paired with the market that generated the reference return rate for the market, we are very confident we will deliver that. And there is the possibility of advancing this. The directors are dedicating their time to this. So this discussion, studies are at the directors level. It is an important part of our agenda. But we don't have anything sound to share with you yet. As soon as we do, we will share the information with you.But to summarize, the basic scenario published make us very confident. The forestry department is very prepared for the day this asset comes in, and that includes monetizing the surplus plant and a lot of discussions going on with the directors to see how we can advance that. Douglas?
Good morning, Sasson. Thank you for your question. Talking about the markets, how do we see it? Since the end of last year, we've been seeing an acceleration of the domestic packaging market. Especially starting in September, October, we saw the market growing greatly. And that happened in the first quarter as well. So the market conditions are very good as concerns the domestic market, in particular. So the consumption level -- the confidence level of people is really happening.As you know, we project what's happening in the economy, and we see this industry going well for packaging. The seasonal markets, those that depend on export of fruits, for example, or protein, we also see that it is accelerated. The fruit market, Brazil is gaining market share compared to other countries, doing very well, growing at double digits. And for the differences that we have in the different fibers, we do have a special competitive edge for our products, that Klabin has a great share of this market.So we are enjoying this growth and our share and product differentiators. And for proteins, it's no different. You probably saw information about the Brazilian slaughterhouses being cleared to export to China. So accelerating protein export. And this product requires a specific virgin fiber, and we do have a higher market share of this market as we do with fruit. So it's excellent market conditions for us.The second part of your question about the consolidation, what we see in monitoring the market is what you saw in the world regarding deconsolidation of Smurfit Kappa and WestRock that is developing here in Brazil, it's not a change yet, but on Klabin's side, there's nothing happening. I mean there's a lot going on and to deliver that was Puma II, Horizonte, Figueira, and we're delivering always better than expected, better than our projections.And in terms of Horizonte, it's very special in the business case. The project was spot on. The technology -- having new technology helps us. It helps us learn and it helps us in the Figueira ramp-up, but we have volumes that are above what was projected in the business case, especially considering this good opportunity of the growth of the fruit market in the region.
Next question, Caio Ribeiro, Bank of America.
Just a question from my side. Talking a little bit more about the kraftliner market. We have seen a series of price increases in the United States. That's one of the main players. Since the beginning of the year, we're seeing a growth in prices in Europe. So I'd like to see if you can give me more color about this market.After some years of price decreases, do you already perceive a sustainable improvement on demand to justify this international price increase now? Or do you see this as more of an opportunity? And I'd like to understand, in your opinion, if these announcements are somewhat motivated or driven by logistics issues.
Thank you, Caio. Soares?
Good morning, Caio. Thank you for your question. Talking about kraftliner prices. In the second quarter, we're concluding an increase that we announced. We announced for April $60 in all markets. For Europe, we announced EUR 50. And now in May, we'll be concluding this increase that was announced from March to April. So the increase goes. As you said, there's already a new wave taking place.Yesterday, there was an announcement for a recycled paper product producer, increasing EUR 80. And you mentioned as well today, there was another announcement of a price of EUR 60 to -- for June. So that shows that we're going back. I mean, the demand has been better. There is an improvement in demand. In the United States, it's going very well. The price increases there have not materialized that increase of $70 that we -- from what we read and hear from the market, but it is about to be concluded.We've also seen the balance sheets of American companies reporting expressive growth at around 99% in the shipment of boxes. One manufacturer, it doesn't mean that the entire market, but there are signs of a generalized improvement of demand. And I believe that this is giving us the conditions for us to begin thinking about a second price increase round driven by demand now.The first round was due to cost. And the second round, the demand really is strong. Today, to give you an idea, our portfolio today is at around 8 weeks. We were running with portfolios of 3 to 4 weeks before. So now our portfolio is very sound. We are moving forward with the production for 8 weeks. So this scenario is quite favorable.Logistics has also been helpful. I mean, Asian producers have difficulty getting to Europe. Europeans have difficulty getting to Asia. So our geographic position has been helping us greatly, especially in the Pacific, in Latin America. In the Pacific side, we've been having demand increases from multiple clients due to issues in the Panama Canal, because of droughts and this type of event. So combining it all, the scenario is very favorable to kraftliner at this time.
Our next question is from Ricardo with Safra.
Congratulations on opening Project Figueira. I have 2 questions. It was the question before about total cash cost, and Ivo mentioned a great benefit in fixed cost given greater cost dilution. But when we think about the second half, when we're going to have more volume, but fixed costs of the Figueira Project, will the trend be that total cash cost in the line item of its costs, will it be dropping, being flat? If you could give us some color on that, that will be great.And my second question is about the integration between kraftliner and packaging. There was a reduction in Q1 compared to the levels of the second half of 2023. I just want to understand what the company is thinking. Should we see this kind of conversion, integration dropping in the next quarters? Is there any target of conversion that you're pursuing? So if you could also elaborate on that.
Thank you, Ricardo. Marcos?
Well, Ricardo, as for cash cost, I'd like to stress that we maintain the guidance of the company, BRL 3,100. As regards fixed costs, you have data, which is public information, regarding the ramp-ups of paper machines 27 and 28. So we will be increasing production, and the fixed cost does not change.Additionally, we mentioned we had a onetime stoppage in Q1. So it's not recurring, it will not be repeated. This leads to higher output in the Ortigueira plant. So that's for the second quarter. So you have information about this and all of the materials disclosed by the company. This leads us to have a greater dilution of fixed costs in Q1 compared to -- in Q2, actually, compared to Q1.As for the startup of Figueira Project, naturally, over there, we have a higher added value product. Value per ton is higher than in the other products of Klabin. But the impact on fixed cost is not substantial enough to impact the total cash cost of the company per ton. The effect of fixed cost dilution is greater and more representative.As for integration and conversion, Ricardo, I'd like to remind you of the calculation, because I think this will help us reflect together, getting the reference of about 1 million tons in the quarter. Our pulp and fiber area, it's not integrated, so it's not included in the calculation base.Our coated board department is not integrated. It's not included in the calculation base. The calculation base includes kraftliner and sack kraft. Recycled paper -- our recycled paper, 100% of it is consumed internally. So the percentage of conversion, of integration of over total production of liner, kraftliner and sack kraft, well, the level of integration will always be around 60% to 70%. So if we consider the market, our liner accounts for 30% to 40%, and it's 30% to 70% integrated.Now, this number will fluctuate during the cycles of the product. And it is in the fluctuations of the cycle that we operate the conversion level, always looking at the opportunity cost. Opportunity cost of integrating a packaging, if it's better than the cost of exporting, we'll integrate more. If the opposite is true, the export margin is higher than the domestic market, particularly for spot markets, we'll trend to manufacture more for the domestic markets. So the level of integration of sack kraft and kraftliner, this sum will be between 60% and 70%.
Next question, Gabriel Simoes, Goldman Sachs.
I have 2 very quick questions. The first, you talked about a carryover effect of pulp and paper considering the logistic situation of the ports in this first quarter. So does it make sense for us to have an -- these volumes offset in the second quarter? Or should we consider the incremental number that could come for that to each product?And my second question is a follow-up on the kraftliner market. If you can talk about -- you talked a little bit about the positive outlooks for demand and price, but if you could talk about the possibility of alternating the new machine at Puma II between coated boards and kraft, what's the breakdown expectation you have for them for this year? And in more structural terms, what you're thinking about?
Thank you, Gabriel. About the carryover, there's no expectation. I mean, we confirmed that this carryover exists, but I don't know if I'll be able to explain myself briefly, but it's already entered a phase. The carryover has been carried longer, so it's already in the flow. I mean, I don't see it being offset in the next quarter. Now, about the machines mix, Soares will talk about this.
Thank you for your question, Gabriel. PM28, one of its strong features is that it is very versatile. It produces kraftliner, white top liner and coated boards. So we continue with coated boards at a strong pace for qualification of coated boards, especially [ LDB ] that's the more complex coated board.We already have some customers in an advanced qualification process. We believe that towards the middle of the year, towards July, we'll already have some customers receiving or with products from PM28 certified. Some of them are ongoing and we depend on the clients' speed in this qualification, so that this machine can also start to get LPB coated boards for the second half of the year. In the meantime, more conventional coated boards for beer, for fold, for this type of products are already being produced by PM28.And at the same time, we launched the product Eukaliner Light. It's a coated product, so it's a high-value product that today is much better for us to make that product rather than folding boxboard for export. So we're putting a lot of focus on this new product. It brings better margins than coated boards, and as we qualify the machine for the higher added value products.So the machine today runs at around 45% for coated boards and we continue to pursue the objective of getting to the end of the year at 60%, dependent of the level and the speed of qualification for our customers. It's important to say that this qualification process will be extremely important because we see that in different segments with the recovery of the demand, the machines that exist today, machine 7 and 9 for coated boards, cannot cope with that.So if we see a fast increase in demand or a more serious logistic problem, we've been seeing logistics events occurring frequently, we will not be able to respond to the market without the PM28 being qualified. So that's the pace we're working at with machine 28.
As there are no more questions, I'd like to turn the floor to Mr. Cristiano Teixeira for his final statements. Mr. Teixeira, please go ahead.
Well, thank you. So we continue with the trends dashboard. I am on Slide 13. We see the second quarter confirming what we already saw happening in Q1. In other words, a continued improvement. The curves of our markets kind of share the same characteristic. I'd like to remind you that the peak of demand for our products tends to occur between the second half of September, October, and beginning of November. So we continue on this improvement curve in Q2.I think that this was mentioned in some of the questions, and of course, we agree. We see that for short fiber, at a great measure, a good part of the benefit is coming for -- coming from a demand of greater lead times. When we qualify demand, it's not necessarily coming from greater consumption. So for that reason, we have an improvement. And demand of course helps. But in part, the benefit has been coming from logistics.Regarding prices, we continue with this improving trend, much better than last year, partly recovering the curve, but still far from the equilibrium price in the sector, first, to consider reinvestments. So although there is an improvement trend, it's still far from the equilibrium price for investments.As for fluff, here, yes, we also see benefit coming from a more qualified demand. I talked about a restricted supply. I spoke about this in the beginning of the call. I spoke about the price differences between the fibers, so given the structural trend in fluff or given the consumption of geriatric diapers, or the need for high-end products in the sector with long fiber. So in addition to the trend for the next several quarters, we see the short term the benefit of this differential cash cost that we currently see.At least we see in our region with long fiber from Parana, the most competitive long fiber in the world, compared to long fiber producers in the Northern Hemisphere that have been suffering a lot with their cash cost, even with a very favorable price curve of the product, and with a stability level that was unprecedented for fluff.For coated boards, here, we also point out this wave of deflation driven by consumption products with China's exports. So some players changing positions. And we also said that we protect from that via higher added value products, as Soares mentioned.As for liner, Soares also mentioned the United States. We see the United States still strong. We are here making reference to 1 American competitor that published strong numbers, about 9%. Perhaps that is not the trend that we are going to see in the U.S. market as a whole. We still need to see how the other U.S. suppliers are performing, if they will follow this trend or if they will post negative numbers.But if we see the United States growing 2% to 3% in the shipment of boxes in 2024, what does this mean? It means restricted exports of kraftliner. Exports account for 3 million to 3.5 million tons. If there is this restriction in U.S. exports, given a benefit of a conversion in the U.S. market itself, this in and of itself, as mentioned by Soares, shows a trend of improved demand and pricing worldwide. This was mentioned by him considering 8 weeks for our portfolio.As for corrugated boxes, the demand forecast is drawing our attention. We expected 2024 to be a good year. The government has been doing their role with adequate management, trying to drive an improvement in the economy via consumption in many sectors. We're very much focused on consumption. About 70% of our packaging goes to supermarket products.This morning, we saw ABRAS data posting very strong numbers in February. There is some inertia to replenish the inventories, but we are very encouraged by corrugated boxes and its level of demand. So this seems to maintain the price level. But if we have a demand increase, that is already a good sign for us, for Klabin, because we've been increasing capacity with Figueira.As for industrial bags, we have a good expectation for the second quarter and half. We have been monitoring our clients, cement players. There's an expectation of improvement with FGTS that this should drive MCMV. This should have a reflection on revenue and income. So we should see a good scenario for industrial bags.So these are our trends. This is -- these are the beacons that we discuss at the management for the second quarter and second half of the year. Thank you very much for your attention, and I'll see you in the next conference call.
Klabin S.A.'s earnings conference call has come to an end. I would like to thank you all for your participation, and we wish you a great day. Thank you very much.