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Suzano Is A Levered Pulp Price Play Supported By Demand And Supply Side

Apr. 06, 2021 4:48 PM ETSuzano S.A. (SUZ)5 Comments


  • Suzano is a play that aggressively leverages the pulp price opportunity due to its almost total exposure to the commodity.
  • While there has been a run-up in pulp prices recently, it doesn't coincide much with Suzano's recovery, which occurred primarily in line with the recovery in the general market.
  • Suzano is very levered, which magnifies the upside in pulp price run-ups.
  • With several supply-side forces stepping in to raise pulp prices, and demand side forces incoming with reopening, we are bulls on Suzano in the short, medium, and long term.

The recovery is underway at different rates for different companies. Much of paper and packaging has seen a huge rally of late as activity has picked up in these sectors, with a total recovery of manufacturing paper, corrugated packaging and consumer paper. However, there is a lot of heterogeneity in the sector. While you might have mills like International Paper (IP), which are pretty close to the end-market consumer, you'll also have companies like Suzano (NYSE:SUZ) which lie at the opposite end. Suzano's exposure is almost entirely to the commodity of pulp, however, while Suzano has rallied in price of late, it hasn't gone ahead of the rest of the sector. This seems to indicate that while input prices will be hampering the recovery in the rest of paper and packaging due to higher oil costs and regulatory developments in China, Suzano has an open runway. As such, we are bullish on Suzano in the near term, both as an absolute trade or a relative trade against the broader paper and packaging space.

Understanding the Trade

The Suzano trade is based on several fundamental movements. First of all, Suzano is highly exposed to pulp prices.

(Source: Annual Report 2020 SUZ)

Pulp prices have been in a gully since mid-2019, but after floundering in a trough during the initial March lockdowns and the worst of the pandemic they have suddenly shot up.

(Source: stlouisfed.org)

There are three reasons for this run-up, where two help substantiate the thesis. The unhelpful one is that demand is up in pulp end-markets. The reason this is unhelpful is because this does not explain the lack of differential stock performance between Suzano and the likes of International Paper.

The other two reasons for why pulp prices have rallied relate to the supply side, and these effects will

This article was written by

Formerly Bocconi's Valkyrie Trading Society, seeks to provide a consistent and honest voice through this blog and our Marketplace Service, the Value Lab, with a focus on high conviction and obscure developed market ideas.

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Comments (5)

The Investment Doctor profile picture
No distinction made between hardwood and softwood pulp?
Valkyrie Trading Society profile picture
@The Investment Doctor softwood pulp, eucalyptus pulp, hardwood pulp, all of it is up
The Investment Doctor profile picture
@Valkyrie Trading Society yes but by how much? And how do you see the softwood pulp prices evolve versus hardwood pulp? I assume you aren't expecting the demand and pricing for paper products and TP to be exactly correlated? I would be very interested in hearing your take and how you will differentiate between both main types of pulp. Is Suzano the only pulp player you are looking at, or are you also keeping an eye on other companies in the sector?
What is the reason for China not importing scrap paper anymore? The attached link doesn't say anything about the reasons.
Valkyrie Trading Society profile picture
@mendo make problems, because it's not pure enough. doesn't matter really what they say goes
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