Suzano SA, the biggest producer of hardwood pulp, is considering selling its products to China priced in yuan, adding to signs that the dollar is losing its dominance in commodity markets.

China’s currency is growing in importance and smaller customers there are requiring deals linked to the renminbi, Suzano Chief Executive Office Walter Schalka said in an interview from Bloomberg’s New York headquarters. China is the largest commodity buyer and accounts for 43% of Suzano’s pulp.

While the greenback remains dominant, the use of the renminbi in contracts for everything from oil to nickel is gathering speed. Sanctions that ensnared Moscow following its invasion of Ukraine have added to that pace. Schalka said he believes the dollar will become less relevant, but acknowledged there had not yet been a “major transition” to China’s currency.

Increasing tension between the US and China is the main concern for the company as it could damp demand and prices of pulp for a prolonged period, he said.

“China will become more relevant in the global market, I have no doubts,” Schalka said. “My own perception is that it would be much better to have a long-term collaboration between West and East, but what we see is increasing tension at this point of time.”

The following are excerpts from the conversation with Schalka and Chief Financial Officer Marcelo Bacci, edited and condensed for length and clarity:

What’s the outlook for global pulp markets?

We are very used to volatility in pulp prices and right now prices are below the marginal cost of many producers in the world. We do not believe that is a sustainable situation. A lot of integrated players are scaling down their production of pulp and buying from non-integrated players. This situation will drive, in a matter of few months, the price to go back up again.

What will you be looking for as a company that would suggest we’re heading into a recession?

The tissue business globally is very stable. On printing and writing papers, the US has a little bit of weak signals. China is performing well and Europe is in a worse situation: the market is going down. Perhaps we are starting to see recession in Europe, in early stages, compared with other regions. We have a large share in many markets and we are following many of the consumer packaged goods (CPG) companies. So we know exactly what is going on.

What is your strategy regarding lower prices? Will you reduce capacity?

We are not going to have the same mistake we had in 2019. At that time, on expectation that we would have more stable prices, we decided to increase inventories. Now, we decided we are not going to change inventories. No major changes. Some of our plants are not providing enough return on capital, but in all of them we have a positive cash flow. This is not the same for our competitors in China, Scandinavia, Canada and Iberia: they are below water because their cost is higher than market price. Our perception is that they are going to be in a situation where they will be forced to shut down some of their facilities

You have been an active voice against the Amazon deforestation in Brazil. What is your view on the environmental policy of the new Lula administration?

We have been in contact with the government. They have the right speech. It is just the action plan that is not as quick as expected. We need to have zero illegal deforestation. That is critical for the world.

How are conditions for green bond issuance and green investments for Brazilian corporations, especially under Lula?

Bacci: We have issued several bonds in the last few years and the premium that we got was significant for us. With the change in interest rates, it became less interesting for us to issue that. The market is there, but at a higher rate than it used to be. Also, when the market is less liquid, it is more difficult to extract a premium for any structure like a green bond.

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Schalka: I’m a little bit disappointed with the financial market because everybody’s talking about working on green activities, but the greenium now is close to zero. What would be the benefit for companies to make an offer on green bonds with zero or close to zero premium?

Following the acquisition of Kimberly-Clark assets in Brazil, would you consider entering the CPG market in other regions?

There are two things we consider in order to invest. One is differentiation: we do not want to be in the mid pack. We don’t see any differentiation on CPG outside of Brazil. The other thing is scale. We are not entering in any business that we cannot transform into a great business in the long term.

--With assistance from Isis Almeida, Leslie Patton and Zijia Song.

(Updates with excerpts from the conversation)