PPI Magazine

Brazilian Companies Invest to Grow

By Elizabeth de Carvalhaes Wed, Jun 23, 2010

SAO PAULO, June 23, 2010 (RISI) -Brazil is currently investing to become the third pulp producer worldwide. The economy's promising outlook and the emerging markets' increase in demand - such as in China - led the pulp and paper industry to resume its investment programs of the past months, postponed in 2009 due to the international financial crisis. In the next seven years - which corresponds to the new planted forest cycle, currently just beginning - approximately US$ 20 billion will be invested in the country's forest-base and in the construction of new mills.

The investment, no doubt, is audacious however it is extremely well calculated. At the end of 2017, which simultaneously occurs with the mentioned forestry cycle, Brazilian pulp production is expected to go from the current 13.4 million annual tons to 20 million annual tons. Also, during this period, paper production will increase from 9.3 million tons to 12.5 million tons, and planted forest areas will grow by 25%.

Brazilian companies' investments result from the new global scenario in the pulp and paper sector. If, on the one hand, the international financial crisis reduced global consumption, prices and raw material demand in the traditional markets, on the other hand, brought about opportunities to expand sales in growing markets, notably in China - a country which I recently visited to participate in the RISI Asian Pulp & Paper Outlook Conference. There I was able to confirm the increasing interest in buying Brazilian pulp, in meetings held with Asian market specialists, entrepreneurs and the sector's customers - which clearly corroborates this market's statistics.

Pulp exports to China

In 2009, pulp exports to China grew by 128% when compared to 2008; from 1.2 million to 2.8 million tons. The country became Brazil's second leading market, even ahead of the US. During this period, the sector won a 47% market share in imports of bleached eucalyptus kraft pulp, whose world production is led by the Brazilian industry.

In our opinion this expressive growth results from the Chinese paper industry strategy that earmarked sizable investments to increase production, especially in the printing and writing, and tissue paper segment, i.e., eucalyptus-based products. Last year, the drop in commodity prices also favored the Brazilian input inventory build-up, known for its high quality.

Another factor that explains increased imports from China is the country's effort in attaining sustainable standards, given that it has been strongly pressed by the World Trade Organization (WTO) and by the United Framework Convention on Climate Change (UNFCCC) in climate negotiations to reduce CO2 emissions. Besides its high quality, Brazilian pulp is known for its environmental characteristics: its 100% planted forest origin, its highly productive output and a natural renewable resource, capturing and sinking large carbon dioxide quantities from the atmosphere.

Favorable Scenario- Brazilian company investments in the next seven years will meet the optimistic economic outlook in Brazil. Foreign exchange reserves exceed US$ 260 billion; Brazil's credit rating has risen to investment grade and Gross Domestic Product (GDP) is estimated to grow 6.5% by the end of 2010.

Additionally, the country will host two important world events in this period: the World Soccer Cup in 2014 and the Olympic Games in 2016. Brazil's preparatory measures to get ready for these international competitions will leverage large infrastructure investments, stimulate growth in civil construction works, services, logistics and transportation, among other segments. The pulp and paper industry supplies products for all these sectors and will undoubtedly be in the wake of this positive trend of the economy.

One of the major investment program challenges is showing the international community that the Brazilian pulp and paper industry is prepared to grow without significantly expanding its land occupation, a fact which largely contributes to the environment. Moreover, the country has 72 million top soil hectares available for cultivation, according to surveys of the National Agriculture Confederation (CNA), of the Brazilian Association of Forest Plantation (ABRAF) and the Brazilian Sugarcane Industry Association (UNICA).

These figures show that Brazil has land to meet the demand in terms of food production, biofuels and the forest-based industry. Brazil's 6.3 million planted forest hectares - that supply raw material for the wood, furniture, steel and pulp and paper industries - are equivalent to 0.7% of the Brazilian territory. This is a reality that needs to be more and more disseminated. In addition, an important aspect of the investment program is that the expansion of planted forest areas - from 2.0 million to 2.5 million ha - will bring about boundless benefits to the planet. The rapid growth of planted forests and the high CO2 capture rate directly act in fighting global warming.

This is the Brazilian pulp and paper sector's major thesis in climate negotiations. Our goal is to validate forest carbon credits as a mechanism to offset emissions. This proposal will be submitted at the United Nations Climate Change Conference (COP16) negotiation table by the Brazilian government this November in Mexico. We are confident in the auspicious progress of these negotiations.

Elizabeth de Carvalhaes Executive President of the Brazilian Pulp and Paper Association (Bracelpa)


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