The last time we published a Viewpoint about developments in the South American pulp industry was in September 2008, just a few days before the announced Lehman Brothers collapse. At that time, the long capacity expansion list was comprised of two mills per year coming online from 2010 to 2015, or 2.5 million tonnes of market pulp per year. Of course there were doubts if all of those projects would come to fruition; however, the list served as an indicator of the optimistic climate among the local industry.
As the global economic downturn led to a slowdown in consumption, most pulp producers decided to take market-related downtime to reduce production as inventories were rapidly increasing and prices plummeting. Consequently, most companies decided to cancel or redefine the timing of their already announced projects.
Furthermore, in the middle of an uncertain outlook regarding investments in the pulp business, we saw the merger of the world's biggest market pulp producers, Aracruz and Votorantim Celulose e Papel, creating Fibria, although Aracruz sustained losses due to derivative deals in the fourth quarter of 2008. The merger was followed by the ramping up of Fibria Três Lagoas, the first mill to start up in the region after Botnia and Suzano in late 2007. Therefore, after 9% growth in 2008, Brazil's wood pulp production slowed down to 4% in 2009, supported by the new capacity that added 1.3 million tonnes per year of bleached eucalyptus kraft pulp (BEK) capacity to the market.
There were other changes in the South American pulp industry during the weak period of the global pulp market. During the first half of 2009, Stora Enso and Arauco signed a purchase agreement with the Spanish pulp producer Grupo Ence for a 50/50 joint acquisition of approximately 140,000 ha of owned land and plantations in the central and western areas of Uruguay. Both companies intend to combine their existing assets in Uruguay with the acquired operations and will also invest in the construction of a new pulp mill. In addition, Chilean CMPC acquired the Guaíba plant from Fibria in September of 2009.
However, the market has gradually started to show signs of recovery, driven mainly by a surge in pulp imports into China. As prices posted some improvement in the second half of 2009, news about pulp projects again began to appear in our newsletters and the list of projects began to be redefined. It is not surprising that South America will exhibit the fastest growth in new, large-scale market pulp capacity in the world throughout the next decade, since planted forests here grow faster than anywhere else in the world and yields of eucalyptus plantations are at least 10 to 20 times higher than native hardwood forest in the Nordic region, leading the local industry to become the world's lowest-cost producer of BEK. It is somewhat amazing that the recent list already has the same number of projects as in 2008.
Patricia Perez works out of RISI's São Paulo office and can be contacted by phone at +55 11 3848-9051 or by email at email@example.com.
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