10/20/2016 15h18

Brazil poised to become world’ second largest pulp producer

Valor International

Brazil is very close to jump from fourth to second largest pulp producer in the world, considering all types of fiber, behind only the US. With the start of operation of Klabin’s new plant last March and the expansion of Fibria’s unit in Três Lagoas, Mato Grosso do Sul, in late 2017, the Brazilian annual installed capacity will increase to 20.9 million tonnes from 17.4 million tonnes in 2015, surpassing handily China and Canada, the current second and third biggest producers.

Ironically, it was China that has spurred the Brazilian pulp industry’s expansion in recent years — Brazil is already a global leader in eucalyptus pulp (hardwood). A few months ago, China surpassed Europe and became the largest buyer of Brazilian hardwood. From January to August, revenues from exports to China rose 19%, to $1.37 billion, equivalent to 37% of the total.

At the same time, Brazil has become the main source of pulp imported by the Chinese. In terms of revenue, the country's share reached 23%, out of $5.98 billion in the first eight months of the year, and including hardwood and softwood pulp. In volume, this share is 25% considering 10.73 million tonnes of imported pulp. Specifically in hardwood, the country's share is 49% in volume (with 2.69 million tonnes) and 48% in value ($1.36 billion).

For the president of the Brazilian Tree Industry (Ibá), Elizabeth Carvalhaes, the fact that China is replacing high-impact local pulp production for more sustainable raw material helps explain the trend. The heavy investments in paper machines made in recent years in the Asian country, especially in tissues, have also contributed to the movement.

"China is committed to climate improvement projects and a way to do this is to migrate from pulp that absorbs less carbon to the Brazilian raw material," Ms. Carvalhaes says. "The Brazilian arboreal genetics produces trees that are better able to absorb carbon," she adds. Nine years ago, only 14% of Brazilian fiber exports were destined to the Chinese market (compared with 37% today).

Brazil’s new production capacity, she says, has been focused mostly on the Chinese market. And there is no announcement of major production projects in China for the short and medium terms. The next big plant to be opened in Asia is in the final stages of construction in Indonesia, which is now the ninth largest global producer, with 6.8 million tonnes per year.

The plant OKI, of Asia Pulp & Paper (APP), will have total production capacity of 2.8 million tonnes, and a significant portion of this volume is expected to be directed to the Chinese. There is still the possibility of Vietracimex, from Vietnam, to start operating a production line of 400,000 tonnes per year of hardwood in 2017, but there are doubts in the market about the status of this project.

In Brazil, Klabin began this year’s production in its Ortigueira plant, in Paraná, adding to the market 1.1 million tonnes/year of hardwood and 400,000 tonnes of softwood, which can also be converted into fluff (used in the production of disposable diapers and sanitary napkins). The company has an agreement with Fibria, which for four years will buy and resell at least 900,000 tonnes of hardwood produced in the unit.

The world's largest producer of eucalyptus pulp, with 5.3 million annual tonnes, Fibria, is also building a new line in its Mato Grosso do Sul mill. The company will invest $2.3 billion in the project, with capacity of 1.95 million tonnes/year, and start operation in the fourth quarter of 2017.

Brazil’s second place in the global ranking of producers should be consolidated with the new plant that Eldorado Brasil, controlled by J&F Investimentos, plans to build in Três Lagoas. With a R$10 billion investment, the new line can produce up to 2.5 million tonnes per year from 2019. However, there is uncertainty in the market about the project deadlines, since the company has not defined the structure of financing.

Also a potential hurdle for that step is Eldorado’s involvement in two investigations regarding payment of bribes and fraud, which resulted in a search and seizure operation at its São Paulo office. In a recent interview with Valor, Eldorado CEO José Carlos Grubisich assured that the project is underway and that the plant’s new pulp will begin to reach the market in 2019.