Dry bulk trade’s sturdy pace

During the past twelve months elements of the background for seaborne trade remained weak. Global economic activity slowed further in 2013 as a whole despite some more encouraging signs in the second half. Yet commodity import demand grew at a healthy pace. Indications based on incomplete data suggest that world seaborne dry bulk trade expanded by about 5% compared with the previous year.

A moderately brighter outlook for the world economy has been emerging over the past few months, implying firmer support through 2014. Reviving business and consumer confidence and spending could underpin industrial output in many countries. This evolution can be expected to result in additional usage of, and import demand for, associated raw materials, fuels and semi-finished products carried by bulk carriers.

The performance of China’s economy will be a crucial influence. Trends in other countries within the ‘advanced’ group, including Japan, South Korea, USA and European Union also will have a significant role. While there are doubts about whether Japan can fully maintain its recent stronger trend, prospects for the USA and EU seem to have improved, albeit moderately. China now appears capable of continuing to grow at a rate similar to that seen in 2013.

With some advantages derived from this expected pattern, coupled with the impact of other influences, seaborne dry bulk trade in 2014 could increase at a healthy rate of about 4%. A large proportion of the incremental trade volume is likely to occur in the minerals sector, especially iron ore and coal.

THE WORLD ECONOMY

Headwinds are still buffeting economic activity in many countries around the world. These restraints were emphasized towards the end of November when the OECD secretariat published its regular half-yearly assessment of the outlook. The report’s authors concluded that a recovery (which only began in the second half of last year) is “gaining momentum only slowly and there are large downside risks”.

The OECD expects the recovery to remain modest and uneven. As shown by table 1 above, GDP growth in the OECD area as a whole (mainly comprising USA, Europe, Japan and Korea) is estimated to have slackened to a 1.2% average in 2013, after 1.6% during the previous twelve months. Weakness was mainly concentrated in the first half, followed by some improvement.

This year a distinctly better, although still not robust, performance is foreseen. OECD area GDP growth is forecast to accelerate to 2.3%, double the past year’s minimal increase. One especially significant element is resumed but sluggish expansion in the EU, which actually started in 2013, while the US economy now seems able to achieve stronger progress over the twelve months ahead. Japan may see a slight deterioration.

Why are prospects for these economies still very limited? The global financial crisis and ensuing ‘great recession’ was five years ago, but the adverse effects have proved long-lasting and exceptionally severe. While progress has been made with deleveraging (debt repayment), and fiscal consolidation (tax increases and public spending cuts), this lengthy process is not complete. Business and consumer confidence and the associated spending is only returning slowly.

In China economic output growth slowed markedly in the first half of last year after which a turnaround began. The OECD’s figures point to an improvement of about half a percentage point in 2014, when GDP could expand by over 8%, although not all estimates suggest that such an upturn is achieveable. However, earlier anxieties about a sustained weakening have receded.

A package of economic measures introduced by the Chinese government in mid-2013, labelled a ‘mini stimulus’ programme, is credited with promoting moderate strengthening. Items included reducing taxes for small companies, cutting red tape and boosting railway investment. Whether the benefits will assist or ensure a sustainable improving trend is not clear. In the longer term, the Chinese government’s aim is to shift the emphasis towards consumer spending and away from excessive reliance on capital investment.

The progress of emerging market economies as a group - including China and India - is still much better than that of the advanced countries. But a slowdown in emerging economies has become a feature, leading to questions about the timing and magnitude of a return to the more superior growth seen earlier. OECD estimates suggest that this group could see a slight pick up of about a half percentage point to a 5.3% average in 2014.

STEEL RAW MATERIALS

Production of steel is heavily influenced by economic progress and patterns and, in countries buying foreign supplies of raw materials, output volumes are linked in turn with iron ore and coking coal imports. Over the past twelve months negative factors affecting steel output were evident in Europe and South Korea, among key raw materials importers, while China’s and Japan’s steel production strengthened.

Contrasting changes in steel demand were highlighted by recent World Steel Association estimates. For 2013, EU domestic steel demand was expected to be about 4% lower than seen in the previous year, while in Japan a flat picture seemed to be evolving. China, by contrast, was forecast to see a robust 6% increase “reflecting the impact of the government’s stimulus measures focused on infrastructure”.

Looking at signs of how 2014 steel demand would unfold, the WSA foresaw further expansion in China, but at a slacker 3% pace, attributed to government efforts to rebalance the economy having a continued restraining impact on investment activities. In the EU a turnaround to resumed growth at a modest 2% rate, benefiting from an economic revival, could be accompanied by a 2% contraction in Japan amid the negative effects of higher consumption tax and energy prices and manufacturing industry relocation.

One-third of global seaborne trade in all dry bulk commodities is comprised of the steel industry’s main raw materials movements, iron ore and coking coal. Last year iron ore trade, by far the largest part, apparently grew by about 8% based on partial information, reaching an estimated 1,210m tonnes, as shown by table 2 above. Coking coal trade may have expanded at a similarly rapid pace, to over 290mt.

Forecasts for 2014 suggest continued growth, but expansion at last year’s rates seems unlikely to be seen. A 5% iron ore trade increase seems possible, and coking coal trade could rise again. Much depends on how China’s imports evolve, as incremental volumes there almost certainly will comprise a large proportion of the global additional quantities.

Iron ore imports into China during the past twelve months expanded rapidly again instead of slowing quite sharply, as widely expected. Strong steel production was a key factor, coupled with other influences which magnified the impact of higher raw materials consumption on import demand.

Other forecasts show expansion, but based on a different profile. The 2013 total appears to have been much higher than the BREE estimate, exceeding 800mt, resulting in a faster percentage expansion. But there are signs of a significantly slower growth rate in the year ahead, amid a possible deceleration of steel production.

The outlook for the remaining one-third of iron ore trade suggests that positive changes will be limited. European Union countries could see slightly larger imports as steel production begins to revive, while in Japan and South Korea fairly flat volumes may be a feature. A possible ‘wild card’, with potential for adding significant quantities, is imports into India.

China’s coking coal imports are on a much smaller scale than its iron ore purchases but still sizeable. BREE estimates 92mt coking coal last year, a 30% rise, followed by 99mt this year, an 8% increase. Additional volumes are foreseen during 2014 in other steel producing countries importing coking coal. Continued positive trends in India and Brazil are features.

Global seaborne coking coal trade also will be shaped by imports into Japan, Europe and South Korea. In Europe more foreign purchases may occur, while elsewhere potential for growth seems quite small. These expectations reflect the foreseeable pattern of steel industry progress.

FUEL FOR POWER STATIONS

A much larger part of coal trade is comprised of steam (also known as thermal) coal, used primarily in power stations but quite widely in the cement and other manufacturing industries as well. Seaborne trade in this sub- sector apparently grew by around 4% last year, raising the global total to about 870mt. In 2014, another sizeable increase of 3-4% at least could emerge.

Several factors are contributing to the continuing upwards trend in steam coal trade. These include strongly rising demand for electricity, expanding coal-fired power generation capacity and greater reliance on foreign supplies where there is domestic production of coal. The mix of factors varies according to differing circumstances. Favourable influences are most prominent in Asian countries. Increasingly, environmental concerns have the potential for curbing coal usage and import demand and are already exerting downwards pressure. Switching to alternative, cleaner fuels is likely to remain an objective. But for many countries the economic advantages of coal remain compelling. Problems in the nuclear power industry have refocused attention on steam coal, although competition from natural gas is intense.

Two countries still enlarging coal-fired power generation are India and China. Imported supplies appear set to have a continuing massive role in both. Prospects for expansion look the most certain in India, contrasting with China where there is greater uncertainty, amid emphasis on reducing atmospheric pollution from coal burning.

India’s rising steam coal imports trend reflects expanding coal-fired generation capacity and power output. Several vast new power plants are being built at coastal locations, adding to potential future growth in consumption and imports. Shortfalls in supplies from the huge domestic coal mining industry are another influence boosting foreign purchases. Steam coal imports may have exceeded 140mt last year and clear signs point to further growth in 2014.

Imports of steam coal into China also have grown rapidly in the past few years, possibly exceeding 185mt last year (excluding low-grade lignite). Domestic coal mines supply most of the market, but foreign coal is often competitive in many locations. Delivered prices for international supplies are frequently attractive for buyers located in coastal areas, particularly in southern provinces which are long distances from domestic mines. Potential for more imports is visible.

Conversely, there are some potentially negative influences.

Eventual resumption of activity in Japan’s nuclear power sector, mostly closed down since the severe accident at Fukushima in 2011, could begin eroding coal’s strong contribution. In the European Union, coal generation is being partly phased-out as tougher environmental regulations are implemented, implying reduced participation of steam coal imports in the years ahead.

CEREALS AND OILSEEDS

Changing weather patterns is often the most prominent factor affecting short term variations in global seaborne trade in grains, oilseeds and other bulk agricultural commodities. These changes greatly determine importing countries’ domestic crops (which usually have a direct impact on import demand), as well as influencing harvests in exporting countries. Underlying consumption trends also are a factor.

Over the past twelve months world seaborne grain trade (usually defined as comprising wheat, corn and other coarse grains, plus soyabeans) was affected by contrasting influences. In the calendar year 2013 first half, constricting influences were prominent, followed by a pick up beginning in the second half. After mid-year, supplies were boosted by better harvests among key exporters, resulting in lower international prices which benefited global import demand.

Figures prepared on a crop year basis clearly illustrate how trade is evolving. Recent forecasts by the International Grains Council suggest that world trade in wheat and coarse grains (but excluding soya) could increase by about 11mt or 4% in crop year 2013/14 ending June 2014, reaching 277mt. In the previous period there was a marginal 1% reduction to 266mt.

Among suppliers, remarkable changes are evolving. IGC calculations point to Black Sea wheat and coarse grains exports from Russia, Ukraine and Kazakhstan rising by 10mt or 21% to over 55mt in 2013/14, following greatly improved summer harvests in all three countries. Exports from the USA also are set to rebound, by 17mt (33%), to over 66mt after production recovered from the devastating drought in the previous year.

The strong growth of China’s wheat, corn and other grains imports envisaged in 2013/14 partly reflects only a marginal increase in the mid-2013 domestic harvest. Imports could more than double to 19mt. The harvest was just 1% higher, and the quality of some output was adversely affected by weather problems. Also, consumption continues to expand, necessitating additional foreign purchases.

Within the soyabeans trade sub-sector, growth is expected to accelerate in marketing year 2013/14 ending September 2014. A recent US Dept of Agriculture forecast suggested that, following 2% growth in the previous twelve months, the total could be 10% higher at 105mt.

Almost all the soyabeans trade increase envisaged during the current marketing year seems likely to be caused by a sharp rise in China’s imports. From 60mt in 2012/13, the volume imported by Chinese crushing mills could increase to 69mt. Rising consumption is the main reason, both of soyabean meal usage in livestock feed and of soyaoil usage in food manufacturing and home cooking. Lower domestic production of soyabeans is another influence.

Grain and soya trade prospects later in calendar year 2013 are still hazy. Much depends on mid-2014 harvests in northern hemisphere importing countries, but these are not yet predictable. There are no reliable forecasts for weather conditions over the growing season. Exporting countries’ production also is impossible to predict accurately.

EXTENSIVE MINOR BULKS

Minor bulks form an extensive sector, some parts of which are individually quite large. The diverse group comprises many commodities related to industrial and construction activity, while agricultural commodities are also significant. Altogether this group provides over one-third of total seaborne dry bulk movements. Within the ‘industrial’ sub-group the most prominent, as measured by volumes transported, are steel products and forest products. Other large elements are bauxite/alumina, iron and steel scrap, cement, salt, petcoke, and nickel and other ores. Among ‘agricultural’ minor commodities are sugar, rice, oilseed meals, phosphate rock plus other fertilizer raw materials and semi-finished fertilizer products.

Based on tentative calculations, growth last year in the minor bulk trades group as a whole may have exceeded 3% . Percentage increases vary widely among the individual commodities. Total seaborne trade probably was over 1500mt Another sizeable advance in 2014 looks likely.

Developments specific to individual commodity trades are frequently influential, but broader economic growth trends are also relevant. Import demand for industrial minor commodities in some countries during 2013 was limited by slowing or subdued economic activity. Infrastructure and construction work was restrained by cutbacks in public and business investment spending. Global trends in many minor bulk trades are closely linked to China’s import demand. Purchases of bauxite/alumina, nickel and other ores, and low-grade lignite, by Chinese buyers comprise very large proportions of total world movements. In other trades such as forest products, steel products and fertilizers the impact of China is also clearly visible.

Estimates suggest that seaborne bauxite/alumina trade expanded sharply last year, but it may not continue growing as rapidly in the twelve months ahead. In the past year additional Chinese import buying, amid rising aluminium production and possibly some stockbuilding of raw materials, seems to have been a key factor.

Prices of steel and the two principal minerals, namely, iron ore and coking coal used in the making of the metal do not move in tandem, writes Kunal Bose. Each one has its own market dynamics. Price behaviour of the three last year bears that out. The executive director of International Energy Agency Maria van der Hoeven gives the answer as to why, in spite of strong demand for thermal coal used for producing electricity and coking coal, prices of the fuel have remained subdued. For example, the price of Australian hard coking coal benchmark grade is down more than a fifth from 2013 start to $121.10 a tonne. Incidentally, coking coal traded at $330 a tonne in mid-2011 when Australian mines and rail infrastructure were submerged in flood waters. The price fall is to be principally ascribed to Hoeven’s observation that the world will be seeing commissioning of around 500,000 tonnes of annual thermal and coking coal production capacity every day for the next six years. Low prices of the mineral and the pressure that capacity addition of this mammoth order brings to bear upon the market may, however, lead the expanding groups to go slow in opening new mines or expanding the working quarries.

The underlying message in a recent IEA report is that the coal market is getting overwhelmed by too much supply. Quoting from a Wall Street Journal report, a Delhi-based analyst says the official Australian forecast is that shipments of coking coal from that country will rise to 178mt (million tonnes) in 2015 from 145mt in 2012. The strength in Chinese production will also stand in the way of recovery in coal prices. High domestic production notwithstanding, Chinese steel-making coal imports in the first 11 months of 2013 were up 46.6% to 67.38mt. High coal imports were due to China lifting steel production between January and November 2013 by nearly 8% to 713mt. But as is the Chinese practice, the country makes bulk purchases of commodities from iron ore to sugar when their prices rule low to build strategic reserves.

According to RBC Capital Markets, coking coal prices will average $154 a tonne in 2014. For India, which imported 32.2mt of coking coal in 2012/13, low prices of the fuel is welcome news. Imports for the country in the current financial year are likely to be higher since the use of inferior grades of iron ore resulting from court ruled restrictions on mining will lead to burning of bigger amount of coking coal in blast furnaces to make liquid iron. Some of the lower-quality iron ores mined in India have a higher than normal alumina content, which leads to higher slagging (residue from smelting of ore) in the blast furnace. The use of such ores requires higher levels of heat and therefore, burning of more coal.

INDIA SCENE

All that the country’s metals and minerals sectors are hoping for is that there is no further reversal in their fortunes in the New Year. Moody’s Investors Service has, however, kept the outlook negative for the two sectors in India as it thinks India will just manage to grow “5.5%” during 2014/15. The problem will be compounded by the lame duck government in Delhi postponing “reforms needed to revive the economy.” Any improvement in outlook, according to Moody’s, will hinge on GDP growth exceeding 6% and the 2014 parliamentary elections throwing up a reforms focussed government with a “strong majority.” In the past Indian demand rise for steel and aluminium would approximate or exceed GDP’s progress. Not any longer. In the first 11 months of 2013, the Indian steel consumption growth was a disappointing 1.8%. The steel scene has worsened since 2012/13 when demand growth was a low 3.3% to 73.3mt. “This is unavoidable since major steel consuming sectors from automobile to capital goods to infrastructure are facing rough times reflecting economic slowdown in the economy,” says Steel Authority of India Limited (SAIL) chairman Chandra Shekhar Verma.

Like steel, aluminium here continues to do badly both in terms of demand growth and prices which closely follow London Metal Exchange rates plus the variable premium. Vedanta Aluminium managing director Sushil Roongta says demand for the second largest traded metal after steel will be growing 3% at the most in 2013/14. “We are all hoping for economic revival on constitution of a new government. So there is the promise of a booster for the languishing metals sector,” says Roongta. Joint managing director of JSW Steel Seshagiri Rao says growth in steel consumption here is predicated upon procurement reviving from sectors like automobile, real estate and construction. But with the index of industrial production growing a few points above 1% since April, any smart revival leading to improvement in the fortunes of the metals sector is not in the immediate realm.

Dislocation in iron ore mining resulting from court rulings is hurting steelmakers without captive mines and exports. “As the government is persisting with iron ore export duty of 30% along with punishing railway freight, India’s iron ore exports this year will fall further from 18 mt in 2012-13. The vacuum left by us in the world market has been largely filled by Australia and Brazil,” says Federation of Indian Mineral Industries (FIMI) president HC Daga. In an earlier available ideal environment, India exported 117mt in 2009/10 to become the world’s third largest shipper of iron ore. Mining restrictions and denial of an export outlet of any significance will restrict India’s ore production to about 100mt this year against 140mt in 2012/13, says FIMI director general RK Sharma. The country mined close to 220mt of ore in 2009/10.

Commodities were responsible for two thirds of the $270 billion dollars exports earned Brazil in 2013, writes Patrick Knight.

This demonstrates how crucial demand for — and the price of — soft commodities are for Brazil’s economic health. These commodities include soya, sugar, maize, minerals (such as iron ore and bauxite) and pulp for which Brazil is a world leader.

Despite the soya price having fallen from the 2012 peaks in recent months, farmers planted beans on 6% more land during 2013/14 than in the previous year. Depending on the weather, favourable so far, this year’s crop could exceed 90mt (million tonnes).

Demand from China, destination for half the 45mt of the beans to be exported this year, continues strong.As in past years, most of the 14mt of soya meal exported will go to countries in Europe.

Most of the extra 6mt of soy to be grown this year, will come from the booming state of Mato Grosso, and an increasing, if still small, share of exports will leave from ports in the Amazon region, up to six days less sailing time to many ports than Santos and Paranagua.

The brand new port at Mirituba, on the river Tapajos, where trading giants including Cargill and Bunge are building storage facilities, will handle up to 3mt of soya this year.

Thirty million tonnes of soya will still travel south, to leave from the congested ports of Santos and Paranagua. But the share exported from the north will grow fast from now on, as road, rail and water links are gradually improved.

Farmers harvesting the soya which was planted early to allow corn to be planted as a winter crop, will face problems this year.

By late 2013, at least 20mt of the record 83mt corn crop 2012/13 remained unsold, clogging warehouses.

In contrast to 2012, when the poor corn crop in the United States meant countries in Asia which usually get their corn from the US, queued up to buy Brazilian corn instead, and paid record prices for it, corn prices fell steadily last year.

Some of the grain will be processed into ethanol fuel, as it is in the United States.

Corn is a bulky crop, so getting a tonne to ports can cost more than $150, while the commodity itself sells for only $175 a tonne.

But even though less corn was planted as a summer crop for 2013/14 crop, when farmers preferred soy, farmers may still plant more corn as a winter crop in Mato Grosso. The marginal cost of planting the grain as a second crop is extremely low.

SUGAR

With the world sugar price falling, but with the proportion of ethanol added to gasoline in Brazil raised from 20% to 25% in May last year, farmers growing cane, of which about 650mt was harvested in Brazil in 2013, opted to make much more than usual into ethanol and less into sugar.

Rather than rising steadily, as it did in most previous years, Brazil exported ‘only’ about 27mt of sugar last year, the same as was shipped in the two previous

years. This meant that Brazil’s share of all the sugar traded worldwide fell below the usual 50% last year.

Estimates as to how much surplus sugar now exists, and therefore what the price will be this year, vary between a massive 10mt to only 3mt. But with many countries, notably India, producing less, stocks will continue to fall, so prices should rise.

More than 700mt of cane will be harvested in Brazil this year, 630 of that in the dominant south east region. Farmers will soon have to decide how much to make of each commodity.

Because the price at which ethanol can be sold is determined by the price of gasoline, which is subsidized, while the expected buoyant world trade in ethanol has not materialized, so companies now have no incentive to build new mills.

With crushing capacity growing little, if at all, it may not be possible to crush all the cane this year. This situation will worsen from now on, as up to 20 elderly high cost mills will close down each year, cutting about 15mt a year from crushing capacity.

Demand for sugar increases by about 2% a year, more than that in developing countries, notably China, little or nothing in countries of the developed world.

IRON ORE

Fears that the slowdown of the Chinese economy might mean a fall in demand for iron ore, of which about 150mt, half the total exported, goes to China, has not materialized. With at least 100mt more ore to be mined this year in Australia, Brazil’s main rival for the Chinese market, prices are likely to fluctuate this year.

The Vale company, the world’s largest exporter, will have no extra ore to ship this year, as output has stagnated for almost a decade. Work is proceeding at full steam on the new ‘Serra Sul’ mine at the Carajas mine, which will start operating in 2016, adding 90mt to supply then.

The CSN steel company also plans to export 40mt from its Casa da Pedra mine, 10mt more as in 2013.

The big question is what the price of a commodity which now generates about 15% of Brazil’s export earnings will be from now on. Prices fluctuated in 2013, partly because many mills in China reduced stocks, as it was not clear whether tightening measures would have an impact or not.

Even if the Chinese economy grows by less than 8% a year from now on, rather than the 10% plus of recent years, about 400 million people expected to migrate from the countryside to cities in the next few years. So massive spending on new housing and infrastructure will be needed. Demand for steel and therefore iron ore will not slow, and the price should remain above the crucial $100 per tonne mark.

About a third of the ore costs more than that to mine, so many high cost mines would close should prices fell much.

Vale is still trying to persuade the Chinese authorities to allow its 400,000-tonne-capacity Valemax vessels to moor at ports there. While it costs about $20 to get a tonne of ore from Brazil to mills in China, it costs only half that much to get it there from Australia.

There is concern that China may soon switch to the steel- making pattern now common in the EU and the United States. In these countries, electric furnaces use up to 60% of scrap and only 40% of ore, to make steel. Vale analysts say that for the time being, very little scrap steel is available in China, so ore will continue to dominate for many years.

ALUMINIUM COMPLEX

Although demand for Brazil’s bauxite and alumina continues strong, the decision by both Alcan and Novelis to mothball 300,000 tonnes of smelting capacity means Brazil will become a net importer of primary aluminium this year.

Back in 2012, Brazil exported 646,000 tonnes of primary aluminium and imported 288,000 tonnes. But the loss of about 300,000 tonnes smelting capacity, in a country where demand for aluminium is growing by 7% a year, means there will soon be no surplus for export.

The wholly nationally owned Votorantim company, now Brazil’s leading single smelter with an output of 475,000 tonnes at its mill near Sao Paulo city, says it will cut exports, and concentrate on supplying the domestic market from now on.

Votorantim, which now generates 80% of the electricity it consumes, so is a relatively low cost producer, exported 40% of the primary aluminium it made in 2009. But only 10% of the total made was exported last year.

Alcoa says that because the world aluminium price continues low, the high price of electricity in Brazil has forced it to reduce capacity at its smelter in Maranhao state.

Although the price of electricity was reduced last year, dry weather forced the use of high cost thermal power stations, most of which use gas.

The high cost of gas power, cancelled out the advantage brought by the price cuts.

PULP

The start up of the Suzano company’s 1.5mt-capacity mill in Maranhao state, in Brazil’s north east at the very end of last year, means that Brazil’s pulp making capacity has increased by 3mt in the past 12 months.

Suzano said recently that it had found markets for 60% of the 1.2mt of pulp it expects to make this year, while the Eldorado mill in Mato Grosso do Sul, which started up at the end of 2012 and had exported a million tonnes by end September 2013, is now planning to add a second 2.0mt line to its existing mill.

Eldorado’s enthusiasm has provoked the Fibria company, Brazil’s largest, which owns the mills at the Aracruz complex and Votorantim’s two large mills, to worry that excess capacity will cause pulp prices to fall.

Eldorado, a member of the JBS group, the world’s largest meat producer, scoffs at the concern. The company says it may build another brand new mill in the near future.

Fibria, on the other hand, which has debts of at least $3 billion, a result of the severe financial crisis caused by unwise hedging three years ago, has urged caution. Together with Suzano, Fibria has called on Brazil’s development bank, the BNDES, source of much of the finance which has enabled Brazil to become a leading pulp producer, as well as loaning much of the funds the aggressive JBS group has used to buy up financially troubled meat companies around the world, to put some order into the industry.

As well as the planned expansion of the Eldorado mill the giant Klabin group, dominant in packaging, has started work on a new complex. A joint venture involving Chile’s CMPC company and the Stora Enso company will add more than a million tonnes to capacity at a mill in Rio Grande do Sul state. Another large new mill will start up in Uruguay this year. Whether markets can be found for all this extra pulp, will depend greatly on what happens in China, where 25% of Brazil’s pulp, most of it used for making sanitary paper, is now sold. With hundreds of millions of Chinese expected to move from the countrywide to cities the next few years, demand for paper should continue to grow fast as well. No country can make it as cheaply as Brazil.