Brazil maintains dominant share of the global short-fibre market pulp
Plans to build nine large new pulp mills in the next ten years, may be pushed back slightly, following fears of a slowdown in the Chinese economy. China has been the only market for Brazilian pulp which has grown strongly in recent years
Encouraged by strong demand and high prices, the Association of Brazilian Pulp and Paper Companies, Bracelpa, announced early this year that nine large new pulp mills are to be built in Brazil between now and the mid-2020s.
Most of the new mills will make about 1.5mt (million tonnes) of market pulp each, so an additional 13mt of market pulp will be added to the 14.0mt now made in Brazil each year
The new mills, together with 2.5 million hectares of extra eucalyptus plantations needed to supply them, are expected to cost about $20 billion.
About two-thirds of the extra pulp will be exported, taking the total sold abroad to about 16mt in 10–12 years’ time.
The high prices of market pulp last year, the highest since 1995 in some months, were caused by demand recovering from the crisis of 2009, because the earthquake in Chile cut supply, and because diminished stocks needed to be rebuilt. This encouraged the seven companies which will build the new mills to announce a new round of investments, aimed at ensuring that Brazil maintains its dominant share of the short-fibre market pulp traded around the world.
Recent signs of a slowdown in the economy in China, destination for more than 20% of the pulp exported last year, has now cooled the enthusiasm somewhat.
Most of the extra demand of the past few years has come from China, as the other two major markets for Brazilian pulp, Europe and North America have grown only slowly, if at all. Suzano, to build two mills in states in the north east of the country, where no pulp is made at all at the moment, has recently announced that rather than starting up the first of the two 1.5mt-capacity mills in 2014, the start of work will be postponed for a year. Rather than borrowing most of the $5.5 billions which will be needed, Suzano will sell assets.
The decision by Suzano will probably mean that Fibria, the company resulting from the merger of VCP and Aracruz two years ago, will also push back making a start on the two new mills it is planning. Output at the Tres Lagoas mill in Mato Grosso do Sul state is to be doubled and a new line built at the Aracruz complex of mills in Espirito Santo state. Fibria too plans to sell forests and other assets to raise most of the capital it will need, to avoid making new borrowing.
A new line is to be built at the Veracel mill in Bahia state (part-owned by Stora Enso, part by Fibria), while the JBS company, the world’s largest meat packer, is to build the Eldorado Brasil mill in Mato Grosso do Sul.
New mills are also planned by Klabin, Jari, and Cenibra. But all the mils are likely to be pushed back slightly to ensure too much extra pulp does not reach the market at one time, causing prices to fall. The companies in Brazil usually agree that only one large mill should start up in any one year, and two mills will start up in neighbouring Uruguay in the next few years, one to be built by Stora Enso, the other by the Chilean Arauco company.
This year and next will probably be a repeat of 2010, when only about 200,000 tonnes more pulp was exported than in 2009. Most of the extra came from the new Fibria mill, now getting into its stride, plus de-bottlenecking at several mills.
Several independent companies are to plant more forests, either for use at new pulp mills, for the steel industry, for energy purposes, or for the construction and furniture industries. Such projects will make the owners eligible for substantial carbon credits, so are becoming popular. Amongst them is the Vale iron ore company, once owner of the Cenibra mill in Minas Gerais state, which is now owned by a consortium of Japanese paper companies and where a second line is planned.
Both Klabin and International Paper are to make considerably more paper, most for the domestic market, where 8mt of the paper made in Brazil is now sold each year, plus about 1.5mt of imported paper.
The Klabin packaging company is to build a second large new machine, a duplicate of the 350,000-tonne monster, which came on stream two years ago, to meet growing demand for packaging paper. Consumption of consumer and other goods increased by 12% in Brazil last year, almost twice the rate of the economy as a whole.
International Paper, which uses pulp supplied to it by the adjacent Fibria mill to make printing and writing paper at Tres Lagoas, also plans to add extra capacity it its mill in Mogi Guacu, near Sao Paulo.
Just over 2mt of paper were exported from Brazil last year, 20% of what was made. As the table below reveals, this was virtually the same amount of paper as has been shipped in each of the past six years.
Domestic demand is now growing strongly, while paper is far more vulnerable to damage in transit than pulp. So although it may cost slightly less to make paper n Brazil as in Europe or North America, still the leading markets for Brazilian pulp, most paper is made as near to consumers as possible.
About 1.5mt of paper were imported last year, 420,000 tonnes, or 38% more than in 2009, which is of growing concern to the industry. Imports cost $630 million, a third of what paper exports earned last year.
Unlike all other types of paper, newsprint for use by the newspaper and magazine industry is not subject to import duties. But the paper makers claim that much of the paper now coming in, most made in China, is claimed to be newsprint, although much is really of other types.
Much of the imported paper incorporates at least some Brazilian pulp and because it is being sold more cheaply in Brazil as in China itself, the industry is calling for anti-dumping measures to be taken.
The Norsk Skog company, which bought Brazil’s only newsprint mill ten years ago, has complained loudly about the situation. Norse Skog has not only abandoned plans to duplicate its mill in Parana state, which as a heavy user of electricity, is expensive to run, the 180,000-tonne-capacity mill now only makes 140,000 tonnes a year.
Most of the pulp made in Mato Grosso do Sul state, 900km from the sea, is to be taken to Santos by train and the ALL transport company has ordered 20 new locomotives and 300 new trucks to handle it. ALL will handle the traffic originating from the new Fibria mill, as well as that from the Eldorado Brasil mill to be built by JBS and scheduled to start up in 2014.
Both the two mills which Suzano is to build in the north east, will be within easy reach of the Carajas line, owned and operated by the Vale company. This will allow Suzano pulp to be taken to the port of Itaqui by rail at relatively low cost. Suzano is also considering building a new specialized port in the region.
All the pulp made at the Cenibra mill now goes by rail to Portocel, the port adjacent to Fibrias Aracruz complex in Espirito Santo. Pulp from Fibrias mill at Jacarei in Sao Paulo state, as well as that produced at Suzano mills nearby, goes to Santos by train, avoiding Brazil’s increasingly congested roads.
While demand for Brazil’s market pulp continues to grow strongly, the same does not apply to most timber products. Exports of timber have slumped from close to 7mt in 2005 to just over 3mt in each of the past two years.
One reason for this is that demand from the construction industry in the United States, once the destination for more than half the timber exported from Brazil, has fallen sharply in the past few years.
The steady rise in the strength of the Brazilian currency, the real, means Brazilian timber products are much less competitive than in the past, while the steady growth in Brazil’s own economy, which has encouraged very fast growth in the construction and furniture industries, is a leading cause of the fall in exports as well.
While a few years’ timber cut from the Amazon rainforest was exported with little hindrance, the rate at which virgin forest is being cleared has fallen sharply in the past few years. Laws which were previously ignored are now being enforced, while smuggling and other illegal practices are also being stamped out.
To ensure that growth returns, companies such as Vale have started planting commercial forests on land cleared of its original cover in the past 20–30 years.
Much of this has proved unsuitable for planting crops, or even for raising cattle. So the supply of certified wood, which all exports must now be, should start to rise again in a few years time as new plantations, some of valuable tropical hardwoods, mature.