Brazil is suffering with stagnant demand, falling prices, stocks rising — and now, apparently, the country is no longer the world’s lowest-cost producer. The shine seems to be going off Brazil’s pulp and paper industry, one of the world’s largest.
The price of the short fibre pulp made in Brazil, the world’s largest manufacturer of a type of cellulose used to make printing and writing as well as tissue paper, averaged $520 per tonne in the first half of this year, 6.6%, or $45 per tonne less than in the first half 2011.
Demand in China and western Europe, the two leading markets for Brazilian pulp, has been falling in the past few months. Although only a little less has been shipped to China, which pays the lowest prices for the pulp it buys, significantly less has gone to the Netherlands, Italy, and France, as well as to the United States, which pay up to $150 per tonne more for their pulp than China does.
Analysts suggest that the average price could fall a further $30–50 a tonne as the year progresses.
World stocks of short fibred pulp are now sufficient for 40 days’ consumption, 5–6 days greater than normal, which is preventing price rises.
Brazil’s three largest pulp and paper makers, Fibria, Suzano and Klabin — all with large debts denominated in US dollars — all made large losses in the second quarter of this year. This was largely because the continued fall of the Brazilian currency against the US dollar, which means that it costs considerably more for the country to service its substantial debts.
The plus side of a devaluation, of course, is that the price of what is exported can be cut, but mills will still receive the same amount in local currency in which all running costs are incurred.
The brand new Eldorado mill, being built by a newcomer to the Brazilian pulp and paper scene, an associate of JBS (the world’s largest beef packing company), is still on schedule to start producing pulp before the end of this year.
Eldorado is expected to make and export between 15,000 to 20,000 tonnes of market pulp this year, with output rising to close to capacity of 1.5mt (million tonnes) next year.
This will raise the amount of market pulp exported from Brazil, which has remained steady at about 5.5mt since Fibrias ‘Tres Lagoas’ mill started up in Mato Grosso do Sul state three years ago, to 7mt in 2013.
The Suzano company which, after Fibria, is the world’s second-largest producer of the short fibre pulp made from eucalyptus, it is now looking for a partner to help it raise the funds needed to complete the 1.5mt-capacity mill it is building in Maranhao state, in the north east.
Suzano’s new mill, the first ever to be built in this part of the country, and the first of two planned for the region, is adjacent to a railway running to the port of Itaqui.
This port is about two days’ less sailing time to customers in Europe and China than ports in the south, from where the bulk of Brazil’s pulp now leaves.
Fibria, which lost $280 million in the second quarter of this year, is mulling over whether to make a start soon on the second phase of its mill at Tres Lagoas.
Stora Enso, a partner together with Fibria in the Veracel mill in Bahia state, is also considering duplicating that mill.
The world can accommodate the pulp produced by one large new pulp mill each year, which will add 1.5mt to the 50mt of pulp now being made each year. So the question of timing is crucial.
Stora Enso is to start up its new 1.5mt mill in neighbouring Uruguay early next year. But the company’s senior executives, such as those responsible for sales, will be based in Brazil.
Progress is still being made in pushing up yields and many forests are now clear cut and mature trees replaced with new seedlings after the second cut, 14 years after being first planted. Forests used to be re-planted after a third cut at 21 years.
For how much longer it will be possible to develop clones which yield much more and which means it makes economic sense to grub up and replace trees after they have sprouted just once, remains to be seen. There will clearly eventually be a limit to further increases in productivity. But perhaps this is still some way off.
The pulp and paper companies are all taking steps towards using some of the waste wood to make second generation fuels for powering vehicles. Bio-fuels may become a new source of revenue for the companies in the near future, in addition to the sale of timber.
With millions of people moving from the countryside to cities each year in many of the world’s most densely populated countries — notably China, India, and Bangladesh, as well as some in Africa — demand for tissue, for which Brazil’s short fibred pulp is very suitable, seems likely continue to grow
steadily for the foreseeable future. Consumers in urban areas spend much more on personal hygiene than those who live in the countryside.
The same pattern may not be true for printing and writing paper, however.
It was often predicted in the past that paper would soon become redundant in the modern office. However, this has not happened to any degree until now.
Demand for newsprint, on the other hand, is certainly falling. Any suggestion that a new mill or even a new line to make more newsprint should be built in Brazil has long been abandoned, as newspapers get thinner, or cease publication.
Whether books as we know them have a future, as sales of tablets and other gadgets boom, is being increasingly questioned. For the generation of people born in a digitalized world, the future of printing and writing paper looks less guaranteed.
This would be very bad news for Brazil, which exported about 50,000 tonnes less paper in the first half of this year than it did in the same period of 2011, and has seen the average price of paper fall by slightly more than that.
Although the giant Klabin company, the largest in the pulp and paper industry in Brazil, made a loss in the second half of this year, together with Suzano and Fibria, this was exclusively because dollar-denominated debt weighed more heavily. It was not because prices of packaging materials fell.
Demand for the various types of packaging which are the speciality of Klabin is holding up well, spurred by continued strong demand for consumer goods of all types. Demand also remains strong for liquid packaging. This, in conjunction with Tetrapak, is a Klabin specialty in Brazil, and is exported to dozens of countries as well.
Although most pulp companies transport most of the pulp they export to ports by rail the already very serious congestion at ports, notably Santos and Paranagua, has become appreciably worse in the past couple of years. This situation will continue to deteriorate, as exports of soya and maize, as well as of sugar, continue to soar.