PULP INDUSTRY: LATIN AMERICA REMAINS DOMINANT, WITH PLANS FOR FOUR NEW MILLS

Pulp industry

Latin America remains dominant, with plans for four new mills

Patrick Knight

Encouraged by high pulp prices, and strong demand from China, four large new pulp mills are planned for the Southern Cone of Latin America, while strong demand for packaging is also boosting Brazil’s forest products industry.

With four brand new mills to make market pulp from eucalyptus planned for Brazil and neighbouring Paraguay in the next few years, it seems as if nothing can stop the advance of this industry in this part of the world. The relative advantages of making market pulp in the Southern Cone of Latin America, coupled with the apparently insatiable demand from China, and other countries in Asia — at a time when numerous elderly mills in Europe and North America are shutting down — seems likely to persist as well. Market leader Suzano, having now digested its merger with Votorantim’s Fibria, a move which has already brought annual savings of about $1.3 billion, is going ahead with building its latest mill in Mato Grosso state. When complete, in about 30 months time, the new mill will add 2.3mt (million tonnes) to the output of a company which made almost 13mt of pulp last year.

Suzano’s new mill is expected to cost about $2.3 billion to complete. The export of about 11mt of market pulp, together with various other forest products, notably plywood, earned Brazil about $12 billion in 2020.

Brazil’s short-fibred pulp can be made more cheaply than the long-fibred variety, which is made from types of pine. Pine trees take significantly longer to mature than the eucalyptus varieties used to make the short fibred variety. This price difference has encouraged many end users to switch from using long fibre, to shortfibred pulp, giving a further boost to demand.

As numerous elderly, high-cost mills in Europe and North America close down each year, about 2mt of new pulp-making capacity is needed worldwide each year. A large proportion of this will come from Brazil, as well as neighbouring countries, such as Paraguay and Uruguay. Although an international court has decided that Paper Excellence, owned by the Indonesian Asian Pulp and Paper Company, should take over the Eldorado mill, where an expansion of 2.3mt is planned, the previous leading shareholder, the JBS meat company, is still

appealing against the result. So the eventual fate of this mill remains in doubt.

In recent years, most of Brazil’s new mills have been built in the far west of the country, where land costs much less than close to the Atlantic coast, where the first generation of mills was built. New rail links to ports, as well the increased use of waterways, has meant logistics costs have been falling steadily.

Therefore, the announcement that a company is to build a 1.5mt-capacity mill close to the River Paraguay, just across Paraguay’s border with Mato Grosso, and far from the coast, is no surprise. The chief executive of this new mill previously worked for Stora Enso, the company responsible for projects such as the Veracell mill, in Bahia and the Monte de Plata mill in neighbouring Uruguay.

The new mill in Paraguay, financed partly by the owner of Paraguay’s leading fuel distribution company, has already acquired 200,000 hectares of land, of which half has already been planted. Demonstrating that international borders are of little importance for the pulp industry, much of the timber for the new mill will initially come from forests in neighbouring Mato Grosso state.

Brazil’s pulp industry is not only benefiting from the renewed strength of the Chinese economy, it has also been aided by the weakening of the Brazilian currency, the Real, which fell by almost 40% against the US dollar last year. Higher profits have enabled the pulp industry to raise the majority of the capital needed to build its new mills from local sources, rather than by borrowing from abroad.

The market pulp side of Brazil’s pulp and paper industry has not been the only one to profit, in what has been a very unusual year. Brazil’s largest maker of packaging papers, Klabin, has benefited greatly from the increase in the use of packaging for home deliveries of a wide range of goods.

The increased demand for packaging has encouraged Klabin to add a large new paper machine to make more product at its new Puma mill. Klabin is one of those companies experimenting with blending a proportion of the cheaper short-fibred pulp with the more normally used longfibred products, in some of its packaging. This is proving popular, at a time when demand for plastic packaging is under pressure for cost and environmental reasons. Last year, Klabin took control of the packaging interests of the International Paper company in Brazil.

One surprise is that neighbouring Argentina has not followed the example of pulp and paper giants Brazil and Chile, countries whose governments have encouraged, and helped finance most of the new generation of mills. Argentina took a hostile stance when neighbouring Uruguay built its first mill, suggesting that by locating on the banks of the river Uruguay, which forms the border between the two countries, serious pollution would be caused.

Argentina went so far as to close a bridge across the river, which interrupted international traffic. No doubt an Argentine government will eventually decide to start encouraging international companies to invest there, which will ensure that this region continues to dominate world pulp making. DCi