Brazilian Market Pulp Producer Fibria Swings to Third Quarter Profit

Fibria produced 1.3 million tons of pulp in the third quarter of 2013, a 2 percent increase over the same period in 2012.

Oct. 23, 2013 - Brazil's Fibria, the world's largest producer of eucalyptus pulp, reported third-quarter 2013 net income of 57 million reais ($26.24 million), compared with a net loss of 212 million reais in the third quarter of 2012.

In the third quarter, pulp production totaled 1.3 million tons, a 2% increase of the same period in 2012 and pulp sales rose, and pulp sales rose 3%, Fibria said.

Third Quarter 2013 Summary (excerpt from Fibria's 3Q13 report)

Seasonality effects fueled the increase in pulp producers' inventories at the beginning of the quarter. Despite the fact that hardwood pulp inventories reached higher levels than in the previous year, signs of a recovery in demand were observed throughout the quarter. This was demonstrated by both increases in market pulp sales as a whole and Fibria's own sales, including in the year on-year comparison.

Uncertainties in the Brazilian and global macroeconomic scenarios continued to drive up the US currency, which reached R$2.45 in August. The strenghtening of the dollar during the quarter helped Fibria record its highest-ever quarterly EBITDA figure. Coupled with the increase in operating income in the last twelve months, the focus on debt reduction drove dollar leverage down to its lowest level since the Company’s creation.

Pulp production totaled 1.347 million tons in 3Q13, 4% more than in 2Q13 due to the reduced impact of the scheduled maintenance downtimes in the Jacarei Mill. Compared to the same period the year before, output moved up by 2% given that in addition to the Jacarei stoppage, 3Q12 also had the scheduled maintenance downtime in the Tres Lagoas Mill. Sales volume totaled 1.301 million tons, 3% higher than in 2Q13 and 3Q12, due to increased pulp availability and greater sales volume in North America and Asia.

In the last 12 months, Fibria's sales volume totaled 5.267 million tons, equivalent to 100% of period production.

Pulp Market

The beginning of 3Q13 was marked by seasonality in the Northern Hemisphere, due to a historical weakening of demand during the European summer vacation period. Despite the fact that the recovery of European demand has taken longer than expected, sales of eucalyptus pulp posted a positive result in the annual comparison, moving up by 4.9% year-on-year in the first eight months of 2013, according to the Pulp and Paper Products Council (PPPC). In fact, there was a substantial sales upturn in most of the regions of the world, especially in North America and China, where growth came to 16.7% and 15.5%, respectively.

The difference between hardwood and softwood pulp prices in the European market widened in 3Q13. Although the possibilities for substitution between the two pulp grades have been limited recently, the increase in the price gap continues to be a positive indicator for hardwood pulp demand. After peaking at almost US$200/ton at the end of 2011, the difference fell sharply throughout 2012, reaching US$12.61 in September 2012 before increasing gradually over the last 12 months and reaching US$87.83 in September 2013.

In August, the closure of the Sodra Tofte mill in Norway was confirmed, eliminating 170 thousand tons of hardwood pulp from the market giving total closures of almost 1.2 million tons in 2013 to date. The list of closures this year also includes the Jari mill in Brazil (420 thousand tons), SAPPI's Cloquet mill conversion to dissolving pulp, in the United States (450 thousand tons), and the indefinite shutdown of the Cellulose du Maroc mill in Morocco (160 thousand tons).

These closures together with the postponement of new capacities startup originally, scheduled to enter the market in the coming months, should limit pulp supply in the last quarter. Additionally, demand traditionally increases in the final months of the year, which should maintain the market pressured on the market during 4Q13.

A copy of Fibria's 22-page 3Q 2013 earnings release is available on the following link: Fibria 3Q13 Release (407k, pdf)

SOURCE: Fibria