Brazil's Pulp Industry Showing Signs of Recovery

Aug. 31, 2009 - There are signs that the Brazilian pulp industry is starting to recover from the weak global demand for pulp and paper products, according to Wood Resources International (WRI).

In April, pulp exports equalled 766,000 tons, up 43 percent from the previous month and 140 percent higher than shipments a year earlier, WRI said in its Wood Resource Quarterly report.

The Brazilian pulp companies have benefited from closures of pulp mills resulting in reduced production capacity in the Northern Hemisphere and an increase in demand for pulp in China. In the 1Q/09, shipments to China were 68 percent higher than the same quarter in 2008. This year, China increased imports from Brazil for two main reasons: many small domestic mills closed in China and there were reduced imports from Indonesian pulp mills, which have had wood fiber supply problems.

The pulp industry in Brazil had a record year last year regardless of the global financial crises and the declining demand for pulp and paper products. Production reached 12.8 million tons, which was up from 11.8 million tons in 2007.

Before it was apparent how severe and long lasting the financial crises probably would be, the outlook for investments in the pulp and paper sector was about 11 billion dollars by 2011 and another 10 billion dollars by 2015. With the uncertainty about when the paper market will turn around, and the difficulty in financing some planned projects, a number of pulp projects have been postponed indefinitely.

Pulpwood and wood chip prices in Brazil fell slightly in the local currency, but were higher in US dollars because of the strengthening of the Real. During the past five years, Eucalyptus roundwood prices have been remarkably stable in the local currency after the dramatic price increases in 2002-2005. In the 2Q, Eucalyptus and pine pulplog prices increased by about eight percent in US dollar terms, WRI said. Wood fiber costs, which accounted for 58% of the total cash cost in the 1Q were at their highest level in nine months. Prices for pulpwood traded in the open market are currently slightly lower than the global average price.

So far this year, there has been an oversupply of logs in the Brazilian market, but it is expected that the situation will change in the second half of 2009 and 2010.

SOURCE: Wood Resources International

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