China's Growing Pulp Demand Encourages Capacity Expansion Projects in South America

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Researched by Industrial Info Resources (Sugar Land, Texas)--Chinese paper capacity expansions are increasing at an amazing rate and have boosted the need for pulp to be used as raw material. Historically, China has depended on imports to meet growth in pulp demand. One of the reasons for this is related to the lack of wood fiber. The pulp wood plantations in the country, including poplar, pine, eucalyptus and acacia trees, are relatively limited. In addition, the Chinese government has tried to enforce laws and regulations that ban logging in natural forests, and that advocate the use of wood-fiber resources rather than non-wood residues (such as straw), which lead to high pollution.

Another reason for China's reliance on pulp imports is the cheap and easy availability of pulp from Latin America (mainly from South America), where production costs for eucalyptus pulp are extremely low. This is favorable for pulp suppliers, mainly Brazilian, which are investing in new pulp mills, capacity expansions, purchasing new equipment and optimizing existing equipment. Mills, therefore, will become more efficient and technologically advanced, thereby lowering costs. A consequence of this scenario could be the displacement of high-cost producers from Europe and the United States for low-cost suppliers from Brazil, Chile, Uruguay and Argentina.

Among the pulp capacity expansion investments in South America, Suzano Papel e Celulose (Sao Paulo, Brazil) has plans to build three 1.5 million-ton-per-year pulp mills in northern and northeast Brazil, as well as increase the existing Mucuri plant's production. Also, Fibria (Sao Paulo) is working on a project to install a new pulp line at its Três Lagoas (Mato Grosso do Sul, Brazil) facility and Veracel (Eunapolis, Bahia, Brazil) pulp mill. Moreover, CMPC Celulose Riograndense (Guaiba, Rio Grande do Sul, Brazil) will expand its pulp manufacturing capacity at the Guaíba plant, while Cenibra might increase capacity at its Belo Oriente unit. Another Brazilian company, Klabin (Sao Paulo), will construct a new pulp mill in the state of Parana, which is in the south of the country, to produce both hard and soft wood, and will add a paper machine in its Angatuba Mill. During the first quarter of this year, Portugal's Portucel announced it is performing market analysis to evaluate the possibility of building pulp production units in Brazil or Uruguay.

Chilean companies are betting on Chinese pulp demand increasing, and they are investing in raising their current production capacities. CMPC (Santiago, Chile) is already performing projects to expand pulp capacities in the Nacimiento, Laja and Talagante mills, and it plans to build paperboard, saw and plywood mills. Arauco's (Santiago, Chile) investments are related to the increase in capacity of the company's pulp and cogeneration plants. Medium density board, plywood, and power plants are to be erected during in the coming years. Furthermore, the company inaugurated a trade office in China to strengthen its business relations with that country.

If economic growth remains positive and healthy globally, China's demand for pulp will continue to grow and Latin America will became a large supplier of pulp and wood products.

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