The Brazilian Pulp and Paper Industry Announces Investments

Optimistic perspectives in the economy and the demand from emerging markets maintain investment programs in the sector

The Brazilian pulp and paper industry will invest approximately US$ 20 billion in the next seven years in its forest base and in building new mills.

By the end of 2017, when forests planted in 2010 will have completed a new growth cycle, pulp production is expected to go from 13.4 million to 20 million tons. During the same period, paper production will also increase from 9.3 million to 12.5 million tons, and planted forest areas will be 25% larger.
“Brazil wants to be ranked as the third pulp producer in the world, and known for having the best environmental practices”, states Elizabeth de Carvalhaes, the Executive President of the Brazilian Pulp and Paper Association (Bracelpa). “It's an ambitious investment, based on economic growth perspectives for Brazil and an increase in demand from emerging markets, such as China”, explains Elizabeth. The international financial crisis reduced global consumption, prices and the demand for raw material in traditional markets, however brought about opportunities for sales expansion in this Asian country.

In 2009, pulp exports for China grew by 128% in comparison with 2008 – i.e., from 1.2 million to 2.8 million tons – and the country became Brazil’s second most important market, even when compared to the United States. In the period, Brazil, the segment’s leading producer worldwide in bleached eucalyptus kraft pulp, obtained a 47% market share in imports from China.
According to Bracelpa’s evaluation, this expressive growth results from the Chinese paper industry’s strategy to heavily invest to increase the country’s production, particularly in papers for printing and writing and sanitary papers, produced with eucalyptus pulp. Last year, the drop in commodity prices also favored the creation of inventories of the Brazilian input, largely recognized for its quality.
Another factor that explains the growth in Chinese imports is the search for sustainable patterns, given that the country has been considerably pressed by the World Trade Organization (WTO) and by climate negotiators to reduce its CO₂ emissions. In addition to high quality, Brazilian pulp is known for its environmental attributes, i.e., originates from 100% highly productive planted forests, a renewable natural resource that absorbs and stores large CO₂ volumes from the atmosphere.

Auspicious Scenario - Investments of Brazilian companies for the next seven years coincide with the optimistic perspectives in the domestic economy. GDP’s growth estimates are of 6.5% for 2010, foreign exchange reserves in excess of US$ 200 billion and Brazil registers better international investment rankings. “The sector will experience the most important cycle of the past decades”, ponders Elizabeth. She points out that the country will host two important international events during the period: the World Soccer Cup in 2014 and the Olympic Games in 2016, which are expected to leverage large infrastructure investments and thus boost growth in civil construction, services, and in the areas of logistics and transportation, among other segments. “The pulp and paper industry caters to all these sectors and, no doubt, will keep up with the positive economic trend”, adds the executive officer.

One of the major investment program challenges is to show the international community that the pulp and paper industry in Brazil is prepared to grow without significantly expanding land occupation, a fact which greatly favors the environment. In addition, the country has 72 million hectares of plowable land available for cultivation, according to surveys carried out by the Brazilian Confederation of Agriculture and Livestock (CNA), the Brazilian Association of Planted Forest Producers (ABRAF) and the Sugarcane Industry Association (UNICA).
“The figures indicate that Brazil has tracts of land to meet demands related to food production, biofuels and the forest-based industry. We have room for development in these three areas”, continues Elizabeth. The 6.3 million hectares of planted forest in Brazil – that supply raw material for the wood, steel and the pulp and paper industries – account for only 0.7% of the Brazilian territory.

An important part of the investment program, i.e., the expansion from the 2.0 million to 2.5 million hectares of planted forest areas, brings about major benefits to the planet. The rapid growth in planted forests and the high CO₂ absorption rate directly act to fight global warming. “This is the sector’s underlying reasoning in climate negotiations. The objective of which is to have forest carbon credits eligible as a mechanism to offset emissions”, continues Elizabeth. The Brazilian government will have this proposal on the negotiation table of the United Nations Climate Change Conference (COP 16) to be held in Mexico this coming November.