The world s total demand for. World Market Pulp:

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1 2. Weyerhaeuser Location: USA, Canada Total capacity: 2.67 million tonnes Production: BHSP (2.545 million tpy), BSKP (125,000 tpy) Owner: Weyerhaeuser Company approx 50,000 Turnover: US$22.6 billion 10. Mercer Location: Germany (Stendhal and Rosenthal), Canada (Celgar) Total capacity: 1.39 million tonnes Production: 100% BSKP Owner: Mercer International Turnover: 2005: EUR million 8. International Paper Location: USA (HQ), global operations Total capacity: 1.48 million tonnes Production: BSKP (835,000 tpy), BHKP (650,000 tpy) Owner: Publically listed 68,700 Turnover: (2004): US$ 26 billion 6. Tembec Location: Canada, France Total capacity: 1.89 million tonnes Production: BSKP (780,000 tpy), BHKP (360,000 tpy), mechanical (750,000 tpy) Owner: public cooperative 10,000 Turnover: 3.8 billion World Market Pulp: Tough at the top The world s market pulp producers are undergoing testing times as fibre flows continue to evolve. The future looks brighter for some than for others. 1. Aracruz Location: Brazil Total capacity: million tonnes Production: 100% BHKP Owner: 4 main shareholders (Safra, Lorentzen, Votorantim BNDES). 2,249 own employees, 7,988 permanent contractors Turnover: 2005: R$3.2 billion 4. Celulosa Arauco y Constutución S.A (Arauco) Location: Chile, Argentina Total capacity: million tonnes Production: BSKP (1.22 million), BHKP (510,000 tpy), UKP (365,000 tpy) Owner: Empresas Copec Turnover: 2005: US$2.37 billion WORLD PULP MARKET Amanda Marcus amanda.marcus@homecall.co.uk The world s total demand for woodpulp is around 72 million tonnes/yr, of which 49 million tonnes is market pulp. By far the largest share of this figure is bleached chemical pulp, divided equally between bleached softwood kraft (BSKP) and bleached Hardwood pulp mill will become the dominant grade of the future hardwood kraft (BSKP) at 21 million tonnes each. However, this balance is set to change: Hardwood capacity is growing at around 5.4%/yr compared to softwood which is growing at 2.9%/yr. With some 3.5 million tonnes of new hardwood capacity hitting the market from Latin America alone over the next few years, BHKP will be the dominant grade of the future. Demand for market pulp remains favourable at present, largely driven by China, but the current pulp cycle is widely believed to be nearing its peak and supply is increasing sharply. China accounted for around 75% of the growth in demand for bleached chemical pulp over , so the Chinese economy is crucial to the global market. As demand moves increasingly East, production continues to move South with low-cost Latin American 38 SPCI/Svensk Papperstidning Nr Tryckt på Holmen Ideal Volume 100 g

2 9. Ilim Pulp Location: Russia (Kotlas, Brask, Ust-Ilimsk) Total capacity: million tonnes Production: BSKP (860,000 tpy), BHKP (495,000 tpy) UKP (50,000 tpy) Owner: Ilim Holding over 42,000 (total with holding company) Turnover: 5. APRIL Location: Indonesia Total capacity: 1.91 million tonnes Production: 100% BHKP Owner: Asia Pacific resources International Holdings Ltd Turnover: 3. Södra Cell Location: Sweden, Norway Total capacity: million tonnes Production: BSKP (1.675 million tonnes), BHKP (350,000 tpy), Mechanical (100,000 tpy) Owner: Södra Group (cooperative of over 35,000 private foresters) 3,600 Turnover: Södra Group: SEK 15.9 billion 7. Stora Enso Location: Nordic HQ, global operations Total capacity: 1.73 million tonnes Production: BSKP (910,000 tpy), BHKP (820,000 tpy) Owner: public company 46,000 Turnover: 2005: EUR 13.2 billion Market Pulp Winners: New capacity Company/mill Grade Capacity Startup Notes Veracel, Brazil BHKP 900 Q205 Greenfield mill Ripasa/Limeira, Brazil BHKP 105 Q305 Expansion drying line CMPC Santa Fe, Chile BSKP/BHKP 780 Q306 New pulp line Arauco Nueva Aldea, Chile BHKP 855 Q4 06 Greenfiled mill Aracruz, Brazil BHKP Debottlenecking Metsä-Botnia, Uruguay BHKP 1,000 Q307 Greenfield mill Cenibra BHKP Debottlencking Suzano Bahia Sul, Brazil BHKP 1, New pulp line ENCE Uruguay? BHKP 500? Initial project postponed, looking for new site Source: Södra Cell Market Pulp Losers: Capacity closures Company/mill Grade Capacity Closed Notes Neenah Paper/Terrace Bay, Canada BHKP 125 Q2 05 Permanent Domtar, Quevillon, Canada BSKP/UKP Domtar, Cornwall, Canada Q1 06 Integrated BHKP Western Forest, Squamish, Canada BSKP 275 Q1 06 Permanent Weyerhaeuser Prince Albert Canada BSKP 130 Q1 06 Weyerhaeuser Cosmopolis USA Diss Bowater Thunder Bay Canada BHKP 210 Q2 06 Neenah Paper Terrace Bay Canada BSKP 350 Feb 06 Restarted Oct 06 Fraser Paper Berlin, Canada BHKP 230 May 06 Permanent G-P Cellulose Old Town USA BHKP Permanent West Fraser Hinton Canada BSKP 70 Q4 06 Permament #1 Tembec Smooth rock Canada BSKp 140 July 06 Indefinite closure Latin American capacity especially is ramping up fast. In Chile, Arauco s Nueva Aldea mill started up a few weeks ago with an eventual capacity of over 850,000 tonnes a year. North and South American producers may continue to cut their tonnage shipped to Europe and concentrate on domestic and Asian markets says Sten Holmberg, president of Södra Cell producers expanding aggressively and high-cost integrated producers in North America closing down. Latin American capacity especially is ramping up fast. In Chile, Arauco s Nueva Aldea mill started up a few weeks ago with an eventual capacity of over 850,000 tonnes/yr and CMPC is due to start up its second line at Santa Fe this quarter, adding continued on page 40 Tryckt på Holmen Ideal Volume 100 g SPCI/Svensk Papperstidning Nr

3 continued from page 39 another 780,000 tonnes/yr to the market. While ENCE has put its plans for a mill in Uruguay on hold for the moment, Metsä-Botnia s project to add a one million tonnes of greenfield capacity in Uruguay are progressing, with the mill still scheduled for startup in 2007 the same year that Suzano Bahia Sul is looking to start up a similar-sized pulp line in Brazil. Various debottlenecking projects will add a further few hundred thousand tonnes. Current high pulp prices may encourage some idled Canadian mills to restart but many of the closures there have been permanent. In the Northern Hemisphere, crippling energy prices continue to be a major concern. Rottneros is the latest victim, announcing that it is seeking to close and move its CTMP mill at Utansjö in Sweden, despite the mill having had a new CTMP line installed in The decision to install the line was taken in 2004 when electricity prices in Sweden were at SEK 0.23/kWh, but they are now at SEK 0.70/kWh. The result on profitability is devastating. Rotternos says it will seek a new home for the mill in a country with lower electricity prices. Ageing Canadian mills, however, have nowhere to go. Although a North American and European follow in the top three behind Brazilian Aracruz, Chile s Arauco and Indonesia s APRIL are knocking at their doors. Together the top 10 producers are still responsible for less than half of the world s market pulp at just over 38%. The top three have just over 15% of the market between them. That said, it s an improvement from the early 1990s when the top 10 share was less than 30%. Sten Holmberg, president of Södra Cell, says more capacity closures are likely in North America as input costs become too much to bear and the significant shifting of capacity from north to south continues. With high freight costs adding to Canadian woes, he says that North and South American producers may continue to cut their tonnage shipped to Europe and concentrate on domestic and Asian markets. Around 700,000 tonnes/yr of Chilean pulp ends up in Europe at present. Aracruz is a highly focused non-integrated producer of hardwood pulps, capitalising on its extensive forestry operations and optimal growing conditions for eucalyptus in Brazil s sub-tropical regions. Number 1 Aracruz: A relatively young company on the schene The company s standards of social responibility are reflected in a significant program The world s largest market pulp producer is a Brazilian company, highly focused and non-integrated. Aracruz has capitalised on its extensive forestry operations and optimal growing conditions for eucalyptus in Brazil s sub-tropical regions to become one of the world s lowest-cost producers. Arealtively young company (its first pulp mill started only in 1978), Aracruz Celulose has expanded rapdily to become the world s largest producer of bleached eucalyptus kraft pulp (BEKP) and one of Brazil s main exporters, responsbile fot 30% of the global supply of BEKP. The company is a highly focused non-integrated producer of hardwood pulps, capitalising on its extensive forestry operations and optimal growing conditions for eucalyptus in Brazil s sub-tropical regions (where yield is high and trees grow to 35 m in seven years). Its plantations are situated in the states of Espírito Santo, Bahia, Minas Gerais and Rio Grande do Sul in Brazil and involve some 263,000 ha of eucalyptus, intermingled with around 143,000 hectares of native forest reserves. The copmany s nominal BEKP production capacity is three million tonnes/yr, distributed between two fully-owned pulp mills and a joint venture. Barra do Riacho in Espírito Santo is the largest pulp mill in the world with a cpacity of 2.1 million tonnes, fully integrated with company-owned eucalyptus plantations and a specialised private port, Portocel, through which most of Aracruz s production is exported. Guaíba in Rio Grande do Sul makes 430,000 tonnes/yr, some 50,000 tonnes of which is for doemstic printing and writing producers. Aracruz also owns 50% of Veracel Celulose, a greenfiled mill which started up in 2005, in the south of Bahia. A joint venture with Stora Enso, it adds another 450,000 tonnes to its portflio (50% of the mill s total capacity). Aracruz is self-sufficient in electricity, producing 170 MWh. In association with Weyerhaeuser of the USA, Aracruz owns one-third of Aracruz Produtos de Madeira, which operates a high-technology sawmill in southern Bahia, supplying top-quality solid wood products from eucalyptus plantation lumber to the continued on page SPCI/Svensk Papperstidning Nr Tryckt på Holmen Ideal Volume 100 g

4 continued from page 40 furniture and interior design industries in Brazil and abroad. As a forestry company n Brazil, the environment has had to play a major role in the company s strategy. It is the only pulp and paper company to have been chosen once again for the Dow Jones Sustainability Index 2007, which draws attention to the best corporate sustainability practices worldwide. (318 companies are listed, covering 58 sectors in 24 countries.) The Company runs a Forestry Partners Program that involves some 81,000 ha contracted in partnership with more than 3,000 farmers in the states of Espírito Santo, Bahia, Minas Gerais and Rio Grande do Sul. The Company s standards of social responsibility are reflected in a significant program of social contributions to neighboring communities in the regions in which Aracruz operates. However, despite its efforts, the company continues to be plagued with land disputes and has been the target of several invasions onto its land, involving the illegal cutting of timber by Indians and members of local social movements. Some 36 ha of the company s land in the north of the state of Espírito Santo was affected in one week alone recently, with the cutting of trees in 26 ha of plantation. The alleged aim of the actions is to put pressure on the Ministry of Justice with regard to the demand for the expansion of the 11,000-ha of native Indian reserve in the midnorth of the state of Espírito Santo. Aracruz claims it does not and has never occupied native lands, but the dispute continues. Aracruz has proved itself a world leader in state-of-the-art pulp production at low cost. Its successful partnership with Stora Enso has led to talk of further expansion at Veracel and the company is one of the lowestcost producers in the world, proving formidable competition to European producers. However, with the onset of considerable new capacity in Brazil and Uruguay, the environmental spotlight is once again being turned on Latin American pulp mills and one of the crucial challenges for Aracruz in the future will be its ability to grow its business with the backing of local indigenous communities and international environmental NGOs. Number 2 Weyerhauser: A broad portfolio of business Weyerhaus er Company main focus is softwood grades Weyerhauser pulp mill in Grande Prairie, Alberta. Unlike Sodra Cell and Aracruz, Weyerhaeuser is a diversified company, a leader in several paper grades and one of the largest home builders in the USA. This large portfolio has brought both challenges and opportunities. In contrast to the other two companies in the top three which are non-integrated pulp producers, Weyerhaeuser Company (WY) has a broad portfolio of businesses. It is one of the world s largest integrated forest products companies with sales of $22.6 billion in 2005 and offices or operations in 18 countries, mainly in North America. Its focus is divided into five business sectors: Timberlands, Wood Products, Cellulose Fiber and White Paper, Containerboard Packaging and Recycling and Real Estate and Related Assets. WY owns close to 14 million ha of land in five different countries, including Australia and Uruguay where the company is developing low-cost plywood products. It is one of the world s largest producers of lumber, structural panels and distributors of wood. In P&P, WY is one of the world s largest producers of softwood market pulp, as well as making uncoated woodfrees, coated groundwood, newsprint and liquid packaging It is also a leader in containerboard and packaging and one of the largest recyclers of P&P products. The company is among the largest homebuilders in the U.S. With the U.S. housing market undergoing a current downturn, however, the company is facing challenging times but says it remains confident that it can ride out the troughs. In pulp, the company s main focus is softwood grades, with 12 mills continued on page SPCI/Svensk Papperstidning Nr Tryckt på Holmen Ideal Volume 100 g

5 continued from page 42 Number 3 Södra Cell: A broad portfolio of business across North America. Primary product market targets are fluff pulps for absorbent products, pulps for premium towel and tissue, premium publication papers, and technical specialty papers; and speciality pulps. WY is the only company listed in the Dow Jones Sustainability North American Index in the category of Basic Resources: Forestry & Paper. Like many others, it is focusing on improving profitability through a number of measures, including restructuring, adding value and cost reduction programmes. The latter has included the closure of pulp, paper and converting capacity in the past 12 months, including eight paper mills and associated pulp mills (one PM at Dryden, Ontario; Hawesville, Kentucky.; Johnsonburg, Pennsylvania; Kingsport, Tennessee.; Bennettsville, South Carolina; Plymouth, North Carolina; Prince Albert, Saskatchewan and Rothschild, Wisconsin.). The market pulp mill at Kamloops, British Columbia and coated groundwood mill in Columbus, Miss, were also victims. As a result of its ongoing strategic review, WY said last year that it anticipated future changes. A few months ago, the company announced that it would combine its uncoated woodfree operations and related assets with Domtar s. In exchange, WY shareholders will receive $1.35 billion in taxfree cash which it will use to pay down debt, as well as 55% ownership in the new Domtar which will be the leading uncoated woodfree producer in North America. Based on the preannouncement stock price of Domtar, the transaction value is $3.3 billion. The new company will be launched in Meanwhile, Domtars drive towards greater profitability continues. Wiyh energyprices at skyhigh levels in Europe, energy efficiency is a crucial factor in the company s strategy for teh future Focusing on softwood grades in the Nordic region, Sodra Cell has placedenergy efficiency high on its strategic list for the future. Swedish producer Södra Cell is a cooperative answerable to its 35,000 forest estate owners, but not under the pressure of a stock-market listed company. Its strategy is to stick to what it knows - market pulp - and to take its time when making new investments. It has five mills in the Nordic region, three in Sweden and two in Norway. Although he says growth by acquisition, either brownfield or greenfield, is definitely on the agenda, company president Sten Holmberg has ruled out following others into Latin America, for example. Growth must support the existing Nordic asset base and must promise robust synergies and the opportunity to create value. Holmberg says Södra Cell can probably squeeze out 150, ,000 tonnes/yr of additional capacity through debottlenecking over the coming years, but the main focus continues to be profitability and productivity with an enhanced emphasis on long-fibre pulps and the development of its service offerings. With energy prices at sky-high levels in Europe, energy efficiency is a crucial factor in the company s strategy for the future and it expects to be 110% self sufficient in electricity by next year, while minimising oil consumption. New turbines are starting at two of its mills this quarter and it is also investing in three wind power stations at Värö to produce GWh of electricity per year initially. If the project works, similar investments could be made at Mörrum and Mönsterås. Södra Cell has significant bio-energy potential and its stated ambition is to be the leading company in the forest industry in Europe in various forms of bioenergy. The Board also decided to inject a further SEK 50 million into Södra s research foundation recently, reinforcing the importance the company places on R&D. The company is acutely aware of the pressure it faces from low-cost producers in Latin America but has decided to stay focused on market pulp, and especially softwood grades. A considerable amount of company focus is on value creation and the company recently won a Microsft.net award for its on-line ordering system which is just one of a number of services being developed for customers in a bid to add value and increase profitability for both Södra Cell and its customers. Södra Cell is acutely aware of the pressure it faces from low-cost producers in Latin America but has decided to stay focused on market pulp, and especially softwood grades. 44 SPCI/Svensk Papperstidning Nr Tryckt på Holmen Ideal Volume 100 g