BRAZIL: Forests, Pulp Mills & Pulp Markets Facing Today s & Tomorrow s Challenges Celso Foelkel
COMPETITIVENESS The ability to add more value than the global average in relation to the competitors in terms of the key-factors of competitiveness in a particular product chain
Competitividade = + Mill Global Society The real competitiveness happens in this type of world
Levels of Competitiveness Regional Competitiveness BRAZIL Networking, benchmarking, political participation Segment Competitiveness P&P Cooperation Internal Competitiveness MILLS Competition
GDP - Selected countries Source: Golden Sacks & Merryll Lynch
GDP per capita - Selected countries Source: Golden Sacks & Merryll Lynch
COMPETITIVENESS STRATEGY (Efficacy) Winning companies Do the right things Losing ground companies MANAGEMENT ( Efficiency) Do the things rightly
Market Pulp Brazilian P&P Exports 4.889 5.000 4.000 Paper 1.000 ton 3.000 2.000 1.000 0 1.672 1992 2004 1.000 ton 2.000 1.500 1.000 500 1.235 1.853 0 1992 2004
Brazilian P&P exports: 1996 = Index 100 9% growth /y from 1996 Source: IPEA Data
1,80 1,60 1,40 BRAZIL Pulp Bi U$$ 1,20 1,00 Paper 0,80 0,60 2004 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 20 Net value of trade balance (Exports - Imports) Source: Bracelpa
5,00 million ton 4,50 4,00 3,50 3,00 2,50 BRAZIL Pulp 2,00 1,50 Paper 1,00 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Exports of pulp and paper Source: Bracelpa
We have P&P state-of-the-art mills
People, who plant forests, believe in the future Thus, we believe in the future
Plantation forests
The plantation forest model Utilization of rural farmers land areas (less expensive and enlarged social benefits) Utilization of low quality soils (degraded pastures, not competing for agricultural lands) Involvement of local partners as many as possible
The virgin pulp based model Substantial growth in virgin pulp and not in paper: oriented to market share growth Most of EBITDA formation comes from the pulp side: paper does not add too much further Worldwide distribution of pulp a lot easier than paper Domestic paper recycling allows virgin pulp surplus for exports
GLOBAL CAPACITY IN MARKET PULPS (in 1000 tons) 2004 2006 BLEACHED SOFTWOOD KRAFT 21.628 23.491 BLEACHED HARDWOOD KRAFT 21.773 23.428 BLEACHED SULFITE 1.570 1.480 UNBLEACHED KRAFT 2.530 2745 TOTAL PAPER GRADE 51.260 55.338 Source: RISI, 2005
People, who build competitive mills, deserve to play the best markets We are playing the best markets, so we are competitive
Sources of Competitiveness to the Brazilian Industry focus on margins and EBITDAs ( cash costs and net prices) diversification on products portfolios expansion in market share, no matter how (growth, upgrades, consolidation, mergers) environmental and social compliance timing reduction of wastes, all kinds wastes
Eucalyptus & Pines Low-cost woods and superior quality
ABC & U countries In thousand hectares 3400 Total: 8,780 ha Softwoods (green): 4,040 ha Hardwoods (red): 4,740 ha 1600 1600 420 720 120 540 380
BSKP operating costs Chile Sweden Finland US South France/ Germany Canada East Wood 99 246 276 142 270 204 134 134 173 Chemicals 35 36 40 37 44 45 47 50 41 Energy 9 16 8 21 14 21 42 45 24 Variable costs 143 299 324 200 328 270 222 228 239 Labour 18 50 43 58 56 74 66 104 59 Maintenance 8 19 16 19 20 35 23 35 22 Other mill costs 28 26 17 92 32 31 86 52 58 Fixed Costs 55 95 77 168 108 140 175 192 139 OPERATING COSTS fob mill 198 394 401 368 436 410 397 420 378 Ocean freight 45 16 35 59 25 60 79 63 52 Marketing & sales 9 18 8 21 11 5 8 8 13 TOTAL DELIVERED CASH COSTS cif 253 427 444 448 472 475 484 491 443 BC Interior BC Coast WORLD WEIGHTE AV Source: Hawkins Wright, 2004
BHKP operating costs US$/tonne Brazil Indonesia US South Portugal Sweden France/ Belgium Canada East Wood 71 102 128 188 212 178 158 243 219 132 Chemicals 28 17 37 59 40 60 30 38 41 33 Energy 10 14 23 6 19 13 24 2 11 14 Variable costs 109 134 188 253 270 252 211 283 270 179 Labour 8 13 40 49 51 65 50 41 49 30 Maintenance 12 13 31 22 15 14 23 16 19 18 Other mill costs 24 25 50 37 18 35 35 19 36 31 Fixed Costs 44 52 122 107 84 113 108 77 104 79 OPERATING COSTS fob mill 153 185 310 360 354 365 319 360 374 258 Ocean freight 44 37 53 18 17 17 73 38 26 43 Marketing & sales 17 12 10 5 19 11 7 8 15 12 TOTAL DELIVERED CASH COSTS cif 214 234 373 383 390 393 399 406 415 313 Source: Hawkins Wright, 2004 Finland Spain WORLD WEIGHTE AV
World s Leaders Paper Manufacturers -2003 Paper Markets (1.000 Tons) 30.295 20.060 19.310 13.057 11.062 10.391 9.938 9.372 7.916 7.749 80.220 41.660 90.000 80.000 70.000 60.000 50.000 40.000 30.000 20.000 10.000 0 Total world paper: 338.815 tons USA China Japan Canada Germany Finland Sweden Korea France Italy Brazil Indonesia Source: PPI - Annual Review- 2004
World Leaders Pulp Manufacturers - 2003 26.233 17.207 11.945 11.737 10.584 9.175 6.720 5.200 3.220 52.314 USA Canada China Finland Sweden Japan Brazil Russia Indonesia Pulp Markets (1.000 Tons.) 60000 50000 40000 30000 20000 10000 0 Total world pulp: 185.165 tons India Source: PPI - Annual Review- 2004
Consumption trends Paper Demand Growth in recent years 2,2% in developed countries; 5,5 6,0% in developing countries; 3,0% world average.
Threatening Challenges
Projected paper growth is moderate World P & B demand, 1 000 tons 500 000 450 000 400 000 350 000 300 000 250 000 200 000 150 000 100 000 50 000 0 Industrial & other Newsprint Printing & Wr. Papers 1980 1985 1990 1995 2000 2005 2010 2015 Source: Merryll Lynch, 2004
Paper and board demand trends 700,000 000 tons 600,000 500,000 400,000 300,000 200,000 100,000 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 US W Europe E Europe Japan Canada LatAm RoW Asia Source: Merryll Lynch, 2004
Paper Grades Attractiveness Demand Supply Price Volatility Entry Barriers Structure Tech Changes European Cost Position Cost Curve Overall Market Pulp + + - - 0 + 0/+ 0 0 Newsprint - + 0 0 0 + + - - Magazine Paper + + + + ++ 0 ++ ++ ++ Fine Paper ++ + 0 0 + 0 -/0 - + Containerboard ++ + 0/++ 0 0 - ++ - + Cartonboard - 0 + + ++ 0 0 ++ + Tissue + 0 ++ 0 0 0 0 + 0 ++ Very Positive -- Very Negative Source: Merrill Lynch Research Paper Grade Attractiveness Source: Merryll Lynch, 2004
Business in China: from Marco Polo to Market Pulp Source: VCP, PPPC Enormous growth in pulp demand in China Imports of market pulp by China 4,739 5,021 5,720 1,427 2,054 2,942 2,823 1997 1998 1999 2000 2001 2002 2003
Market pulp prices Pulp prices NBSKP US$ in June 2001 1.200 US$/ton, CIF Norte Europa 1.000 800 600 400 200 Cyclical Downwards trend 0 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
BEKP CIF Price - Europe US$/adt 600 580 560 540 520 500 480 460 440 420 400 July/2005 October/2005 January/2006 April/2006 July/2006 Oct/06 Quarters Source: HAWKINS WRIGHT
Fine paper & Pulp prices 1,100 /ton (NBSK in $/ton) 1,000 900 800 700 600 500 400 300 200 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 UWF A4 CWF Reels 100g NBSK (USD) Source: Merryll Lynch, 2004
Financial results of the P&P sector are not as wonderful as they may be thought Ratio Net Price in Europe/Total costs Source: RISI, 2005
USA Pulp production cost: delivered in Europe Canada Sweden Spain Finland Portugal Indonesia BRAZIL 2004 Lowest production cost in the world 200 250 300 350 400 Source: Hawkins Wright, 2004
Pulp Production Costs - 2005 Using market pulpwood cost Source: RISI, 2005 Exchange rate and wood cost effects
Uncoated wood free paper cost Using market pulpwood cost Source: RISI, 2005
Brazilian Pulp & Paper Industry 7º World manufacturer of pulp 5º World manufacturer of bleached pulp 3º World manufacturer of market pulp 1º World manufacturer of eucalyptus market pulp P & P sector own forest area = 1.4 million hectares 11º Manufacturer of paper and board.
Growth: 7.7% / year Pulp Production Growth in Brazil Year Production (Million tonnes) 1970 1980 1990 2000 2004 0.7 3.1 4.5 7.6 9.6 5. 5 market pulp in 2004
Eucalyptus market pulp in 2004 (Source: PPPC, 2005) Brazil... 5.475 M tonnes Spain... 1.235 M tonnes Portugal... 0.925 M tonnes Chile... 0.695 M tonnes Thailand... 0.470 M tonnes South Africa... 0.250 M tonnes Norway... 0.185 M tonnes China... 0.170 M tonnes Morocco... 0.135 M tonnes New Zealand... 0.055 M tonnes Others... 0.050 M tonnes Total 9.645 M tonnes
Production (1.000 adt) 25.000 Trends for the Brazilian share in the global pulp market (1990-2010) 20.000 15.000 10.000 5.000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Long Fibers Total Short Fibers Other Short Fibers Eucalyptus Brazil Euca Brazil Source: Hawkins Wright, 2005
2004 South America: Total Market Pulp Million tonnes 1.4 2.9 2.1 15 10 8.4 Production of Market Pulps - All grades 5 2.0 South America Internal Consumption
World leaders in BHKP to the market - 2004 (em 1.000 tons) ARACRUZ 2.480 (11,4%) RGM 1.980 ( 9,1%) ENCE 1.060 ( 4,9%) VCP 1.010 ( 4,6%) CENIBRA 940 ( 4,3%) STORA ENSO 855 ( 3,9%)... 9º...PORTUCEL 590 ( 2,7%) 10º..ARAUCO 578 ( 2,7%) 11º..SUZANO 485 ( 2,2%) 12º APP 425 ( 2,0%) Source: RISI, 2005
Short fibers in Brazil - Growth in past decade Growth (in 1.000 tons) ARACRUZ ES ARACRUZ (ex-riocell) BAHIA SUL CENIBRA IP (ex-champion) JARI LWARCELL RIPASA SUZANO VCP (LA) VCP (ex Simão - Jacarei) NOBRECEL VERACEL 1995 1.090 225 325 400 20 155 50 80 50 100 75 5 0 2004 2.050 430 460 940 15 340 140 120 25 0 1.010 6 ( in 2006) 900 Source: RISI, 2005
Market pulp destinations from Brazil 70% 60% 50% 40% 61% 2.123 1.724 40% Source: Bracelpa, HW, Cenibra 1.524 Quantities. 1000 adt 2500 2000 1500 30% 20% 10% 0% 978 29% 648 18% 12% 427 15% 374 282 13% 10% 1% 6 53 0% North America Europe Latin America Asia/Africa Oceania 1990 in adt 2004 in adt 1990 in % 2004 in % 1000 500 0 Source: Cenibra, 2005
BRACELPA - P & P expansion plan to Brazil PULP 2002 2012 1000 t 1000 t Growth % Production 8,000 14,500 81 Exports 3,500 7,400 114 PAPER 2002 2012 1000 t 1000 t Growth % Production 7,700 13,400 74 Exports 1,400 2,000 43 Country population (1,000) 176,000 190,000 Per capita consumption 38.2 50,0 32.0
Brazilian Investment Plan 2003-2012 Pulp Paper Forestry TOTAL Total investments (US$ Billion) 7,3 5,2 1,9 14,4 Trade balance (US$ Billion) 21,5 8,9-30,4 New job generation ( thousands ) 60,7
Source: Paperloop, 2004 Brasil 37 Chile 56 Mexico 54 Argentina 44 United States 301 Canada 222 Finland & Belgium 310-335 Spain 179 Japan 242 Portugal 101 China 42 Per capita consumption World average 51.7 kg/inhabitant.year
Brazil: moderate growth in paper consumption, more than vegetative due to people living standards and exports of manufactured products (000 tons) Net paper consumption in Brazil 7000 6000 5000 4000 3000 2000 1000 0 Growth : about 5 %a.a. 6,8026,7906,716 6,338 4,619 5,3205,8666,2076,285 1994 1995 1996 1997 1998 1999 2000 2001 2004 Kg 400 350 300 250 200 150 100 50 0 37 Per capita consumption kg/inhabit.year 54 222 242 301 310 Brazil Mexico Canada Japan USA Finland Source: RISI, CNPL, BRACELPA
12000 10000 BRAZIL 8000 thousand tons 6000 4000 2000 0 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 Historical growth of pulp production in Brazil Source: Bracelpa
9.000.000 8.000.000 7.000.000 BRAZIL 6.000.000 5.000.000 ton 4.000.000 3.000.000 2.000.000 1.000.000 0 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 Historical growth of paper production in Brazil Source: Bracelpa
4.500.000 4.000.000 3.500.000 BRAZIL 3.000.000 ton 2.500.000 2.000.000 1.500.000 1.000.000 500.000 0 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 Historical growth of packaging paper in Brazil Source: Bracelpa
2.500.000 2.000.000 BRASIL BRAZIL 1.500.000 ton 1.000.000 500.000 0 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 Historical growth of printing paper in Brazil Source: Bracelpa
More virgin market pulp coming till 2010-2012 (from South America)... Eucalyptus BHKP: 6,700 Thousand tonnes Pine (BSKP): 685 Thousand tonnes BCTMP Acacia: 280 Thousand tonnes Dissolving pulp: 250 Thousand tonnes
Forestry Driving Forces Eucalyptus forests growth rates: ( average Brazilian producers 40 m 3 /ha.year and top clonal forests reaching 60 m 3 / ha.year) In Argentina Eucalyptus grow about 25-35 m³/ha.year; in Uruguay 15-30 depending whether E.globulus or E.grandis; in Chile 20-35 also depending whether E.globulus or E.nitens) In Chile, Pinus radiata grows 30 m³/ha.year; in Brazil, Uruguay and Argentina Pinus taeda has a growth of 25-30. Wood cost /ton of BK Pulp: US$ 65-90 (HW) ; 85-120 (SW) Possibility of adding value along the forest base chain
More market pulp coming to the stream Brazil Aracruz de-bottlenecking the Barra do Riacho mill (+125,000t/y) and Guaiba mill (+30,000t/y) VCP adding extra capacity to the Jacarei mill (150.000 t/y) and planting eucalyptus to build a new facility till 2010 in Rio Grande do Sul ( estimates of 1 million tonnes) Suzano Bahia Sul adding a new plant in Mucuri/BA to raise eucalyptus market pulp from 532,000 to 1,544,000 t/y till 2008/2009. Paper growth will be modest (from 818,000 t/y to 861,000 t/y) Veracel starting 2005 the state-of-the-art mill in Bahia with 900,000 t/y of eucalyptus market pulp
More market pulp coming to the stream Brazil Ripasa: a question-mark after taking over by VCP & Suzano, however it is certain to dry pulp to the market (about 250,000 t/y estimated 2006) Lwarcell; expanding capacity from 120,000 t/y in 2004 to 180,000 in 2005 and 210,000 in 2006 Jari: de-bottlenecking and modernisation in the Monte Dourado mill to grow additional 60,000 t/y till 2008 Bahia Pulp: evaluating expansion of eucalyptus dissolving pulp capacity from 115,000 to 365,000 t/y till 2007/2008
More market pulp coming to the stream Brazil Cenibra: a mill expansion plan has just been started from the today s 960,000 t/y to 1,160,000 t/y. Expected 2006/2007. Brancocel: a project waiting the go ahead, oriented to BCTMP from Acacia mangium (280,000 t/y) in Roraima
International Paper in MS?? Stora Enso in RS?? And more to come soon
Chemicals Forest Wood Mills Pulp to market Logistics in the P&P supply chain Ports Domestic market Exports
Freights and warehousing are very expensive and second class in many cases 20 a 30 US$ / ton of pulp 5 a 10 US$ / ton 35 a 70 US$ / ton 10 a 20 US$ / ton Other raw materials that also demand logistic Estimated US $ 12 a 15 US $ / ton
Pulp price in Europe: US $ 550 / ton Costs in logistic in the supply chain US $ 70 to 110 / ton. 13 a 20 % based on sales price
Today s trends coming from pulp market - Customers are larger and larger, very strict on quality and prices - Logistics is fundamental, and Brazil needs to improve - Technical support must be outstanding - Environmental issues are very much demanded (Forests and mills) - Pressures on production costs everywhere, including at home
Market pulp Causes for success of Brazilian manufacturers a) Supply chain management - Just-in-time - Warehouses in strategic locations b) Product quality -Inovationvia R&D - Quality control - Changes due to new expectations - Modernization on mill technologies c) Technical assistance - Product specifications - Efficiencies in customer manufacturing -Synergies
Market pulp Causes for success of Brazilian manufacturers d) Production scale - Market share - Production efficiency - Ability to select customers e) Social and environmental awareness and commitments - Transparency to stakeholders - Forest certification - ISO 14001 certification - Social responsibility f) Mutual trustiness - long-term reliability
Main challenges for keeping competitiveness a) Structure - Logistics ( ports and vessels) - High level of efficiency and mill modernization b) Conjuncture - Exchange rate (Real x Dollar, Euro x Dollar, Iuan x Dollar) - World economic fragility due to natural disasters, oil price, weak economy on giants, except China - Brazilian risk and country s level of competitiveness (poorer) c) On site needs - operational efficiencies - low manufacturing cost
We have a lot of homework to do, But we are very enthusiastic about our sector
Well, this is all friends. Thank you very much. www.eucalyptus.com.br