The case for expansion at many Brazilian pulp and paper mills is strong, but which mills are likely to make the first moves

by Patrick Knight

Strong belief in Brazil boosts expansion activity

With economic storm clouds still gathered over Asia, the pulp and paper industry's focus of attention has moved back to Latin America - and in particular to Brazil. With demand for market pulp continuing to grow steadily, plans to build new mills and to expand existing ones are firming up and in some cases being brought forward.

Three such projects will result in an additional 1.2 million tons of short fiber pulp becoming available for export from the second half of 2001, representing a 50% addition to current output. Further decisions over the next two years could result in two or even three additional pulp mills and several new lines being built. This would result in an extra three million tons of pulp being made available early next century. Of course, this partly depends on the prevailing market conditions and the completion of negotiations over the control of several Brazilian mills.

Veracruz on track

The alliance formed between Odebrecht and Stora last September is steaming ahead. The plan is to build the new 750,000 ton/yr Veracruz pulp mill close to both Aracruz and Bahia Sul in the south of Bahia state. By the middle of the year the project budget, reportedly reaching $1,500 million, will be finalized and preparations will be made to order the main pieces of equipment.

The Swedes already have a team in Sao Paulo, where Veracruz's headquarters are to be set up. According to the company's chief executive, Nils Grafström, Veracruz will be the largest single-line pulp mill in the world, with a nominal capacity of 750,000 tons/yr of ECF pulp. Greater production rates are expected soon after startup. With a planned building time of 24-26 months, the Veracruz mill should start up in the second half of 2001 with contracts being signed during 1999.

The Veracruz project (50% owned by Stora and 50% by Odebrecht) owns 110,000 ha of forest holdings, of which 30,000 ha are already planted. These holdings will eventually be increased to 160,000 ha, of which half will be planted.

One of the many advantages that Veracruz has over its neighbors is that its plantations are extremely large and concentrated, ensuring that the average distance between the plantations and the mill gate will be just 56 km. This is expected to keep the mill's forestry operations at a very low cost and will allow Veracruz to manage without a stock of logs at the mill. But it is planned for four days worth of chips to be kept at the mill. According to Veracruz's project manager, Anders Borg, the chips will be so fresh that quality should be slightly higher than usual.

Prudent planning

The major driving force behind the project's planning will be to ensure that Veracruz avoids the delays and labor difficulties which have greatly increased building costs (and company debts) at other greenfield mills in Brazil over the past few years.

To achieve this, the largest possible pieces of equipment will be assembled at manufacturers' workshops both in Brazil and abroad and will be taken by barge to a shallow water port, to be built 40 km from the new mill. Components weighing up to 200 tons will be brought this way, helping to cut on-site assembly work to a minimum and therefore reducing manpower and associated problems. "Getting this right will be top priority," says Borg.

But Veracruz's trump card will be the cost of the wood at the mill, as the actual cost of a new pulp mill varies little wherever it is built in the world. Yields on Veracruz's plantations will be among the highest in Brazil, as the performance of some Bahia Sul and Aracruz plantations in the vicinity demonstrate. This is mainly because more rain falls in this area than in plantations further south.

This means that a smaller area will be needed to produce the same quantity of wood, helping to cut transport costs to a minimum. This could prove to be a big cost advantage for the mill, which will export more than 80% of its pulp. Because the nearest deepwater port is some distance away, Veracruz pulp will be barged either to the port of Ilheus, or an offshore terminal, should the company decide to build one.


Champion will focus its efforts into improving performance at Inpactel

Technically speaking

It has not been decided whether the mill's state-of-the-art digester will operate on a batch, superbatch or continuous basis, but the process will involve a two-stage oxygen delignification process. Grafström explains it was decided to make exclusively ECF pulp due to both market and quality considerations.

Details of the mill's bleaching sequence have still to be finalized, as have details of chemical supply - a crucial issue given that the mill is far from the nearest chemical manufacturing plants. The determining factor will be what is considered best for the long term strategy of the mill, particularly because provision is already being made for a second stage to be built at the mill later.

According to Borg, Veracruz will be self-sufficient in energy, meaning that a power boiler and turbo-generators will be needed. Decisions regarding the most appropriate effluent treatment process also still have to be made.

New lines

As work gets going at Veracruz, two other companies in Sao Paulo state, Votorantim Celulose e Papel (VCP) and Ripasa, plan to increase their pulp production during the same period. VCP plans to add an additional 200,000-250,000 tons of pulp making capacity. This follows the startup of the new pulping facilities at its Jacarei mill in the second half of 1997, which raised total output to 800,000 tons/yr. This will result in 200,000 tons of additional market pulp being exported from Brazil this year.

According to VCP's chief executive, Raul Calfat, the project cost will be between $200-250 million and will require new washing and bleaching facilities as well as a new turbo-generator. The digester already has sufficient spare capacity to cope with such an expansion.

The group decided to increase production at Jacarei, rather than at the newer, integrated mill at Luis Antonio, which is located some 300 km inland from Sao Paulo city. One of the main factors has again been the very high yields on the plantations adjacent to Jacarei, compared to lower yields further inland. Jacarei is also closer to a port than Luis Antonio, which is important given that most of the extra pulp will be exported. Calfat explains that VCP will only increase capacity at the Luis Antonio mill when capacity cannot be increased further at Jacarei.

The storage and loading facilities which VCP acquired at the port of Santos have helped to virtually eliminate the heavy "Brazil cost" which has traditionally handicapped exporters from Brazil. According to Calfat, costs at Santos are now internationally competitive. This year some 250,000 tons of VCP's market pulp will be exported (split evenly between Europe, Asia and the USA) as well as approximately 200,000 tons of mainly printing/writing paper grades.

Last year VCP was reported to have had talks with Ripasa about a possible amalgamation. Calfat predicts that major moves will occur within the next two or three years, but he believes that finding the appropriate formula will not be easy due to the fact that ownership of many companies involves several families.

Ripasa itself has firm expansion plans. According to the company's chief executive, Osmar Zogbi, capacity at the company's Limeira mill is to be increased by 150,000 tons and will involve the building of a large new recovery boiler. Virtually all the extra pulp is to be exported.

According to Zogbi, who is also president of the National Association of Pulp and Paper Manufacturers, the pulp and paper industry in Brazil has been through difficult times in the past few years. This is one reason why the finance needed to maintain the country's share in export markets has not been forthcoming. Pulp and paper exports from Brazil have also been handicapped by an overvalued currency.

Making their minds up

In contrast to Veracruz, VCP and Ripasa, Companhia Vale Do Rio Doce (CVRD) still has to decide on the fate of its pulp and paper holdings. It is a major shareholder in the heavily indebted Bahia Sul integrated mill as well as in the Cenibra mill. It also owns a large majority of shares in the Celmar project where there are plans to build a 750,000 ton/yr pulp mill. A number of pension funds now own the majority of CVRD shares, but several have different views as to what policy should be.

Another company with unconfirmed plans is Aracruz. It is considering whether to construct a new 500,000 ton/yr line, either at its existing mill, or nearby. A new line at the Cenibra mill is also on the horizon. A decision to expand Bahia Sul will depend on progress being made to reduce its large debt, which stands at some $1,000 million - similar in size to the value of the company's assets.

Mato Grosso delayed again

Long standing plans by Champion to build a new greenfield mill in Mato Grosso state have again been put on hold while the company comes to terms with its purchase of the 150,000 ton/yr, lightweight coated "Inpacel" mill in Parana state. It bought the mill in January for $350 million, which included outstanding debts, mainly with the National Development Bank.

The company has 72,000 ha of land put aside for the Mato Grosso project of which 75% is planted with eucalyptus. According to the company's chief executive, Odair Garcia, an evaluation of the Mato Grosso project will be complete in September. In the meantime, most of Champion's management time will be devoted to improving performance at Inpacel, as well as on the completion of a $35 million project at Mogi Guacu.


A new line is on the Horizon at Cenibra.

Of the 50,000 ha of planted pine at Inpacel, only an estimated 30% is being utilized, explains Garcia. So on top of mill optimization and investigations into the possibility of installing a second paper machine, Champion will also attempt to maximize the potential of its forests.

As a leading producer of coated papers in the USA, Champion hopes to bring its international experience to bear at the Inpacel mill. Garcia points out that the mill already has the capacity to supply half of the total Latin American consumption of lightweight coated paper, or all of Brazil's domestic consumption. But Champion will continue to export some 50% of Inpacel's production, as it does with paper from Mogi.

As most of Inpacel's exports go to other countries in Latin America, where Champion already sells much of its printing/writing paper, synergies will be sought in orders to make savings.

As well as its interests in southern Brazil, Champion continues to plant eucalyptus on the large holdings it has acquired in the northernmost Brazilian state of Amapa - adjacent
to the large pine holdings it acquired from Caemi two years ago. According to Garcia,
an estimated 600,000 tons of pine chips are now exported annually from Amapa, mostly to Japan.

These holdings could enable Champion to build a mill in this region in 10 or 20 years, if it felt the time was right. Champion would benefit from the fact that Amapa is several days less sailing time to Europe, North America and Japan than other mills in Brazil.