A new pulp mill in Uruguay?
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May 18, 2009 - Stora Enso and Arauco have signed a definitive purchase agreement with the Spanish pulp producer Grupo ENCE for the joint acquisition on a 50/50 basis of approximately 130,000 hectares of owned land and plantations, 6 000 hectares of leased lands and other operations owned by Grupo ENCE in the central and western areas of Uruguay.
The value of the deal is US$344 million (EUR 253 million), including US$33 million of assumed debt.
Stora Enso and Arauco intend to combine their existing assets in Uruguay with the newly acquired operations.
"This is an important step for Stora Enso, given that cost-competitive plantation-based pulp is a cornerstone of our strategy," said Jouko Karvinen, CEO, Stora Enso.
"Joining forces with Arauco gives us a total land base of approximately 250 000 hectares, nearly half of which is planted with hardwood and softwood. In one step, this transaction will secure the strategic raw material supply for a world class pulp mill in Uruguay that we are planning jointly with Arauco," said Karvinen.
However, Karvinen cautioned that it is much too early to talk about contruction of a pulp mill.
"No decision on building the mill has been taken yet. The mill investment decision will be based on appropriate feasibility and investment studies, and market conditions, and require formal approval by both partners and Uruguayan authorities,'' Karvinen said.
After the transaction Stora Enso and Arauco together will be the largest private landowner and one of the largest owners of plantations in Uruguay.
Stora Enso said both partners are committed to sustainable plantation management. ENCE's plantations have received FSC (Forest Stewardship Council) certification, and both Stora Enso and Arauco will continue to work towards FSC certification of the new joint-venture operations.
The deal with ENCE also includes mill sites under development at Punta Pereira and M'Bopicua, a port and barge terminal, a woodyard and chipping plant and a nursery.
ENCE will retain its Atlantic region forestland, a related shipping terminal, a sawmill and, in Montevideo, a chipping plant with woodyard as its sole operations in Uruguay.
The deal is expected to close by the end of 2009.
Arauco is one of the largest forestry companies in Latin America.The company manufactures 3 million tonnes of market pulp, 3.4 million cubic metres of sawn lumber and 2.6 million cubic metres of wood panels per year. It holds forestry operations in Chile, Argentina, Brazil and Uruguay and sells its products in more than 60 countries, with total sales in 2008 of US$3 689 million.
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Issue date: May 18, 2009
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May 28, 2009
Implications
Arauco has already expanded in its own home country of Chile about as much as it can in light of limited tracts of land for new plantations. Previously they purchased the Alto Parana mill in Argentina but expansion there may be limited by an uncooperative government. So....they entered into a joint venture with the Finnish conglomerate Stora Enso to acquire all of Ence's land in central and western Uruguay. These 250,000 hectares (750,000+acres) are already planted in eucalyptus and pine trees. It stands to reason that this land is ideally suited to supply a new (probably) 1.1-1.3 million mt/year market pulp mill. Stora Enso has already announced it. Stora Enso, a decade ago, built the Veracel mill in Brazil through a joint venture with Ara Cruz. This mill was to be doubled in size this year. S-E also had said years ago they wanted to build a greenfield mill in the southern State of Rio Grande do Sul. Now this mill may never be built.
Analysis
Arauco already is a major producer of bleached and unbleached Radiata Pine market pulp softwood and bleached eucalyptus (3 million mt/year). Their customers in China, Indonesia and other Pacific Rim countries (60 countries in all around the world) are asking for more Radiata Pine softwood since Canadian supplies are decreasing. Since Chilean farmers would rather plant fast growing eucalyptpus it has been difficult to acquire more wood for any new softwood pulp capacity. What better place than nearby Uruguay where a large tract of land was available? However, a new pulp mill today will cost between $1.3 and $1.5 billion US dollars. Financing could be a problem. This problem could be alleviated if a suitable partner could be found.
Here's where Stora Enso proved to be the perfect partner. They already have paper mills in China needing softwood to run their machines. The needed eucalyptus portion has been coming (450,000mt/year of it at least) from Veracel in Brazil. Since Arauco would no doubt be desirous of making the new mill in Uruguay a part softwood mill, this would help solve that supply problem. And, if the mill was located in western Uruguay, inland transportation costs to west coast sea ports would be less than having to go through the Panama Canal.
While nothing definitive as to timing or details has been said about their plans to build a new greenfield market pulp mill, it all makes so much sense that it seems only a matter of time before one is announced. The needs of both companies will be abundantly served
There is some other new movements on pulp-mill market in South America:
2009-07-29: Also, Suzano is moving ahead with its plans to build a new 1.3 million tonnes/yr pulp mill in Maranhão and another one in Piauí, both in Brazil. The company already signed logistics contracts to assure the transportation of the new pulp mills to the port.
On the tissue side, Chilean CMPC on June 1 officially took control of Brazil's Melhoramentos tissue operations and is already working to integrate the two companies' processes and management. According to sources, CMPC has investment plans for the Brazilian operations, but the company does not confirm it. CMPC is investing in tissue projects all over Latin America, including Mexico, Colombia and Ecuador.
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