Update on South American Forest Products Industry

1
Update on South American Forest Products Industry
Bob Flynn Robert Flynn Associates Presented to
16th Annual International Forest Products
Marketing Conference November 4 5, 1999 SeaTac
Marriott Hotel, Seattle
2
Agenda

• NOT an overview - Due to time limitations, this
  presentation will not be a profile of the entire
  industry. For background on the forest industry
  of South America, see various CINTRAFOR
  publications, World Forest Institute reports, or
  visit web site www.latco.org/flynn
• This presentation will focus on
• plantation-based industry only
• update of trends in exports
• new projects/investments

3
Industry concentration on industrial plantations
is increasing

• Brazil Chile are the dominant players in pine.
• Brazil dominates in hardwood plantations, but
  others have expanded rapidly.
• All plantations privately owned except in
  Venezuela.

4
Major pulp expansions have been delayed for the
past several years

• Brazils production of eucalyptus pulp has
  expanded slowly.
• All major projects have been on-hold for
  several years.
• 100 of Chiles pulp production now owned by two
  companies
• No new projects scheduled for several more years.

5
Chiles sawlog exports have rebounded in 1999,
but still remain at low level

• Chile is the only sawlog exporting country in
  South America.
• Export volume plunged 85 in 1998, but is up
  sharply in 1999.
• Total volume for the year is estimated at
  450,000 m3, mostly to Korea.

6
Pulplog exports up in some countries, but prices
remain low
Eucalyptus pulplogs are exported to Europe and
Morocco. Radiata pulplogs go to Japan.
7
Production of wood-based panels expanding in
Brazil and Argentina

• Planned MDF projects
• Brazil - Placas do Parana
• Brazil - Masisa
• Brazil - Tafisa
• Brazil - Satipel
• Venezuela - Terranova
• Planned Particleboard Projects
• Argentina - Mario Savia
• Argentina - Faplac
• Brazil - Satipel
• Venezuela - Terranova
• Others
• Argentina/Chile --- Arauco???

8
Chiles MDF exports have stalled, but plywood is
up sharply

• MDF exports fell in 1998 due to Asia collapse,
  but have rebounded.
• Araucos new radiata plywood mill is exporting
  clear-face, sanded panels to the US and Europe.
  They will likely build another plant by 2001.
• Most particleboard used in domestic furniture
  industry, as in Brazil.

9
Chiles radiata pine harvest will continue to
expand

• Chiles harvest more than doubled between 1985
  and 1995.
• New forecast from INFOR anticipates available
  volume of 25 million m3 by 2005.
• Most of the increased volume will be sawlogs,
  requiring major new investments in processing
  facilities.

10
The expansion in Chiles pruned log harvest has
just begun

• Intensive pruning did not begin in Chile until
  the early 1980s.
• Markets for radiata clear wood too small to
  absorb all the supply from Chile and New Zealand.
• One possibility more radiata pine plywood.

11
The eucalyptus harvest in Chile will expand, but
much more slowly than anticipated

• Eucalyptus plantation area tripled between 1990
  and 1996.
• Planting has slowed in recent years due to high
  land costs, and poorer than expected yields
• Harvest forecasts have been revised downwards.
• More E. nitens will be available in the future,
  as this species has replaced E. globulus in
  frost-prone areas.

12
US imports of softwood lumber from Brazil and
Chile are at record levels

• Between 1996 and 1998, US imports of softwood
  lumber from Brazil increased 106, from Chile
  75.
• In the first half of 1999, imports from Chile
  surged 73, and were up 18 from Brazil.
• Imports from Chile and Brazil have primarily
  gone into moulding and millwork applications,
  plus fencing boards from Brazil.

13
US softwood moulding imports from Chile and
Brazil are also at record levels

• Between 1996 and 1998, US imports of softwood
  moulding from Brazil were up 180, from Chile up
  116.
• For the first six months of 1999, imports were
  up an additional 23 from Brazil, 13 from Chile,
  compared with the same period in 1998.

14
Chile continues to emphasize exports of
value-added products

• Chilean exports of moulding, doors windows,
  surfaced lumber and furniture increased from less
  than US100 million in 1992 to 333 million in
  1997.
• Exports declined in 1998 due to weakness in
  Asia, especially Korea.
• Exports have rebounded in 1999, and may reach
  US400 million.

15
The lumber industry in Brazil is entering an
important transition stage

• Major new sawmill projects include
• Klabin/Boise Cascade
• Terranova
• Arauco (in NE Argentina)
• Tafisa ???
• Champion ???
• Pisa ????

16
Brazilian pine plywood exports have taken Europe
by storm

• Plywood exports have been primarily hardwood or
  combi panels (pine core).
• Hardwood plywood exports to the USA declined 52
  in 1998.
• 85 of Pine plywood is exported.
• In 1999, most of the European coniferous plywood
  duty-free quota was supplied by Brazil.

17
Uruguays plantation incentives have been highly
successful

• The area of industrial plantations in Uruguay
  increased from less than 50,000 hectares in 1990
  to more than 360,000 ha in 1998.
• World Bank-sponsored incentive program helps pay
  the cost of establishment, and land prices have
  been relatively low.
• Species are 40 E. globulus, 35 E. grandis, 8
  other eucs, 15 P. elliottii and P. taeda, 2
  salix/poplar.

18
Uruguay has attracted major foreign investment
from Europe and N. America

• Shell/Kymmene - (UK/Finland) eucalyptus
  plantations
• West Fraser - (Canada) eucalyptus plantations
• Ence - (Spain) eucalyptus plantations
• Weyerhaeuser - (USA) pine plantations
• Cholguan - (Chile) pine plantations
• CMPC - (Chile) paper (IPUSA - a tissue mill)
• Trombini - (Brazil) box plant
• Private investors in plantations - USA, Chile,
  other?

19
Argentina has ambitious plans for expanding
plantation base

• Planting rate has surged to an estimated 100,000
  ha in 1998.
• Through recent improvements in plantation
  incentive program, the government hopes to
  promote establishment of 200,000 ha per year.
• New planting has been largely pine, but
  eucalyptus also increasing.

20
Argentinas forest industry has a strongly
negative trade balance

• Argentinas strong currency, tied to the US,
  has made it very difficult for exporters.
• Biggest deficit is in pulp and paper, coming in
  from Brazil. This was likely worse in 1999, due
  to devaluation in Brazil.
• Exports have been primarily pulplogs, and some
  wood-based panels.

21
Venezuela - development of the forest industry
has been painfully slow

• More than 500,000 hectares of Caribbean pine
  plantations
• Most plantations owned by CVG Proforca, regional
  government corporation
• History of large project announcements, no
  follow-through
• Stone chip project abandoned
• Trillium OSB --- highly doubtful
• Terranova --- MDF and particleboard---- can the
  Chileans deal with the government corruption and
  instability??

22
Will gmelina plantations in Central America be
utilized?

• Stone plantations in Costa Rica sold to local
  staff---- but markets still questionable.
• Simpson plantations in Guatemala still for sale,
  some processing options being explored.
• Outlook for woodchip exports poor, but furniture
  components a possibility.

23
Eucalyptus - Progress in Higher Value
Utilization???

• Companies from Brazil to Thailand exploring
  various options to utilize Eucalyptus plantations
  for lumber, flooring, furniture, plywood, LVL,
  etc. Developments driven by
• Decreasing availability of hardwood from
  traditional sources
• Oversupply of Eucalyptus and low prices for
  pulpwood
• Disappointing returns from investment in
  pulpwood-only projects
• Advances in genetic breeding programs and
  developments in processing technology
• Environmental concerns and forest certification

24
Questions?
Robert Flynn Associates PMB330, 6824 19th St.
West Tacoma, WA 98466 email bflynn_at_aa.net email
bobgflynn_at_aol.com website www.latco.org/flynn