CMPC Expects Pulp Prices to Recover in the 4Q19

Chilean pulp and paper conglomerate CMPC told analysts during its Investor Day, held in Santiago city in mid-June that the company has a positive view on the pulp market’s recovery, while it’s also preparing for organic growth over the long run. The company presented projections of the pulp market where they expect a third quarter with flat prices and then a recovery in the last three months of 2019.

“Pulp demand in China is in its normal level, but there’s not an ‘over demand’ to cover the excess of supply available in ports, so it becomes a risk for pulp prices. The good news is that a large Brazilian producer will take downtime of about 1-1.5 million tonnes, which will alleviate and reduce high inventories,” the company reported.

CMPC’s presentation showed that during 2019-2022 there is no significant new supply in the pulp market besides the MAPA project from Arauco and “therefore there is going to be a bigger gap than in previous years, between demand and supply,” expecting that hardwood fiber demand should grow at a faster pace. For the company, China will be the region that leads the growth in both fibers.

To support its positive view over the pulp market growth for the future, CMPC told analysts that it has started to create a forestry fund in Brazil to prepare for organic growth. The company didn’t detail, however, how many ha of new forests it plans to add in the upcoming years or investments.

A report from Bradesco bank also noted that timing for a new pulp mill was not provided by CMPC’s management, but the bank considers that this potential investment could materialize in the long run, likely after 2025. “In addition, the company is considering investing in the modernization of its Laja mill, expanding its 360,000 mtpy of bleached softwood kraft pulp (BSK) capacity by 50 percent (+180,000 mtpy). This potential expansion in particular could be approved already in the second half of 2019,” the report said.

CMPC also discussed opportunities for its tissue business, named Softys. The company is looking into increasing tissue capacity and market share in Mexico and Brazil. Mergers and acquisitions in those countries are a possibility.

Regarding possible M&A in Brazil, the company said that it sees opportunities, as the tissue market in the country is still very fragmented. “It will consolidate and require capacity,” CMPC stated in its presentation to investors and analysts.

In the short term, macroeconomic headwinds and currency depreciation in different Latin American countries continue to affect Softys’ results. The company highlighted the negative impact of currency devaluation in Brazil, Argentina and Chile and pointed out macroeconomic instability due to discussions such as the pension’s reform in Brazil and the labor reform in Mexico.

The company sees long-term opportunities in segments such as “away from home” and diapers, as consumption in Latin America is lower than in developed countries. Softy’s CEO Gonzalo Darraidou presented data showing that market penetration for tissue in bars, restaurants, hotels and other businesses reaches only 20 percent in Latin America. In developed countries, this rate is 30 percent.

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