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  • New High Prices in Pulp and Paper Industry

    2010 - 05.06

    The pulp and paper sector will finish this quarter as it started, by adding substantially to its list price. The largest producer, exporter and recycler of paper in Brazil is Klabin and they are expected to increase their market share from Kraft paper, paperboard and corrugated cardboard. According to Reinoldo Poernbacher, the director general of the company, the increases of 12% that were announced in April will also be applied throughout the months of May and June.

    “The outlook at present is high,” says industry analyst at Paper Pulp Link Investments, Leonardo Alves.

    Like many sectors the pulp and paper sector was hit by the recession. However, according to the balance sheet released this week Klabin saw its net profit grow by 6% in the first quarter of 2010, compared to the same period last year. The company’s profit was R$31 million versus $29 million from January to March 2009.

    With these increased sales the company can be forgiven for believing that the dark days of recession are over. Well at least for them anyway. “The crisis does not exist in our company, this period is behind us,” says the director-general.

    It would be wise though not to get too complacent, this result fell far short of the estimates provided by the industry analysts. On average the forecast of realised net income was R$37.6 million, which was 22.5% higher than the figure released by the company. According to Sergio Alfano, the CFO of Investor Relations, the exchange rate was the reason why the profit was positive but still lower than expected.

    During the previous quarter of October to December 2009, due to a reduction of debt with the IRS under the Tax Instalment Programme, Klabin recorded losses of R$185 million. Net revenue totalled R$844 million, an increase of 17% compared with the performance recorded in the first quarter of 2009. Earnings before interest, taxes, depreciation and amortisation or EBITDA was R$242 million, which was 35% higher than that of the year before.

    Despite the encouraging signs the Brazilian Association of Pulp and Paper (Bracelpa) still do not believe in the complete recovery of the sector.

    “In our assessment, the sector will only come out of the crisis in 2011, but this year will be better than last year. This year the focus is on reducing costs and value of products in the domestic market,” said Elizabeth Carvalhaes, President Executive Bracelpa. But the industry is optimistic about this year.

    “The pulp and paper closes the first quarter of 2010 are better than those recorded in the pre-financial crisis and indicative of maintaining this good performance during the year,” concluded the president.

    The Chinese market became the main buyer of pulp in Brazil, as stated by CEO of Bracelpa.

    “To have an idea in 2009, the procurement volume in China saw an increase of 128% compared to 2008. Exports totalled 2.8 million tons last year,” he explains.

    In the case of Klabin, export accounts for 25% of net revenue of the company, however it is unknown how much of that amount is sent to the Chinese market.

    The Timber Investment Blog is sponsored by Greenwood Management. For more information on investing in Forestry please click here

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