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EXPANSION OF PULP PRODUCTION IN THE THIRD WORLD William Ladrach Zobel Forestry Associates, Inc. zfaforestry.com Allegheny SAF Meeting Roanoke, West Virginia February 16-18 2010 Slide 2 WOOD FURNISH FOR PULP MILLS Outside of North America and Eurasia, the great majority of pulp mills use plantation wood as furnish. Common plantation species used for pulp: Eucalyptus grandis, E. urophylla, E. globulus Clonal hybrids of Urograndis Acacia mangium, A. crassicarpa Pinus radiata, P. taeda, P. caribaea Slide 3 Forest plantations% Asia62 Europe17 North & Central America9 South America6 Africa4 Oceania 2 Total100 FAO 2005 PLANTATION SUMMARY Slide 4 Projected world forest plantation area (from STCP, Brazil) yeartropicaltemperatetotal millions of acres 2005 173 297 469 2010 267 343 610 2015 410 398 808 2020 630 462 1,092 Slide 5 According to PriceWaterhouse Coopers, the world average return on capital employed (ROCE) in forest lands was 4.8% in 2007. In Latin America, industrial forest lands continue to generate income with ROCEs of 9.3% in 2006 and 7.8% in 2007, according to FAO. Slide 6 The US pulp and paper industry is largely composed of widely held companies listed on the stock market and must compete with other sectors (electronics, energy, transportation, pharmaceuticals, etc.) for investors dollars. Slide 7 The US pulp & paper industry has not been generating favorable returns on capital employed in timberlands and has largely divested itself of its forest lands, selling them to timber investment management organizations (TIMO), real estate investment trusts (REIT) and to a lesser degree to limited liability corporations (LLC) and limited partnerships (LP). Notable exceptions: Weyerhaeuser, (closely held public company), Simpson Timber (privately owned) Slide 8 Kraft pulp: wood free pulp or free sheet (all lignin removed), used for fine papers, packaging Semi-chemical pulp: some lignin removed, used as corrugated medium Dissolving (sulfite) pulp, used for acetate, film, rayon Goundwood pulp (GW) wood is ground off of logs, used for newsprint Pressure groundwood pulp (PGW) logs ground under pressure & steam, used for newsprint Thermo-mechanical pulp (TMP) chips ground under pressure and superheated steam, used for newsprint, fiber board (hardboard, MDF) Chemi-thermo-mechanical pulp (CTMP), used like TMP (uses chips, superheated steam & some caustic soda) WOOD PULPS & THEIR USES Slide 9 New pulp mills in Third World countries: Are predominantly kraft mills, producing wood free (lignin free) pulps. Produce short fiber chlorine-free bleached pulps from tropical plantation trees A few produce long fiber unbleached pulps in temperate regions using plantation pines Slide 10 PULP PRODUCTION BY COUNTRY Other countries Slide 11 BRAZIL Existing pulp capacity by state 2009 Slide 12 BRAZIL Slide 13 RATIO OF KRAFT PULPS IN BRAZIL 2008 Slide 14 BRAZIL New and planned pulp mills 1000 mt Murcuri Slide 15 BRAZIL ADVANTAGES Fast-growing tree species High level of forest research to improve tree growth and health Arable land available for more plantations at relatively low cost Trained & motivated work force Favorable wood transport systems Slide 16 University technical & professional support Close cooperation among companies, government, universities Strong economy National Bank for Social and Economic Development (BNDES) supplies financing for industrial development BRAZIL ADVANTAGES Slide 17 BRAZIL According to a report by Jakko Pyry Oy and BRACELPA, the average yield of Brazilian industrial pulpwood plantations is: 40 m/ha/year (8 cords/a/yr) for eucalypts on a 7- year rotation (double the growth in 1970) 30 m/ha/year (6 cords/a/yr) for pines on a 15-year rotation. (The trees are measured over bark) Slide 18 BRAZIL To keep up with growing demands for wood products worldwide, Brazils current tree plantation area of 5.6 million ha (13.8 million acres) needs to be increased to 12.8 million ha (31.6 million acres) during the next 20 years for Brazil to maintain its relative market share in wood products sales. Slide 19 Harvesters produce 6 m (20) debarked wood, over 100 trees/hr, 3 shifts/day, 6 days/week Slide 20 BRAZIL WOOD TRANSPORT Pine transport in Parana State (south) Slide 21 BRAZIL WOOD TRANSPORT Slide 22 Unloading tri-train at Aracruz mill, Espiritu Santo Slide 23 BRAZIL 2009 Fibria was formed by the merger of Votarantim Celulose e Papel and Aracruz Celulose Combined annual pulp production capacity is over 6 million tons, Fibria owns more than 1.3 million hectares of forest land Slide 24 CHILE Region 8 Region 9 Region 10 Chilo Island Slide 25 CHILE 2008 2.14 million ha of tree plantations 1.5 million ha of radiata pine plantations 380,000 ha of eucalypt plantations 70% of the forest products are exported, represent 13% of national exports and reached US$5 billion in 2007, including US$1.6 billion in pulp and paper. Wood and paper products exports are second only to copper. Slide 26 CHILE Celulosa Arauco y Constitucin (Arauco) has a combined annual pulp capacity of 2.2 million metric tons from its mills, four in Chile and one in Argentina. It owns a total of 850,000 ha of tree plantations in Chile, Argentina, Brazil and Uruguay. Araucos largest pulp mill is at Bo-Bo (Region 8), 858,000 tons of bleached long fiber pulp per year. Slide 27 CHILE Advantages Trained & motivated work force University technical & professional support Strong economy Slide 28 CHILE Challenges Lands in Regions 8, 9, 10 for radiata pine are occupied and the potential for expansion is limited. Chilo island requires slower-growing Douglas-fir and cold-hardy N. Am. Pines Topography is rolling to steep, requires specialized harvesting equipment Chile has good forest fire organizations, but radiata pine is highly susceptible to fire damage. Truck haul capacity is limited by topography, roads. Slide 29 CHILE Specialized harvester tilts for operating on slopes Slide 30 CHILE Radiata pine, 22 years old, 100 tall trees Slide 31 URUGUAY New mills 1000 mt Slide 32 URUGUAY Plantations: Eucalyptus globulus, Eucalyptus dunnii Plantations are in northeast and in southwest Slide 33 URUGUAY Slide 34 URUGUAY Advantages Fast-growing tree species Arable land available for more plantations Wood available from Argentina across Uruguay River bridge at Concordia, through MERCOSUR agreements. NE plantations are adjacent to Brazil, wood could move to Rio Grande do Sul to new pulp mills. Slide 35 URUGUAY Challenges Road system mediocre. Poor transport from NE across Rio Negro & Lago de Rincon to Montevideo in South. Encroachment of plantations on cattle lands. Strong antagonism by Argentina to construction of Uruguayan mills on Uruguay River Slide 36 SOUTH AFRICA National pulp capacity 2.3 million mtyp Sappi mills over 1 million mtyp (ground wood & kraft pulp) at Ngodwana (Transvaal Prov.), Mondi 720,000 mtpy kraft mill at Richards Bay (Natal Prov.) 1.5 million ha of plantations, mainly Pinus patula, P. elliottii, P. radiata, Eucalyptus grandis and Acacia mearnsii. Most plantations are in East (Transvaal Prov.), Southeast (Natal Prov.) and South (Eastern Cape). Slide 37 SOUTH AFRICA Slide 38 Sappi owns 464,000 ha of plantations plus 75,000 ha in neighboring Swaziland. Mondi has 430.000 ha in plantations. 200,000 ha of new plantations are planned with additional 565,000 tons pulp capacity. The narrow gauge railroad is used for wood transport, allowing for a larger wood procurement area than with just trucks. Slide 39 SOUTH AFRICA Wood delivered to Sappi mill at Ngodwana by rail Slide 40 SOUTH AFRICA Mondi and Sappi are expanding plantations into Swaziland and possibly into Mozambique to the North. Mozambique has plans to establish up to seven million hectares of tree plantations. The increase in pulp capacity in Southern Africa will depend on increasing the tree plantation area. Slide 41 INDONESIA Installed pulp capacity is 5.3 million mtyp Plantations are primarily Acacia mangium Major mills are in Sumatra, one in Borneo Mill startup has been with natural mixed hardwoods as forests are cleared, then the sites planted with acacias. Slide 42 INDONESIA Slide 43 Slide 44 INDONESIA Challenges Financial difficulties, corruption (Kalimanis Group), national banks holding US$13 billion debt on failed forestry/pulp projects promoted with financial incentives Social antagonism to industry takeover and clearing of lands Resistance by environmentalist to land clearing and conversion to plantations Slide 45 INDONESIA Challenges Lack of trained manpower Lack of professional & technical personnel Lack of university technical support Lack of effective cooperation among companies, universities, government Lack of effective forest research Lack of good transport systems Slide 46 INDONESIA Challenges Effective % plantation area in Timber Estates (HTI) is low due to: Hilly land, organic soils (histosols), swamps Difficulties of adapting mechanized harvesting systems to terrain Growth rate for acacia plantations is relatively low, 20 m 3 /ha/yr (4 cords/a/yr) Slide 47 INDONESIA Felling short wood with chainsaws, hand debarking, shoulder transport of short wood to the road Slide 48 INDONESIA Improperly loaded truck, no binders on load. Labor adjusting wood standing on top of trucks Slide 49 INDONESIA Bi-train 12 wide, 105 ton GVW on company road in Sumatra Slide 50 INDONESIA 11 axle bi-train in Sumatra Detail of 5 th wheel connection GVW 105 tons Slide 51 CHINA Much of the additional world pulp capacity is aimed at sales to China. Approx. five million tons of new pulp capacity is planned or under construction in China. Government plans to establish 5.8 million ha of industrial tree plantations by 2015. Slide 52 CHINA New Pulp Capacity 1000 mt Slide 53 CHINA Slide 54 Slide 55 2007 FAO statistics Pulp capacity: 6 million mtpy Paper capacity: 78 million mtyp Plantations: 31 million ha (2005) (USA 104 million ha in plantations 2005) Slide 56 CHINA Challenges Social challenges of establishing large industrial tree plantations in areas of high population density Difficulties and cost for developing infrastructure for efficient plantation management (roads, fire control, mechanized harvesting) Example: APP mill on Hainan Island Slide 57 CHINA Challenges Large extensions of temperate plantations established with slower growing species like mason pine (Pinus masoniana, similar to N. American red pine (Pinus resinosa), and with cottonwoods. Eucalypts planted in South compete with agriculture for land use Slide 58 CHINA Challenges Hilly topography & distance from coastal populations limits efficient industrial plantation development in the SW. The potential for expansion of tropical species to the north is limited in Hunan, Guandong, and Guangxi due to the continental land mass and winter cold blasts from the North. New pulp mill design capacities are generally lower than most world class mills Slide 59 CONCLUSIONS New pulp mill construction is centered in tropical and sub-tropical regions. New pulp mills are primarily bleached kraft short fiber (bleached hardwood freesheet). Expansion of industrial conifer plantations outside of N. America and Europe is limited. Low-cost wood furnish to mills is crucial to the economic success of the forest industry (fast growth, efficient harvesting & transport). Slide 60 CONCLUSIONS China and Japan will continue to be major consumers of wood pulp due to the differential between pulp & paper production capacities. Brazil has a very large potential to expand its plantation wood base and to increase its pulp production capacity, primarily for export. Indonesia has severe limitations to the expansion of its wood pulp industry. Slide 61 PREDICTIONS China will continue to expand its industrial plantations and pulp industry in spite of significant challenges. Increasing internal demand for pulp and paper will overcome logistical obstacles and relatively higher costs to produce pulp. North American long fiber pulp production is not threatened by international competition, but may be limited in the future by limited wood supplies, aging mill infrastructure and an inability to attract investment capital. Slide 62 ZOBEL FORESTRY ASSOCIATES, INC. zfa @ bellsouth.net END Slide 63 Selected sources of data on pulp & paper afandpa.org (Am. forest and paper assn) andi.com (association of pulp and paper industries) bracelpa.org (Brazilian pulp & paper assn) faostat.org (Food and Agriculture Organization of the United Nations) icfpa.org (international council of forest & paper associations) pulpmill watch.org stcp.com.br (Brazilian consulting company) */some data may vary slightly due to source