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MARKET WATCH

Valor Econômico: Brazilian Packaging Producers Fear Forest Blackout Amid High Wood Prices

Posted by Forest2Market on September 20, 2018

Last week, Marcelo Schmid, Director of Forest2Market in Latin America, was featured in an article in Valor Econômico, the most important business newspaper in Brazil. The article, Preço da madeira pressiona produtor de embalagens, was written by Stella Fontes and was published on September 9, 2018.

We've translated the content of the article into English below.  

 

The Price of Wood Puts Pressure on Packaging Producers; Sector Fears Forest Blackout

The planting of forests in Brazil, especially pine forests, is not keeping up with the pace of timber consumption, a mismatch that is affecting timber prices in 2018, which are at historic highs. Domestic wood packaging manufacturers say their costs have never been under this much pressure. And in two or three years, some see the risk of forest blackout in the country, with potential impact on the supply of raw material for the pulp and paper, panel and packaging industries that use wood in a manufacturing process.

The most critical situation, according to the director of Forest2Market in Latin America, Marcelo Schmid, is with the supply of pine (although supply from eucalyptus plantations also falls short of demand). In the past, according to Schmid, low pine prices disincentivized producers, who returned to growing food or migrated from pine to eucalyptus. Now, with demand especially heated for export, the scarcity scenario has become more likely. "There is a risk of a forest blackout for pine in two or three years."

At the moment, one of the engines of demand for pine products, Schmid says, is the United States. Chinese companies were affected by the ongoing commercial war with the United States, and Brazilian exports ended up benefiting. "The recovery of the European economy also fuels global demand," he says.

Recently, in an event that brought together the country's main pulp and paper producers, Fibria President Marcelo Castelli drew attention to this imbalance. "The forest is not growing as quickly as demand, and forests are not located close to the sources of demand," he said.

According to Castelli, other countries have faced this problem and, in the coming years, the lack of balance in the relationship between supply and demand will come to Brazil as well. Between 2006-2016, pine plantation area in Brazil shrunk 16% to 1.58 million hectares; eucalyptus plantation area grew 31% to 5.7 million hectares.

The value of pine has started to affect the profit margins of companies represented by the National Association of Producers of Pallets and Wooden Containers (ANAPEM). One cubic meter of pine is currently traded between US $180 and $190 (R $750-$780). In the last 12 months, prices increased 19%, the highest valuation ever recorded, according to ANAPEM.

 

ValorEconomicaSOURCE: National Association of Producers of Pallets and Wooden Containers (ANAPEM)

 

Wood, says Marcelo Canozo, president of ANAPEM, makes up about 60% of the costs of packaging production. Other inputs, such as nails and wood fiberboard (OSB), and increased freight also contribute to the upward pressure. In a year, says Canozo, the price of nails, which makes up 5% of the cost of the wooden packaging, rose 34% in the wake of steel appreciation. For freight, the increase has been 100%.

"The producer cannot pass these costs on as it should because the economy is slow. Profit margin is getting smaller, as a result," he says. ANAPEM has 55 manufacturers of pallets and associated wooden packaging, representing about 70% of Brazil's production volume.

 

Topics: forest sustainability, forest sector investments in Brazil, Brazil, paper and packaging

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