Key Facts
— — Arauco plans record capital expenditure of over $3 billion in 2026 and $2 billion in 2027, mostly to complete the $4.6 billion Sucuriú pulp mill in Brazil’s Mato Grosso do Sul
— — Net debt has nearly doubled to 5.15 times EBITDA, putting the company on negative watch by S&P and Fitch as it burns cash during construction
— — The mill will add 3.5 million tonnes of annual capacity, lifting Arauco’s share of the open hardwood pulp market to roughly 10% and potentially generating $1 billion in additional EBITDA
The Arauco Sucuriú project in Brazil has become one of the highest-stakes corporate bets in Latin America’s commodity sector: a $4.6 billion pulp mill that will be the world’s largest when it starts operations, but that first must navigate a period of soaring debt and weak pulp prices without losing the investment-grade credit rating its owner needs to keep financing costs under control. CFO Gianfranco Truffello told Bloomberg on Monday that the world’s third-largest pulp producer plans record investment of over $3 billion in 2026 and approximately $2 billion in 2027 to bring the plant to completion. The Rio Times, the Latin American financial news outlet, examines how the mega-project tests the limits of corporate balance sheets in Latin America’s forest products industry.
Arauco Sucuriú: The Fallen Angel Risk
The construction phase has pushed Arauco‘s net debt to 5.15 times EBITDA, nearly double the level before the project began. S&P Global Ratings placed the company on negative watch in November 2025 — the first step toward a potential one-notch downgrade to speculative grade. Fitch, which rates Arauco BBB (two notches above junk), placed it on negative review in October 2024 and plans to publish an updated assessment this year. A downgrade to “fallen angel” status would make Arauco the first forestry company to lose investment grade since Fitch cut Klabin to BB+ in 2017.
The timing is difficult because pulp prices have not cooperated. Average prices fell more than 15% from their May 2024 peak through year-end, driven by uncertainty over whether Chinese paper manufacturers can raise their own prices enough to maintain margins. Arauco’s profit plunged over 90% last year as a result. S&P initially projected net debt would fall to 4.5 times EBITDA by the end of 2026, but analyst Amalia Bulacios said the agency now sees a slower recovery, with weaker EBITDA and somewhat higher leverage than expected. Fitch analyst Rodolfo Schmauk warned that sustained leverage above five times could trigger a faster downgrade.
The Defense Strategy
Truffello told Bloomberg the company has “a set of contingency measures” to protect its rating. Arauco raised $840 million in hybrid bonds in 2025, instruments that rating agencies typically count as half equity, limiting the measured increase in indebtedness. Parent company Empresas Copec, controlled by Chile’s billionaire Angelini family, has committed up to $1.2 billion in capital contributions over three years. The company also retains the option to sell assets if market conditions deteriorate further, and the project’s $2.2 billion financing — arranged by JP Morgan with IDB Invest, IFC, and Finnish export credit agency Finnvera — is fully secured.
The payoff, if the gamble works, is transformational. The Arauco Sucuriú mill will add 3.5 million tonnes of annual eucalyptus pulp capacity, boosting Arauco’s total sales volume by 67% and lifting its share of the open hardwood pulp market to approximately 10%. BTG Pactual analyst Cesar Perez-Novoa estimates the plant could generate around $1 billion in additional EBITDA once fully ramped up in 2028. Arauco uses conservative price assumptions of roughly $600 per tonne for its projections. The mill, now roughly half complete and on schedule, will be the first major greenfield pulp plant to open since Suzano’s $4.3 billion Cerrado project began operations in July 2024 — and arguably the most consequential bet on Brazilian forestry since Suzano’s own expansion reshaped the global market.
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