Analysis: Why Chile’s major forestry companies are going to Brazil

RIO DE JANEIRO, BRAZIL – They’ve been there for years. But in the last 12 months, forestry companies have stepped up their offensive. Late last year, CMPC completed its divisions in this market, acquiring Iguaçu’s bio packaging assets for US$170 million.

Before that, it had added the Guaíba pulp mill and Melhoramentos Papeis to the tissue business. It has been in operation since 2009.

Last week, Arauco followed suit. After gaining a foothold in Brazil in 2002 with the purchase of LD Forest Products and then acquiring the assets of Masisa, the company will now enter the pulp business.

The Angelini Group company announced an agreement with the government of Mato Grosso does Sul to build a pulp mill worth US$3 billion, which is scheduled to come on stream in 2028.

This will increase production capacity to 7.7 million tons of pulp per year, more than double the current 3.6 million tons. Previously, the company announced the Mapa project, worth US$2 billion, primarily in Chile.

“A company, the size of Arauco, needs to diversify its production geographically, both from a political and logistical point of view, as well as from a customer point of view,” says Charles Kimber, People and Sustainability Manager at Arauco.

However, he flatly denies that he is pulling out of the country or that this decision has been influenced by the constitutional debate or the change of political sign in the government.

“Chile is still our primary market, but for the company’s development, we have to look to the future and see where we will invest the cash flows, where there is good growth, and where there is capacity for industrialization. And Brazil is undoubtedly at the top of the list.

CMPC already has 35% of its assets in Brazil, and Arauco has 5%. “There’s no doubt that the US$3 billion from there will give Brazil a much bigger impact; you have to do the math,” Kimber says.

By 2023, Brazil will be CMPC’s most crucial pulp market. “We have projects in Brazil that will take our pulp production capacity a little beyond what we have today in Chile,” Empresas CMPC General Director Francisco Ruiz Tagle admitted to Pulso a few months ago.

Brazil and Chile are the most competitive countries in developing short fibers (eucalyptus). The government today has several advantages. One of them is nature: the average harvest age for eucalyptus in Brazil is seven years, while in Chile, it is 12 years. In addition, there are other, more structural factors.

“Brazil, like Chile in the 1970s, promoted forestry development with a view to industrialization. And there’s a big incentive for large-scale industries to set up with large investments,” Kimber points out.

And although the corporate tax rate in Brazil is higher than in Chile – 34% versus 27% – there are several tax benefits and exemptions, he summarizes.

But the analysis goes further. CMPC owns 139,000 hectares of plantations there, while Arauco already owns 211,375 hectares. “It’s a country where there is a land where plantations are established, something that is no longer done in Chile; there are no new plantations in Chile, only reforestation,” Kimber says.

He adds, “At some point, forestry had fallen into disrepute. There are fires in Chile; there is a violent situation in part of the south. The incentives are not there. And these are long-term investments.

Kimber says they already manage 60,000 hectares with eucalyptus and will probably double that. And while they know they still have a long road of approvals ahead – environmental regulations, he says, are just as high as in Chile – “there is one difference, and that is that the authority accompanies the project. There’s more certainty, and therefore the deadlines are shorter.

With information from La Tercera