South America forest and paper sector a new player on the global scene and leads for return on capital: PwC report

    VANCOUVER, July 5 /CNW/ - South America is emerging as a major global
player in the forest, paper and packaging industry, presenting opportunities
for producers as a supply base and as a growing market for forest, paper and
paper-based packaging products. According to PricewaterhouseCoopers (PwC) in a
new report titled Risks and Rewards: Forest, paper and packaging in South
America, producers in Brazil, Chile, Argentina, Columbia and Uruguay posted a
combined Return on Capital Employed (ROCE) of 9.3% in 2006, compared to a
global average of 5.3% and 1.7% in Canada. Projections indicate that by 2011,
five of the top ten pulp producers will be based in South America, compared
with two at the end of 2006.
    "South American producers have made significant investments in
silviculture and production facilities in recent years," said Bruce McIntyre,
leader of PwC's Forest, Paper and Packaging practice in Canada. "This is
especially apparent in the pulp sector where low-cost fibre has propelled the
region into the forefront as a key supplier of market pulp. North American and
European producers are facing stiff competition in some of their traditional
markets."
    South America possesses the richest forest resources on the planet, with
21% of the global forest area, totalling 832 million hectares. With generally
a favourable climate, fertile soil and abundant land, the continent has some
of the lowest wood fibre costs in the world. Low wood costs have become a
prime competitive advantage in world markets for globally traded forest
products, particularly in pulp. Although home to an array of tropical
hardwoods, commercial interest arises from plantation forests.
    Regionally, Brazil dominates the sector. Its total industrial roundwood
harvest of around 120 million cubic metres annually represents almost 70% of
the region's total. Chile follows with almost 20%. Highly competitive wood
costs, combined with advanced fibre technology and the latest processing
technologies, have built strong wood product and pulp industries. Data from
Resource Information Systems Inc (RISI) shows that in Q4 2006, Brazil ranked
second to Indonesia as the lowest cost producer of bleached hardwood kraft
pulp, with Chile in third place. Brazilian hardwood pulp manufacturing costs
were some 22% lower than those in the US.
    A few non-South American companies - such as Stora Enso, Botnia and
International Paper - are looking to share in these advantages. McIntyre noted
that, "With high costs and other constraints in traditional Northern
Hemisphere producing regions, and with a fibre shortage expected to continue
in Asia, more of the largest pulp and paper companies should consider
investing in pulp production in South America to remain competitive. Foreign
investment is welcome in the region."
    South America has enjoyed increasing economic and political stability.
The most recent data from the International Monetary Fund (IMF) shows that the
region recorded real growth of 5.6% in 2006, just ahead of global growth of
5.4%. With a population of 377 million, the region's GDP per capita (roughly
US$5,000) is still a fraction of that in developed countries. However, with
its mainly urban economies and with rising disposable incomes, the region is
likely to see a rise in per capita consumption of paper and paper board from
the current relatively low levels, presenting further investment
opportunities.
    McIntyre added that in many South American countries the forest products
sector is a growth industry, attracting strong interest from the labour
market. At PwC's recent annual Global Forest and Paper Conference in
Vancouver, one of the speakers, Jose L.D. Penido, CEO of Votorantim Celulose e
Papel S.A. (VCP) in Brazil, noted that his company recently received
approximately 20,000 applications for 150 job openings.
    Harnessing South America's paper and packaging potential also comes with
challenges. There are macroeconomic and social development issues, as well as
regulatory, government and infrastructure barriers which present risks that
counter the several obvious advantages and which, taken together, have acted
as a brake on the region from realizing its economic potential.
    High taxes and interest rates are also impacting productivity and growth.
The World Economic Forum's most recent Global Competitiveness Report placed
Brazil 66th out of 125 countries, below Russia, India and China.
    To obtain a copy of the 48-page report Risks and Rewards: Forest, paper
and packaging in South America, please visit: www.pwc.com/fpp. To arrange an
interview with a PwC spokesperson to discuss the findings of the report,
please contact Jim Nelson, PwC, [phone], [e-mail], or
Carolyn Forest, PwC, [phone], [e-mail].

    PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance,
tax and advisory services to build public trust and enhance value for its
clients and their stakeholders. More than 140,000 people in 149 countries
across our network share their thinking, experience and solutions to develop
fresh perspectives and practical advice. Now celebrating 100 years of
excellence in Canada, PricewaterhouseCoopers LLP (www.pwc.com/ca) and its
related entities have more than 4,700 partners and staff in offices across the
country.

    "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP, an Ontario
limited liability partnership, or, as the context requires, the
PricewaterhouseCoopers global network or other member firms of the network,
each of which is a separate and independent legal entity.

For further information: Jim Nelson, PricewaterhouseCoopers LLP, (604)
806-7047, [e-mail]; Carolyn Forest, PricewaterhouseCoopers LLP,
[phone], [e-mail]