CMPC to focus on integrating recent acquisitions in Brazil; challenging costs ahead in 2022

An interview with Francisco Ruiz-Tagle, CEO of CMPC

Iguacu celulose papel - mill.jpeg

With the acquisition of Iguaçu Celulose, CMPC strengthens its presence in Brazil and its packaging division

Iguaçu Celulose Papel, courtesy of MR Minutorural

Chilean group CMPC closed its acquisition of Brazilian packaging paper producer Iguaçu Celulose on Wednesday, December 8, establishing with that move the presence of its three divisions in the country: tissue, through its Softys subsidiary; pulp; and Biopackaging.

The 945.7-million-Reais ($169.3-million) deal, including existing debts, included three production units in the states of Paraná and Santa Catarina, southern Brazil, with annual manufacturing capacities of 105,000 tonnes of pulp, 120,000 tonnes of sack kraft paper and 21,000 tonnes of specialty papers.

Iguaçu also has conversion lines that produce 500 million units of paper bags per year and 11,821 hectares of forestry productive area.

CMPC’s chief executive officer Francisco Ruiz-Tagle stated in an interview with Fastmarkets that the deal is part of the group’s internationalization process, which started 30 years ago and is focused on Latin America.

In the last two decades, CMPC has been posting a strong growth, especially in Brazil, starting with tissue when it acquired Melhoramentos in 2009 and, in the same year, with the purchase of the Guaíba pulp mill.

The CEO said that Brazil is strategic for the company’s positioning as a Latin American multinational, and the country’s political and socioeconomic situation is not defining the company’s long-term view on investments.

CMPC has invested more than $5 billion in Brazil and believes in it in the long run... Brazil is a country where we have been growing and will continue to expand. We have a lot of trust in it and we are very happy that we are now present with our three business divisions there.

The transaction also reinforces CMPC’s strategy toward sustainable packaging, bringing the company’s annual paper bag production capacity to 1.5 billion units, Ruiz-Tagle said.

“Paper packaging products are based on renewable natural resources from planted and certified forests, and are very important in terms of facing climate change. CMPC supports all initiatives based on the science and has included in its environment targets several initiatives related to it. At the same time, paper products meet clients’ demand for plastic substitution; there is great demand for products from natural fibers,” he said.

The CEO commented that, at first, Iguaçu’s acquisition will increase the group’s presence in the paper bag and sack kraft market. There is no initial intention to produce containerboard at the Iguaçu assets.

Iguaçu’s 120,000-tonne-per-year capacity is very interesting for the company. We will look to integrate it with our operations in Chile, Argentina, Peru and Mexico. We currently import a lot of sack kraft, and the world is facing a scarcity of virgin paper. It will be very important to integrate Iguaçu’s capacity with the rest of Latin America.

The executive stated that CMPC currently imports around 40,000-50,000 tonnes per year of sack kraft. Most of that volume should be substituted by Iguaçu’s paper in the future, but current clients should not be worried.

“We also believe there is room for paper machines [PMs] to improve production. We don’t want to suddenly stop serving the markets Iguaçu currently does. We are not thinking of a new PM, but preliminary studies show that we can produce more pulp and improve the paper capacity,” Ruiz-Tagle said.

The CEO stated that Iguaçu’s assets were very attractive because the Brazilian packaging paper producer planted forests that can produce 2 million cubic meters of wood annually.

“It has the wood, paper and conversion. The assets’ locations are also very good, allowing us to strengthen our presence in the state of Parana, where we also acquired Sepac [a tissue producer purchased in 2019] in the past,” he said.

The assets’ integration with CMPC’s other conversion plants across Latin America also currently faces the extra challenge of the logistics crisis, as sack kraft is usually shipped in containers.

“We still notice delays in pulp, boxboard and paper bags due to the crisis at the ports. We cannot establish an immediate logistics to move paper from Brazil to other operations,” Ruiz-Tagle said.

CMPC acquired tissue producer Carta Fabril in November

Iguaçu was CMPC’s second acquisition in Brazil in recent weeks. On November 5, the group closed an agreement to purchase tissue producer Carta Fabril in a 1.13-billion-Reais deal.

Ruiz-Tagle stated that the deal is in line with CMPC’s strategy of targeting opportunities in markets with high per-capita tissue consumption, increasing market share.

Before the acquisition, CMPC had a 20% share in the Brazilian tissue market and will add a further 5-6% with Carta Fabril. It will complement what we currently had and support the company to achieve a more solid position in the country, approaching the south and southeastern regions.

Before the acquisition, CMPC had a 20% share in the Brazilian tissue market and will add a further 5-6% with Carta Fabril. It will complement what we currently had and support the company to achieve a more solid position in the country, approaching the south and southeastern regions,” he said.

With Carta Fabril, CMPC also will improve its personal care business in Brazil.

“We continue pursuing the challenges of having a higher presence also in Mexico and other countries in the region,” Ruiz-Tagle said.

Are more acquisitions on the horizon?

The CEO said that the company is now focused on integrating the two recent acquisitions in Brazil into the group. New deals are not on the horizon now, he said, denying a potential plan to purchase Mili, another important tissue producer in Brazil.

These are speculations that have no basis. CMPC acquired Sepac not long ago; the company has Melhoramentos and now Carta Fabril, which is currently in the CADE [Brazilian antitrust authority] process. We have the challenge to consolidate all of that before any other advance in acquisitions.

Still, the executive confirmed that CMPC is a multinational corporation that keeps its “eyes open” to new business, and it has the obligation to look for opportunities.

“But that doesn’t mean that all opportunities are in our eyes. We are always studying organic and inorganic growth, but we are very focused on our recent acquisitions now,” he said.

2022 will be challenging and expensive

Ruiz-Tagle stated to Fastmarkets that CMPC posted very positive results in the first nine months of this year, despite the logistics crisis that has been causing problems and the strong correction on pulp prices.

“The year of 2021 was definitely much better than 2020,” he said.

Looking forward, however, CMPC will have to face the challenges arising from abruptly rising costs.

We are not talking only about higher pulp and recovered paper costs, but all other costs such as oil, which has a relevant impact in our operation.

The CEO continued, “In 2022, we will be extremely challenged in terms of managing expenses and costs, we will need to be very productive and expect that our mills will be running very well. We have operational efficiency programs taking place in all units. Combined with that, we see that currency in the countries where we operate are devaluating, and with weaker currencies our final results are also affected,” Ruiz-Tagle said.

The pulp price differentiation between the European and Asian markets also is not sustainable, the executive said.

“We note a little bounce in Chinese prices now, due to inflation of costs and the market being more active there, but I don’t see a price rally as we had in 2021,” he said.

In the tissue market, difficulties in passing on costs to the end of the supply chain - raising tissue prices for retailers - are also high.

“In Brazil, the price per tonne of tissue is lower compared with other markets, and there is an important challenge to move prices up. The entire region and this market face the same issue, but margins are pitiful,” Ruiz-Tagle said.

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