Brazil's Eldorado starts work on world's biggest pulp mill, also considers integrated tissue plant

TRÊS LAGOAS, June 22, 2010 (PPI Latin America) - The city of Três Lagoas in the Brazilian Midwest has definitely made its mark on the pulp and paper industry map with a project that will make it the largest pulp producer in the world. After Fibria started up its 1.3 million tonnes/yr plant in 2009, the announcement that Eldorado Brasil will build a 1.5 million tonnes/yr bleached eucalyptus kraft (BEK) pulp mill in the city, raises the Mato Grosso do Sul municipality's pulp production to 2.8 million tonnes/yr.

Eldorado's stone-laying ceremony was held June 15, when about 300 people gathered at the site where the mill will be constructed close to the Paraná river. The project will take about 27 months to complete. The infrastructure development is headed by Finland's Pöyry, which was also responsible for building Fibria's facility. The site has room to house two more greenfield pulp lines.

The total investment will reach Real 4.8 billion ($ 2.6 billion). Eldorado's financial director Carlos Rosa said that the investment comprises a Real 2.7 billion loan from the Brazilian National Bank for Economic and Social Development (BNDES) and Real 1 billion financed from international sources, such as national banks in equipments' suppliers' countries. Another Real 1 billion will come from the investors: MCL Participações - owned by Mario Celso Lopes, current Eldorado's CEO - and JBS-Friboi, the biggest meat producer in the world, which is making its entrance on the pulp market through Eldorado.

At the company's first press conference, held at Três Lagoas, Lopes announced that the new mill will be the biggest in the world, and disclosed that tissue paper producers are also interested in having integrated plants there, following the business model employed by Fibria and International Paper in the same city. "We had conversations with domestic tissue paper producers and a multinational enterprise that might be interested in this kind of agreement", he said.

Mato Grosso do Sul's government will give a 90% tax exemption for the project. "We want to be the world's capital of pulp, and we already passed a law about releasing environmental licensing for companies that use degraded lands for reforestation," said Mato Grosso do Sul's governor, André Puccinelli.

According to Lopes, Eldorado already has 40,000 ha of eucalyptus forests and from now on is working to plant 120-130 ha daily in order to keep to its plan to have more than 30,000 ha/yr of forests, the volume necessary to keep the pulp mill working. "We are working with forestry partnerships, and our goal is to own 30% of plantations and establish partnerships to purchase the other 70%," said Lopes.

The group's forests are located in the cities of Três Lagoas, Inocência, Selvíria, Água Clara, Santa Rita do Pardo and Ribas do Rio Pardo.

The company aims to finish infrastructure construction by next February. The first pulp bale should be produced at the end of August 2012 with official startup planned for September.

Lopes also commented that the company will soon open international offices to sell its production, especially in China, which will be Eldorado's main pulp destination: "We believe that the Chinese demand will grow even more, and predict that more than 45% of our future production will be sold to that Asian country."

Great location. Três Lagoas is about 496 miles from Santos port, where the pulp will be exported. Due to that, Eldorado has also to define its logistics system, as there are options through railways, waterways or roads. Fibria has a deal with ALL to use railways. One option studied by Eldorado to reduce costs is a waterway that can send the production close to São Paulo (about 43 miles from the port).

Eldorado's new pulp mill wood yard will have four chipping lines and a circular chip pile. The pulp process will work with oxygen delignification and will be ECF - Elemental Chlorine Free. The mill will also have two pulp driers to reach full production capacity. There will be 10 days of stock inside the unit and 20 days in the port. The evaporation plant will concentrate black liquor in 80% of the total solids volume and the recovery boiler will have high efficiency and low odor emission. The effluents will have triple filtration.

The facility will also be self-sufficient in energy, with two turbo generators producing 220 MW/h of electricity, equivalent to 15% of the power generated by Jupiá hydroelectric station in Três Lagoas. About 85-90 MW/h of surplus electricity will be sold to distributors.

Pulp newcomers. The pulp and paper sector is known for being traditional and avoiding risks, due to its high intensive capital investment. Because of that, the entrance of Eldorado Brasil in the pulp market caused quite a stir in the Brazilian market, as none of the investors have dealt with the sector before.

Mario Celso Lopes has great experience trading lands in the region of Mato Grosso do Sul, with more than 1 million ha personally negotiated by him in the past 30 years. He was born in Andradina, São Paulo state, just 27 miles from Três Lagoas, and strengthened operations with forestry in 2005, with a 30,000 ha eucalyptus forest and a seedling nursery. Partner JBS-Friboi is the biggest meat processing industry in the world, accounting for around $33.5 billion in revenues.

The group's CEO, Joesley Batista, has run the business created in 1953 by his father, José Batista, aggressively, buying JBS-Friboi's major competitors, such as USA's meat producer Swift.

JBS-Friboi's owners are also from Brazil's Midwest and have known Lopes for years because of his businesses in the region. From this friendship came the idea of investing together in the pulp mill.

"Since VCP (now Fibria) came to Três Lagoas, I had eucalyptus plantations, so we started making researches about the sector and its opportunities. We detected an upward trend for pulp in the following years, so it was the perfect condition to invest in a new mill and enter into this big market", explained Lopes. According to him, global pulp demand grows 3% per year, which means a new pulp mill every two years to meet this increasing demand.

To deal with the challenge of entering the new sector, Eldorado hired dozens of employees from Fibria, including board members. The industrial director, Carlos Monteiro, is known as an expert in pulp mill construction and worked in Fibria's Horizonte pulp mill project. The company's sales director, Sérgio Alemeida, previously was a Fibria pulp director. "We started with our plan to build the mill at the right time, just after the merger of VCP and Aracruz [which created Fibria]. Luckily, there were a lot of good professionals in the market and we were able to hire them," Lopes explained.

Eucalyptus in the region. The people of Três Lagoas took long time to believe it when former VCP announced that it was going to construct a big pulp mill in the city. Since 1988, USA's Champion (now International Paper) started to plant eucalyptus in the region, with the promise of building a paper factory that never materialized. In 2007, after dealing with VCP, IP decided to sell its forests in the region and focus just on paper production.

After the agreement, Três Lagoas was finally chosen by IP to receive the group's first paper mill outside the USA because of its natural resources, electricity supply and tax incentives, along with Fibria's project to also build its pulp mill in the same place.

According to Pöyry's senior VP for Industry Business Group, John Lindhl, the city of Três Lagoas still has a lot of good opportunities for pulp production. "But a new line in the region probably will not come out in the next five years, as there will be no eucalyptus available before this period", he said.