China, Emerging Markets To Fuel Chile's Forestry Industry

SANTIAGO -(Dow Jones)- Increasing demand from China and other emerging Asian markets will drive Chile's forestry industry in coming years, said a panel of industry executives Tuesday.

Chile's forestry sector, which produces wood boards, plywood and pulp, accounts for 8% of global forestry exports. It is also the Andean nation's second-largest exporting industry, just behind mining, and contributes 3% of the country's gross domestic product.

China, meanwhile, is the largest consumer of Chile's forestry products, particularly pulp. As China's economy continues to expand, alongside those of India and other emerging Asian markets, Chile's forestry industry will see significant growth, said Fernando Raga, vice president of industry association Corporacion Chilena de la Madera, at its annual forestry seminar.

"China is an engine for growth," he said.

He added that the United States' weak economic recovery and Europe's instability will ensure Asia's importance over the medium and long terms.

Last year, 14% of Chile's forestry products were exported to China, followed by 13% to the U.S. and 9% to Japan.

In particular, the pulp industry will benefit from increased demand from emerging Asian economies, especially as consumption decreases in more established markets, like the U.S., he added.

"Asia is clearly the most important [pulp] market for Chile," said Franco Bozzalla, corporate director of pulp producer Celulosa Arauco y Constitucion SA, a subsidiary of fuel and forestry conglomerate Empresas Copec SA (COPEC.SN).

Presently, China leads pulp market consumption with demand equaling 90 million tons, he said.

Nonetheless, emerging markets like China and India still see less per capita consumption of pulp, meaning there is significant space for market growth there, the executive said.

Overall demand for pulp is expected grow an average 2% annually in the next several years, driven by an average 4.1% annual increase in pulp demand from Asia, Bozzalla said.

In order to meet growing global demand for wood products, the industry plans to undertake a series of expansions, including the acquisition of 7.5 million hectares of native forest and the planting of 2 to 3 million hectares of new plantations, said Hans Grosse, head of state forestry agency Instituto Forestal.

These investments would raise timber production from 38 million cubic meters in 2010 to 50 million cubic meters by 2025.

In the meantime, Asia will remain its most crucial market, as wood product consumption within Latin America remains limited.

"Our most important market has always been the farthest away," Grosse said.

-By Erin McCarthy, Dow Jones Newswires; 56-2-715-8939; erin.mccarthy@dowjones.com