(Bloomberg) -- Growing Chinese demand for toilet paper over the past decade has helped make Suzano SA the world’s top exporter of wood pulp.
That’s changing.
Chinese paper companies looking to produce their own pulp are reducing demand for the Brazilian company’s core product, known as hardwood pulp. That, combined with additional supply coming from new mills in South America, will drive global production above demand through 2028, according to Leonardo Grimaldi, Suzano’s executive vice president for pulp commercial and logistics.
The comments come after Chief Executive Officer Joao Alberto Abreu said in October that business in China is showing some signs of stabilization after further eroding in the third quarter. Suzano relies on China for about 40% of its sales.
“Any new pulp investment project will have a more challenging scenario,” Grimaldi told journalists on Thursday.
Suzano shares are up about 25% in Brazil over the past year.
The company just started up its largest pulp mill in the state of Mato Grosso do Sul. Because the wood used in such plants comes from planted forests that take seven years to grow, now would be the time to start thinking about the next step.
But making plans for adding a new plant has come under question as the potential return would be diminished in a scenario of oversupply and weaker prices, Grimaldi said.
Still, Suzano believes there are possible opportunities. The company’s mills have a low cost of production, while an environment of weaker prices may force other higher-cost pulp producers to shut mills, he said.
Abreu said Thursday that Suzano won’t engage in any “transformational” merger and acquisitions. The company earlier this year attempted to buy International Paper Co., without success.
Smaller acquisitions could still occur. The company is still looking to grow in the US packaging business and sees opportunity for either organic investments or M&A, said Fabio Almeida de Oliveira, executive vice president of paper and packaging.
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