Brazil paper and pulp sector hot for loans to grow

Reuters, 04.02.03, 4:37 PM ET In SAO PAULO story headlined "Brazil paper and pulp sector hot for loans to grow", please read in fifth paragraph ... at least $1 billion ... instead of ... at least 1 billion reais ($302 million) ... (corrects figure to dollars from reais). A corrected version follows: By Cesar Bianconi SAO PAULO, Brazil, April 2 (Reuters) - Brazil's paper and pulp sector is at almost full capacity and the industry is looking to the National Social and Economic Development Bank (BNDES) for help to fund their expansion. The hunt for financing has also taken on a new urgency as pulp prices are on the rise. The price of a tonne of pulp has risen 17 percent since the start of the year to $540 in April. The Brazilian Paper and Pulp Association (Bracelpa) says that is due to poor weather in the Northern Hemisphere that has slowed the delivery of timber to plants. Top executives say the U.S.-led war in Iraq has not spoiled the party in Brazil either. "So far we are not feeling any significant direct impact (from the war)," Miguel Sampol Pou, the director-general of leading paper company Klabin <KLBN4.SA>, told Reuters. "We have our sales volumes sewn up. There has only been a slight rise in freight costs to some destinations." Bracelpa President Osmar Zogbi, who is preparing a sector outlook for the government of President Luiz Inacio Lula da Silva, says the sector requires annual investment of the order of at least $1 billion. "We are finishing a study of the next 10 years, showing what investments are necessary, the potential, the opportunities, the obstacles," he said. "It will be delivered at the end of April, depending on Lula's schedule." Bracelpa expects annual Brazilian paper production to rise to 8 million tonnes in 2003 from 7.7 million tonnes in 2002, and pulp production to increase to 9 million tonnes from 8 million tonnes, but forecasts weakness in demand in Brazil. "The local market for paper is a little weaker than it was last year, which is why the companies have made a big export drive," Zogbi said. A recent study by the Institute of Study for Industrial Development, or Iedi by its Portuguese acronym, said the paper and pulp sector would be the recipient of the greatest investment in the industrial sector. Unibanco paper sector analyst Simone Risoto said time was not critical but that the clock is ticking closer to when the industry will be operating at full capacity. "I don't know if it will reach the limit in 2003, so it isn't a problem yet, but it could become one," she said. ARACRUZ AND SUZANO HEAD TO TO BNDES Calos Lessa, the new president of the BNDES, which has loaned 2.4 billion reais to paper and pulp firms over the past two years, has made it clear that the bank will offer credit to sectors that generate revenue and are close to their output capacity. Aracruz Celulose <ARCZ6.SA> (nyse: ARA - news - people), the world's biggest producer of bleached eucalyptus pulp, is currently studying building a $1 billion plant in the northeastern state of Bahia in a 50-50 venture with Finland's Stora Enso <STERV.HE>. The Brazilian company has started negotiations with the BNDES for a loan that will add to its own cash and external financing to help pay for its stake in the Veracel plant. "I am going to begin those talks because the BNDES has gone through changes," said Carlos Aguiar, the president of Aracruz, adding that the deal was expected by the end of June. "I think Veracel means everything the new government wants: exports, jobs, and a foreign partner," he said. The company's pulp is used to make a variety of paper, from letter-writing pads to toilet tissue. Rival Suzano <SUZA4.SA>, which invested $150 million to expand a plant over the past two years, says it is carrying out a feasibility study on an $800 million plant. Murilo Passos, the company's director, told Reuters the "relationship with the BNDES is very good. We have some projects with the bank."