Klabin sees Brazil demand for corrugated board rise due to lower basic interest rate, CFO says

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Source: Fastmarkets paper packaging

Demand for corrugated board in Brazil must be increased by further reducing the country’s basic interest rate (Selic), which has come down by 0.5 percentage point for the first time in three years, influencing packaging consumption, according to Marcos Ivo, Brazilian producer Klabin’s chief financial officer,

Ivo was speaking in a live-streamed event promoted by capital markets portal InfoMoney on Thursday August 3.

“This sector is directly affected by currency cycles, so if the scenario shows a reduction in the Brazilian Selic basic interest rate, this improves consumption, more packaging paper is needed, and the national demand for corrugated board increases, which will benefit us,” he said.

On August 2, the Monetary Policy Committee (Copom) of Brazil’s Central Bank reduced the Selic rate by 0.50 percentage point, to 13.25% per year from 13.75%. This was the first decrease since August 2020.

During the interview, Ivo laid out the company’s strategy through a new monetary cycle in the country, including investment forecasts and price expectations in the coming months:

Chinese prices for Bleached Hardwood Kraft (BHK), one of Klabin’s commodities, are at a low point, almost in a period of stability, he said.

“The Bleached Hardwood Kraft price, China basis, reached $470 per tonne in the second quarter of 2023. Today, this price is already around $500 per tonne,” he said. “Now, no price below that seems possible, due to the cash costs for producers.”

As a short-term forecast, Chinese prices are likely to stabilize around the $530 per tonne range, which Klabin may take as a reference. “It’s a low base, but that’s what we see due to some weak regional demand and new production capacities in the sector,” Ivo said.

In this scenario, Klabin sees an opportunity to benefit from two other products: softwood pulp and fluff, which it also produces. “In these markets, the dynamics are different. The fluff price remains high and signals stability, meaning that the average price of pulp sold by Klabin is not as affected as BHK.”

The boxboard paper sector remains stable at a good level, 15% higher in the first six months of 2023 than in the corresponding period last year.

Meanwhile, Kraftliner prices are more affected by the slowdown in the worldwide economy, which, according to Ivo, is reflected in Klabin’s results.

“There are signs of improvement in the price and demand for Kraftliner around the world,” he said. “We can see Klabin customers adjusting stocks and buying again, but it is slow.”

For the second half of 2023, Klabin does not see any relevant changes in these markets, and everything should remain stable, Ivo said.

In terms of investment, Ivo said that Klabin’s investments will be substantially smaller for the next year.

“We’ve had relevant disbursements recently, due to the PUMA Project, so, having reached this final operational stage, investments will reduce – which will benefit the company’s cash flow,” he said.

Now, Klabin must focus on completing the Puma II project, which consists of building two new paper machines, PM27 and PM28, at the Ortigueira unit in Paraná.

PM27, the project’s first paper machine, had its start-up in 2021 and is still in the ramping-up phase. “The machine has capacity for 450,000 tonnes per year,” Ivo said. “Over the past 12 months, it has produced 365,000 tonnes, and the volume will continue to increase until it reaches full capacity by the end of 2024.”

The second machine, PM28, started up in the second quarter of 2023. “Its capacity is 460,000 tpy.” Ivo said. “We expect to produce [another] 165,000 tonnes in 2023. Another 350,000 tonnes are [scheduled] to be produced during 2024, and full capacity will be reached by 2027.”

Klabin will also invest in the development of the Figueira Project, a new corrugated board plant in the city of Piracicaba, in São Paulo state, which should start its first phase of production in the second quarter of 2024.

By ana.enis@fastmarkets.com