Fibria, Suzano Cut Most as Brazilian Pulp Exports Falter
Fibria Celulose SA (FIBR3) and Suzano Papel & Celulose SA (SUZB5), Brazil’s biggest pulp makers, had their earnings estimates cut by more than any other company in the country as the industry adds factories amid waning overseas demand.
Analysts more than doubled Fibria’s estimated second- quarter loss to 1.14 real per share and increased the forecast for Suzano’s loss sixfold to about 30 centavos in the past three months, data compiled by Bloomberg show.
Slowing growth in China and Europe, the two main markets for the paper-making material, is crimping the need for pulp as new plants prepare to start operations from Uruguay to Russia. Fibria and Suzano are raising a combined $1.5 billion in stock sales this quarter to reduce debt as Goldman Sachs Group Inc. (GS) forecasts average pulp prices will drop 5 percent this year.
“On the demand side, the scenario is gloomy as exports from Brazil drop and there are no concrete signs of a recovery in Europe,” Daniella Maia, an equity analyst at Ativa Corretora, who has a hold recommendation for both stocks, said by telephone from Rio de Janeiro. “The outlook is negative for pulp prices this year and next.”
Sao Paulo-based Fibria, the world’s largest pulp producer, rose 4.5 percent to 14.21 reais at 11:05 a.m. in Sao Paulo and was up 2.4 percent for the year. Suzano, based in Salvador, Brazil, climbed 4.8 percent to 4.82 reais, paring its decline this year to 29 percent. Klabin SA (KLBN4), the country’s biggest paper maker, increased 0.7 percent to 8.98 reais, extending its gain this year to 12 percent. Brazil’s benchmark Bovespa stock index rose 1.3 percent and was up 0.2 percent for the year.
Officials at Fibria and Suzano, who can’t be named because of company policy, declined to comment. An official at an outside firm representing Klabin declined to comment.
Fibria derives 91 percent of its sales from exports and Suzano 53 percent. They sell mainly to China and Europe, which buy a combined 70 percent of Brazil’s pulp.
China may grow at the slowest pace in 13 years, Credit Suisse Group AG (CSGN) said June 14. The European Union is set to contract 0.4 percent this year as the debt crisis in the 17- nation euro economy worsens, Fitch Ratings said last week.
Klabin, which focuses on processing pulp into paper for the Brazilian market instead of exporting the raw material, had its average profit estimate quadrupled by analysts in the past three months to 8 centavos. The Sao Paulo-based company has benefited from growing demand in Brazil, the world’s second-largest emerging economy, after more than 35 million people were pulled out of poverty in the past decade.
Pulp exports from Brazil fell 4.7 percent in May from a year earlier and are down 0.3 percent this year through May, according to the Trade Ministry.
The average annual pulp price will drop for a second year as demand weakens, Goldman Sachs analyst Marcelo Aguiar said in a May 21 report. The average for this year will fall to $771 per metric ton from $812 last year and $848 in 2010. Aguiar declined to comment for this story.
The BHKP Global Pulp Price Index, which slumped 23 percent last year, has rebounded 21 percent this year after paper makers built up stockpiles in past months.
The rise is unsustainable as producers increase supply amid slowing consumption growth in China and declining sales in Europe, according to Banco Santander SA. (SAN) Prices measured by the index probably will slide 6.2 percent to $737.5 per ton at the end of this year from $786.03 last week, Santander analyst Rodrigo Ordonez said by telephone yesterday from Santiago.
“The slowdown in China and the European crisis seem to reflect on the pulp market,” Maia said. “A cycle of capacity increase starts at the end of this year.”
Four plants are scheduled to start producing a combined 4.8 million metric tons of pulp between this year and next.
International Paper Co. (IP) is slated to add 490,000 tons of capacity at a plant in Russia as early as this year. Eldorado Celulose & Papel SA will start a 1.5 million-ton unit in Brazil in (EWZ) November, while Suzano is expanding output in the country by 1.5 million tons in 2013. Stora Enso Oyj (STEAV) and Celulosa Arauco & Constitucion SA will add 1.3 million tons in Uruguay next year.
Fibria and Suzano are raising funds in share sales after debt ballooned in past years. Fibria sold 1.44 billion reais ($768 million) of stock in April and Suzano is raising about 1.45 billion reais in an offering to be priced June 27.
The cash will help the two companies weather declining prices, Barbara Mattos, an analyst at Moody’s Investors Service said in a June 5 telephone interview from Sao Paulo.
“The timing of Suzano’s and Fibria’s share sales couldn’t be better,” Mattos said. “It’s a nice financial cushion if you consider that pulp prices aren’t going to help them generate enough cash to support debt reduction and future investments.”
Suzano’s net debt jumped to a nine-year high of 4.8 times earnings before items at the end of the first quarter, while Fibria’s ratio reached a two-year high of 4.6, according to data compiled by Bloomberg.
Fibria posted a loss of 11.2 million reais in the first quarter, compared with a 387 million-real profit a year earlier. Suzano’s net income dropped 50 percent to 71.8 million reais, the data show.
Average prices for Brazilian pulp sold in Asia slumped 18 percent from a year earlier in the first quarter to $613.3 per ton, Fibria said on May 14.
“I don’t see a major improvement in prices coming in the short term,” Ativa’s Maia said. “The pulp market has seen better days.”
To contact the editor responsible for this story: Dale Crofts at firstname.lastname@example.org