Portucel sees steady pulp prices in second half, CEO says

Friday, May 29, 2015

* CEO says market can handle new Brazil supply

* Limited impact from U.S. anti-dumping probe

* Stock swap with Semapa good for free float

Portucel expects pulp prices to stabilise in the second half of 2015 after sharp gains in the first half, but careful management of new capacity in Brazil and strong demand will prevent price declines, the company's chief executive said.

Portucel, Europe's leading producer of bleached eucalyptus pulp, has seen strong demand for pulp push up prices since late last year. Portucel's shares have risen 26 percent this year on the back of the gains.

"Certainly the second half will be calmer but there will be no turnaround (in prices)," Portucel CEO Diogo da Silveira told Reuters in an interview. "There has been a lot of talk about a turnaround but it won't happen."

"In the second half I don't expect prices to continue to rise, but I also don't expect that they will decline, at all, to the values seen six month ago."

The prices of bleached eucalyptus kraft pulp - BEKP - started to recover in the fourth quarter of last year from a decline that began in the middle of 2013. The upward trend has continued this year.

Some analysts have said that prices are likely to be dampened in the second half of 2015 due to reduced consumer demand and with the entry of new capacity in Brazil. But Silveira said Brazil will manage the situation.

"There is more capacity coming in Brazil, but the Brazilians have shown that they can manage the new capacity in an adequate way and, as there is strong demand for pulp, I think the impact will not be as big as we feared three or six months ago," he said.

Silveira said that demand for uncoated woodfree paper - UWF - has been less pronounced, partly because higher demand for pulp comes mainly from tissue paper. Portucel is Europe's leading producer of UWF.

"But there is also not a decline (in demand for UWF). I have seen market analysis that in Europe demand was going to fall a lot. But no, it is more flat, maybe it may fall 0.2 percent a year, which is a small amount," he said.

Still, Portucel will raise UWF prices 3 to 5 percent as of July, the second increase of the year. He said this was justified considering the sharp rises in pulp prices.

An anti-dumping investigation by the United States into various countries, including Portugal, has raised concern that import tariffs could be imposed on paper products. That would make Portucel less competitive in the U.S. market, which represents 10 percent of its sales.

Silveira said initial indications were that the price difference of Portucel's products in the U.S. and Portugal is about 2 percent.

"We don't expect any significant impact (from the investigation) at all on our sales in the U.S.," he said.

Silveira also said a stock swap proposed by Semapa - the holding company that controls Portucel with a 76 percent stake - should help the company, because it will increase Portucel's free float.

Semapa has proposed allowing shareholders to swap one Semapa share for 3.4 shares in Portucel. The proposal will be put to a shareholder assembly on June 23.

"The theory of the capital markets recognises that, in general, more free float and more liquidity should allow more interest in our shares by shareholders," said Silveira, adding that some investors are limited by the size of the free float of a company.

Other News