Submitted by: Submitted by JohnnyUtah
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Words: 417
Pages: 2
Category: Business and Industry
Date Submitted: 05/21/2014 05:40 AM
Analysis of the New Pulp Plant
• Positives
– Increase in capacity from 800,000 tons to 3.2 million tons – Would become the world leader in market pulp production – 700,000 tons of pulp per year, operating life of 30-40 years, expected sales of USD 350 million per year – Already approved phase one of the project (plywood factory and sawmill) in 2002
• Negatives
– – – – USD 1 billion investment, already invested USD 150 million Downward trend in market pulp prices (pulp market info) Volatile pulp prices (pulp market info) 3 years to build. Year 1, operate at 80% minimum efficient scale (MES). Year 2, operate at 90% MES. Year 3, operate at MES (95% of max mill capacity – Yearily reinvestment equal to depreciation charge was necessary to preserve the mill’s efficiency over time
Plant’s Integration into Existing System
• 5 pulp mills in Chile, including Valdivia plant • 1 pulp mill in Argentina • Current Production
– – – – Arauco (I and II) – 756,000 metric tons Constitucion – 354,000 metric tons Lincancel – 113,000 metric tons Alto Parana (Argentina) – 323,000 metric tons
• Plant is in Chile, would allow for easier integration into current network including transportation system and access to international customers (due to port) • Will the current electricity generation be enough to cover the production from the new plant, cannibalize the sales revenue from selling electricity back into the grid?
Plant’s Pulp Demand
• • • • • 183 million tons of pulp produced in 2003 NA (78 million tons), Europe, Asia, and SA 142 million produced and used in vertically integrated pulp / paper companies (approx 77%) 41 million tons (approx 23 % of world wide pulp) was “market pulp” – i.e. pulp sold on the open market 90% of Arauco’s sales were exports to more than 30 countries, with the majority going to Asia. 10% national sales Demand, in terms of shipments of pulp, have grown 3.9% on a year-to-year basis Risks associated with rising prices? Competitors –...