Stora Enso moving into Latin America.

Editor's Note: The following interview originally appeared in the June 2003 issue of O Papel, published by ABTCP, Brazil's Pulp and Paper Technical Association.

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Stora Enso's Nils Grafstrom explains the company's new strategy for pulp production in Latin America. Borders are no obstacle for large companies with global ambitions, such as Stora Enso. With focused plans for continued global growth, the company is consolidated in Europe and does not see further opportunities for significant growth there in terms of acquisitions. The mature market also puts limits on increases in market share.

In a sector where expansion is the order of the day, Stora Enso is looking to overseas markets such as Latin America, the United States, and Asia for its future investments. After a restructuring in May [2003], the company has created a special division for Latin America.

"Besides providing support for sales, we manage projects and analyze the potential for business in the region," says Nils Grafstrom, president of Stora Enso's Latin American Division.

Another proof of the interest by the company in the region was the recent announcement of the Veracel Project. The pulp plant in Eunapolis in Bahia, Brazil, is assessed at US$ 1.25 billion, with construction set to begin in the first half of this year. Completion will occur in 2005. Stora Enso has a heavyweight partner in this project--the Brazilian company Aracruz. This might seem a big first step for the Swedish-Finnish company, but it is only the beginning of its plans for investments in South America, according to Grafstrom in this interview.

O PAPEL: What was the objective of Stora Enso's latest restructuring in May?

GRAFSTROM: The focus is to integrate all the areas of Stora Enso into three divisions--paper, packaging, and forest products. We expect to improve coordination and cooperation among the units within these three product areas.

O PAPEL: How did the need for a Latin American division emerge?

GRAFSTROM: The company began in 1999 through a merger of Stora from Sweden and Enso from Finland. The reason for this merger was the same as for establishing a division in Latin America. Stora Enso wants to be a global player. If we want to have a global company, we cannot ignore an area like Latin America. To give an idea of the importance of the region, of the 13.2 million metric tons of paper that Stora Enso sold last year, 243,000 metric tons went to Latin America. Brazil, as the largest market, consumed 20% of this.

O PAPEL: What is Stora Enso's strategy for expansion in the region?

GRAFSTROM: We look at two fronts for any expansion. First is increasing our sales of products from plants we now have. Today in Latin America, we have commercial offices in Sao Paulo, Brazil; Santiago, Chile; and Buenos Aires, Argentina, with a center in Miami for other countries such as Colombia and Venezuela. The new division in Sao Paulo will serve as headquarters. We will provide support to enable these sales offices to increase their business without interfering in prices and markets that we will continue to set in Europe. The other possibility is to expand through acquisitions and construction of new plants.

O PAPEL: Which Latin American countries have attracted Stora Enso's interest in terms of acquisitions and construction of new plants?

GRAFSTROM: Today, Argentina, Chile, and Brazil are the most attractive. They all have the essential element to establish operations--forested areas. These countries have different characteristics, and our sales show that the demands are very different also. In Brazil for example, we sell more paper for magazines. In Chile, newsprint has the highest sales.

O PAPEL: What are the investment possibilities for Brazil?

GRAFSTROM: In Brazil, Stora Enso is analyzing the possibility of buying an integrated company or possibly starting a project from scratch. Magazine and printing and writing papers are the company's focus. Paper-board is another strong option for future investments. We are interested in large plants with machines that allow high productivity and quality.

O PAPEL: Would the construction of a newsprint plant be viable in Brazil?

GRAFSTROM: Yes, it would. Pisa has a plant in Brazil and has plans to invest in a new machine. I think it is viable even without tax incentives. If we see suitable conditions to enter this segment in Brazil, we will be ready to analyze it.

O PAPEL: Does the tradition of the Brazilian pulp and paper industry have an influence on investment decisions?

GRAFSTROM: Clearly, both the paper and pulp sectors in Brazil have excellent plants. Trained personnel are important. The Scandinavians especially are mistaken in thinking that there is not a very good level of knowledge of the industry here. In fact, I think that Scandinavian companies have little to contribute in terms of knowledge to Brazilian companies. There are smaller plants that do not invest much and are not concerned with the environment. This is also the case in Europe.

O PAPEL: In May, Stora Enso and Aracruz officially announced the construction of the Veracel plant in the south of Bahia. Besides Brazilian know-how, what factors led Stora Enso to decide on this investment?

GRAFSTROM: In 1997, Stora Enso under-took an internal study to decide where we could build a pulp plant because we perceived the need for one. We conducted studies of Indonesia and China in Asia and of Brazil, Argentina, and Chile in Latin America. Brazil was chosen because of the incomparable forestry conditions and the country's stability. Brazilian environmental legislation also contributed to the choice because it is similar to laws in Sweden, Finland, and Germany. For a global company, it is very important to have similar targets. The Brazilian hospitality also made us feel welcome.

O PAPEL: Did the tension generated by the Brazilian elections at the end of last year have an impact on the decision?

GRAFSTROM: Yes. We studied extensively what the impact would be, but this is a common practice because we always analyze the economic conditions of countries where we operate or have plans. In this case, the important factor is that Veracel would export its production. Our costs would therefore be in Brazilian currency (reals) with sales in dollars. This contributed to a positive decision.

O PAPEL: Veracel will produce short fiber pulp. To what extent is this type of fiber used in Stora Enso plants?

GRAFSTROM: Long fiber is more common, but we use considerable short fiber also. This is increasing. Today, eucalyptus pulp is fully accepted on the global market. We are investing in Veracel precisely to use this raw material in our plants because Stora Enso is not a player on the short fiber pulp market. We do not want to build or buy pulp plants simply to sell on the market.

O PAPEL: Is that what made the partnership with Aracruz possible?

GRAFSTROM: Yes. This way we do not compete with each other. The agreement we have with Aracruz is that half the production of 900,000 metric tons/year will be sold on the market by them. Stora Enso will ship the other half to its plants in Europe, the United States, and Asia.

O PAPEL: Is there a possibility for Veracel to increase its production in the future?

GRAFSTROM: Yes. In fact, this is one objective. The projection is that in five or 10 years, we can double the plant's capacity. This is a concrete possibility and would follow the pattern of Aracruz that started with one plant and today has three at the same site.

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RELATED ARTICLE: IN THIS ARTICLE, YOU WILL LEARN:

* Why Stora Enso chose to create a Latin American division.

* Why the company invested in Brazil instead of other countries.

* The reasons short fiber pulp is important for Stora Enso.

ADDITIONAL RESOURCES:

* Stora Enso web site:

www.storaenso.com.

* Associacao Brasileira Tecnica de Celulose e Papel (ABTCP): web site: www.abtcp.com. For a machine translation of web site from Portuguese to English, use the Google search engine.

ABOUT THE AUTHOR

Luciana Perecin Araujo is a reporter for O Papel, the Brazilian Pulp and Paper Technology magazine of ABTCP - Pulp and Paper Brazilian Technical Association. Contact her by email at: [e-mail].