Fitch: Latam Pulp and Paper’s Low Cost Position Helps to Weather Negative Trends
(Rio De Janeiro, Brazil, Oct 31, 2016) Brazilian and Chilean pulp companies’ excellent position on the production cost curve supports investment grade ratings despite negative market trends, according a new Fitch Ratings report.
“Because of very productive forests, a favorable climate for growing trees, and modern pulp mills, these pulp producers enjoy low costs,” said Fernanda Rezende, Director at Fitch. “The plantations are extremely efficient by global standards and give Latin American producers sustainable advantages in the cost of fiber and transportation between forest and mills.”
Pulp prices are the main drivers for profitability, cash flow generation and leverage.
Leverage increased across the sector, due to high levels of investments in recent years. Soft pulp prices and economic weakness in Latin America negatively affected results of some companies, postponing the deleveraging process.
Key concerns include soft pulp prices, oversupply of market pulp, and economic weakness in the region, which could weaken Brazilian and Chilean pulp producers’ credit profiles by pressuring cash flow generation and leverage.
Events such as leverage-financed merger and acquisition activity could drive negative rating actions.
For more information, a special report titled “Latin American Pulp, Paper and Forest Products Peer Comparison” is available on the Fitch Ratings web site at www.fitchratings.com (Source: press release)
