Latin America

1
Latin Americas growing influence on the pulp
market

• March 2004

2
Structure of supply

• World market pulp capacity is 48.0 million t/y,
  of which 42.5 million t/y is bleached chemical
  pulp
• Total pulping capacity is around 215 million t/y
  (PPI)
• Approximately 25 (9 million t) of shipments are
  tiede.g. Nordic mills to other Europe, Cenibra
  to Japan, Indah Kiat to Dagang etc.
• Dont be mislead over size of free market
• Due to consolidation in paper industry,
  increasingly difficult to monitor market pulp
  supply as defined

3
Market pulp remains fragmented

• Top 10 suppliers have 39 market share (1992-
  28)
• Top 5 suppliers have 23 (1992 17)
• Weyerhaeuser account for 11 softwood kraft
• Aracruz 11 of hardwood kraft (but 27 of BEKP)
• Tembec, Millar Western, and West Fraser account
  for 62 of BCTMP market

4
Supply shifts south
5
Market share

• In 1992, only 2 of the top 20 BKP producers were
  located in Southern hemisphere
• In 2004, 6 out of the top 20 are Southern
  hemisphere
• Of these 6, only APRIL is located outside Latin
  America

6
Latin American supply
7
Hardwood exceeds softwood for the first time
8
Total market pulp supply, by grade
9
BSKP expansion chart
10
Major softwood expansions
11
BHKP expansion chart
12
Major hardwood expansions
13
More BHKP in the pipeline Latin America

• Brazil
• Aracruz may de-bottleneck at Espiritu Santo
  (200,000t/y) and Guaiba (50,000t/y)
• Uruguay
• Botnia S.A. was set up to assess a large scale
  (1 million t/y) pulp project. Socio-economic
  study underway, decision by end 2004. UPM and
  Botnia are shareholders in Forestal Oriental
  (Shell), a major forest owner with eucalyptus
  plantations
• Ence received environmental approval from
  Uruguayan government in 2003 for a 400,000t/y
  pulp mill. Eufores, has 40 stake in a new
  private port Terminal Logistica MBopicua
  inaugurated on 10 November 2003. Terminal
  includes a chipping plant which raises total
  chipping capacity to over 1.1 million m3/yr
• Argentina
• Both CMPC and Arauco own plantations (pine 14-18
  yrs rotation)

14
More BHKP in the pipeline - Australasia

• China
• APRIL plan 1.2 million t/y in Rizhao Shandong,
  China.
• Oji Paper, UPM-Kymmene, and StoraEnso developing
  plantations
• APP Guangxi
• Australia
• Western Australia, Southern Australia (Victoria),
  and Tasmanian projects seeking finance and/or
  state approval
• South-East Asia
• UFS (Kalimantan)
• BPP (Malaysia)

15
Supply v Demand - softwood

• Capacity increasing in line with demand
• Ratio 90-92
• Historical 10-year average is 91

16
Supply v Demand - hardwood

• Capacity increasing faster than demand
• Ratio below 90
• Below 92 producers lack pricing power

17
Capital costs
18
Cash costs BSKP Q1 2004 est.
19
Cash costs BHKP Q1 2004 est.
20
Long term production cost trend
21
The overwhelming influence of Currencies

• NBSK
• 70 produced in Europe and Canada STRONG
  currencies
• BHKP
• 75 produced in South America / Africa / Asia
  currencies linked to a WEAK dollar

22
Conclusions

• Supply is accelerating ahead of demand
• Investments based on low cost position.the
  industrys cost base will lower significantly
  over the second half of the decade especially
  that of hardwood
• Latin American investments will cause structural
  changes to take place in the industry
• Pace of change depends to a large extent on
  Chinese demandand Dollar/euro exchange rate
• Muchas Gracias, Muito Obrigado!