In a year overshadowed by controversy surrounding an ambitious pulp mill plan in Valdivia, Chilean forest products giant Celulosa Arauco y Constitución has, in contrast, enjoyed growing success in the wood panels arena.
The Santiago-based group has reinforced its already formidable presence in South America’s wood panel business with the launch late last year of its third sanded ‘radiata’ pine plywood line in Chile.
Barely four months later, Arauco also established a vital base in Brazil. It staged a lightning US$300m cross-border coup to acquire the wood panel manufacturing, forest and resin production interests of French conglomerate Louis Dreyfus SA in Brazil and Argentina.
At a stroke, not only is Arauco acquiring respected Brazilian panel pioneer Placas do Paraná SA of Curitiba, but also its Argentine sister particleboard maker, Faplac SA, along with 34,000ha of planted pine, eucalyptus and poplar forest in Argentina and Brazil.
The Dreyfus deal is significant, not least because of Brazil’s huge population and great sales potential for panel producers. It also broadens Arauco’s already substantial product portfolio, taking it for the first time into resins, particleboard and laminate flooring.
Up to now, Arauco has been serving its Brazilian panel customers from across the border in northern Argentina where it launched the 250,000m3/year Alto Paraná MDF mill three years ago. Now, with a Brazilian plant, earlier plans for a second MDF line on this site have been shelved.
The acquisition follows Arauco’s strategy of developing new panel plants within key national domestic markets. Because of the price of wood panels, transport costs become significant when it comes to margins, especially in a country as big as Brazil, it says.
There is another point, too. Arauco, along with other MDF and particleboard makers who serve Brazil from plants in Argentina, was on the sharp end of a dispute with Brazilian producers over allegations of dumping.
Among Brazilian accusations was that Arauco was destabilising their domestic market by selling MDF from Alto Paraná at heavily discounted prices. The group never responded publicly to the claims.
Now, the dumping storm, which last year seemed set to escalate into a trade dispute between the governments of Brazil and Argentina, has abated following talks between the two sides.
Even so, there is little doubt the row helped justify the Chilean group’s move into Brazil. “That [Brazilian criticism] did have some bearing on this acquisition,admitted Arauco group commercial director Charles Kimber.
“The [Dreyfus] deal gives us a foot in that market [Brazil] as a local producer, otherwise, we would always be seen as a foreign exporter there, he said.
The ‘gem’ of the deal for Arauco is undoubtedly Placas do Paraná’s 260,000m3/ year Metso (Valmet) MDF continuous press line, started up at Jaguaríaiva, Paraná state late in 2001, said Mr Kimber, interviewed by WBPI in Santiago at the end of May (2005).
Initially, Arauco reduced the direct workforce at Placas by about 160, with some of these retained on a contracting basis, but the group is still reviewing its purchases overall.
It does recognise the need to improve board quality and volumes at Placas’ particleboard plant in the state’s capital, Curitiba. This runs four small single-daylight Dieffenbacher press lines with a design capacity of 320,000m3/year, as well as a Wemhöner melamine overlay line and a Barberán finish foil laminating line.
“There are some important issues [there] we should deal with to increase our productivity and quality… In the next couple of months we will be making some small investments in different parts of the [particleboard] lines to increase volumes.
“But we don’t expect to do that by more than 10%,explained Paneles Arauco’s sales and marketing director, Carlos Bianchi. The task for 2005 is to target the particleboard lines’ nominal capacity, he said.
Arauco is adamant that it does not plan to throw its weight about as soon as it arrives in Brazil. “We are not just going to go and build another MDF or particleboard mill in Brazil.We first have to learn how [best] to operate those mills [we acquired] … and understand what the market can sustain,said Mr Kimber.
Placas do Paraná did have a grand plan for panel production at its northern Paraná site of Jaguaríaiva. As the MDF plant took shape, it was preparing to build a second continuous line there for particleboard. This 520,000m3/year unit was due to replace the small, less efficient Curitiba batch lines, but the project was later shelved.
Arauco has not ruled out the option of replacing the old Curitiba capacity with a large, modern continuous press line in due course. But it is not intending to make a snap investment decision to expand in particleboard immediately, stressed Mr Kimber.
The executive was quick to recognise the “spectaculargrowth of the MDF business in Brazil over the past nine years – from zero to today’s figure of around 1.5 million m3/year. Domestic market demand is set to run “for years to comeas the country develops, and Brazil will not export MDF much, the Arauco executive suggested.
The Chilean group has other priorities now it has landed in Brazil. It has inherited 26,000ha plantation pine woods in northern Paraná state and plans to extend its holding with new purchases of forest land.
“We have got to look at expanding our forest base and probably (later) get into other sectors of the wood business – sawmilling or plywood – and eventually into the pulp business,declared Mr Kimber, whose group owns five pulp mills, four in Chile and one in Argentina, with a total annual capacity of more then two million tonnes.
Arauco is continuing the strategy of putting plants close to its forest, which it first followed in Chile. “Then, as we have consolidated the industry base, we look at how to expand markets domestically. That is where the particleboard complements our MDF supply,explained Mr Kimber.
In addition, the new deal gives Arauco a 50% stake in Dynea Brasil SA, formerly Dreyfus’ 130,000ton/year resin manufacturing joint venture in Brazil with Dynea group.
However, Arauco still sees itself as a forestry company, skilled at managing its plantations to get the greatest yield and utilizing efficiently every part of the tree it grows. It is developing low cost integrated industrial complexes to optimise returns from the manufacture of value-added forest products.
The group has built up its forest resources in Argentina where, early last year, it finally acquired 60,000ha, 24,000ha of which were planted with pine, and a sawmill from the Argentine industrial group, Perez Companc. Today, Arauco has 111,000ha of forest in the country and an additional 20,000ha of pine plantations in Uruguay. In Chile, it has nearly 700,000ha.
Arauco has benefited from the economic recovery in both Argentina and Brazil and counts these countries, along with Chile, as its main markets for MDF and now  particleboard products. In the case of its Argentine acquisitions, it is still awaiting the green light from the anti-trust regulators in Buenos Aires. The official go-ahead is  anticipated by September, said Arauco.
Apart from Faplac’s particleboard mill in Zarate, the Chilean group is set to gain the Resinfor Metanol SA formaldehyde and urea formaldehyde resins plant in Santa Fé province. In addition, Arauco will win a 60% stake in Flooring SA, Dreyfus’ two million m2/year laminate floor manufacturing joint venture with the European panels group, Fantoni SpA of Udine, Italy, which is also based in Zarate.
Faplac made history back in 1960 as the company which first introduced wood panel manufacture to South America. Six years later, its Brazilian sister, Placas, launched the first particleboard plant in Brazil. Today, Faplac runs the 270,000m3/year continuous Metso (Küsters) press panel line, but ambitious Dreyfus plans to install a 350,000m3/year MDF line alongside the existing Zarate line were abandoned in the face of Argentina’s economic crisis.
Arauco’s latest acquisition means it is reassessing how best to integrate its new capacity for adding value to its panels. That means looking at melamine overlay facilities it has in Brazil and Argentina and how best to serve the national and export markets.
The Brazilian units will be directed to serving the big domestic market, while the Argentine capacity could perhaps serve foreign markets like Chile, South Africa, the US and Mexico.
Arauco’s meteoric rise in the panel business has been marked primarily by its success in supplying its top quality ‘AraucoPly’ sanded pine plywood, especially to the US market. Starting in 1997 with its first Raute line at Horcones in Chile, the group added a second there in 2000 and these together have a combined 360,000m3/year capacity.
Its third plywood mill, with a larger 210,000m3/year line capacity, was launched last November as part of phase I of a huge forest industry complex, which includes a log merchandiser, a 400,000m3/year sawmill, a big power plant and the plywood mill. Phase II will comprise a giant 856,000 ton/ year bleached pulp mill due for completion in the second quarter of 2006.
Arauco says the integrated Nueva Aldea Forest Industrial complex, located on a vast 200ha mountain top site near Itata, Chile is a major “resource driven initiative”.
“The Itata complex is an improved version of what we did at Horcones,explained Mr Kimber. “As our forest is maturing in the northern part of our estate, north of the Bio Bio River, we see it is good for us to have a sawmill, plywood mill, log merchandiser and pulp mill, as well as our MDF plant close by at Trupan, so we are making integral use of our forest.”
The highly automated plywood line – supplied jointly by Raute and a combined venture between US companies Globe Machine Manufacturing Co of Tacoma, Washington and Portland, Oregon-based Spar Tek Industries Inc – is housed in a 40,000m2 building at one end of the site.
The mill produces its clean radiata pine plywood in 8ft x 4ft panels, much of it destined for markets – including furniture, decorative siding or floor structures in construction or special packaging – in up to 35 countries, notably the US. Other markets include Chile and European countries.
Raute provided the line up to the plywood lay-up section while the Globe-Spar Tek team supplied Paneles Arauco with the presses onwards. The log merchandiser allocates the base sections of 17m long logs to the plant. These are heat treated before passing to its state-of-the-art lathes, one 8ft, the other a 4ft unit.
Coordination between the lathes and clippers is much improved on the Itata line enabling faster processing, and stacking is straighter, said Franco Bozzalla, managing director of Paneles Arauco. The plant has three hot air driers followed by two composers and two automatic lay-up lines.
Plywood panels pass on to the two presses supplied by the Globe-Spar Tek partnership and product finishing is handled on this production line by sanding units provided by Imeas. Arauco’s other plywood lines employed sanders from Steinemann.
As much as 95% of the panels manufactured by Arauco is ‘A’ and ‘B’ facing plywood. “We do basically the same things here as at Horcones. The difference is that the [site] layout is much better here at Itata because it was conceived as a big, complete complex from the start,said Mr Bozzalla.
At the end of May, when WBPI visited the Nueva Aldea site, the plywood unit was still in the start-up phase with the line running at 10,000m3/month or 500m3/day. The target was 700m3/day.
While Phase I plants at Itata have been unaffected by the environmental controversy resulting from the distant 685,000ton/ year Valdivia pulp mill project, the Itata pulp mill construction was halted in January 2005 for one month.
As for the Valdivia project, this major mill started up in February 2004. But, since October last year, it has been the target of local criticism after reports claimed its  pollutants in the waters of the Cruces River killed algae eaten by black necked swans in a wetlands nature reserve. The mill is located 30km upstream from the reserve.
This led to strong denials from Arauco, the resignation of its long-serving president and chief executive Alejandro Pérez, a lengthy wrangle with the Chilean environmental authorities over regulations and Arauco’s voluntary temporary shutdown of the Valdivia plant from this June.
The experience has made an impression on the giant group and is likely to influence its policy over the Itata mill. “We have learnt a lesson here, that we have to work closer with the local community and present these things in a timely and adequate fashion,admitted Mr Kimber.
Even so, there’s no denying the group’s international success in both pulp production and with other forest products, notably, wood based panels.