June/July 2001

Brazil trades on its plywood strengths

Brazil's plywood sector has seen an extraordinary transformation in the last four years from a recession-battered, hardwood dominated, business to one reborn on the strength of pine. Richard Higgs gives an overview of the country's industry


Crippled by the boom to bust crisis of the mid-1990s, when plywood makers felt the double blows of a depressed home market and plunging export prices, Brazil's industry has radically restructured and re-focused on softwood plywood.

Since 1995, Brazilian plywood production overall has soared from 1.6 million m3/yr in 1995 to a record 2.4 million m3/yr in 2000. In the same period, export volume doubled, while domestic consumption has risen almost 40% since 1993, according to figures from Associação Brasileira de Industria Madera Compensada (ABIMCI).

"It's important to note we had a decline of about 60% in the hardwood plywood output [in that time]. So, how did we grow our production? We increased our pine plywood output by 85%. It is an extraordinary change," explained Brazilian plywood producer and former ABIMCI president Isac Chamy Zugman.

Production of plywood in Brazil traditionally was concentrated on hardwood companies located largely in the country's tropical north eastern region. But Asian currency devaluations, and a switch by some producers with projects to sawn lumber in the face of stricter forest exploitation regulations, spurred on the hardwood plywood decline.

However, a new generation of plywood producers, including some former veneer firms, moved in to make pine plywood in the forest-rich south of Brazil.

Capacity and productivity improved and the manufacturers achieved new efficiency and production scale, according to Mr Zugman.

"Today, we have about the same number of companies in the industry. But, we had a lot of people who went out of the business in the tropical area and a lot of people who came into plywood production in the temperate south of Brazil," said Mr Zugman, who runs his own plywood business, São Paulo-based Compensados e Laminados Lavrasul SA.

Meanwhile, the booming US economy led to a deficit in the US domestic market and producers in North America began to neglect their former markets in Europe. They did so to their cost.

Brazil's softwood plywood makers made inroads in the European marketplace offering greater quantity, better lay-up, faster delivery and improved prices. "The Brazilian pine plywood industry found itself capable of competing with and beating traditional world suppliers ­ the United States and Canada.

"The Americans left us space to take over the European market and Brazil took it. Now, they cannot remove us," commented Mr Zugman with a note of triumph in his voice.

Over the years, Brazil has built up a substantial resource of pine plantations, chiefly in its southern states of Paraná, Santa Catarina and Rio Grande do Sul.

This 100% planted forest gave the plywood producers an immediate cost advantage, suggested Mr Zugman. Other cost benefits Brazil counted on were its tightly vertically integrated industry, where every part of the tree, from sawdust to leaves is put to use in some wood based product; and better plywood lay-up, where Brazilian plywood makers offer seven to nine plies to the four to five of North American producers.

In addition, the Brazilians were offering their customers more flexibility for the purchase of as little as one container or half a truck load of plywood, unlike their US competitors, said Mr Zugman, chief executive of Lavrasul SA.

Recent statistics, made available by ABIMCI, show the extent of the growth in plywood exports. From a figure of just 748,000m3/yr in 1995, the industry achieved huge growth, especially since 1999, with a total volume for last year reaching 1.4 million m3.

A breakdown of exports shows that the traditional tropical hardwood plywood trade was primarily to the United Kingdom, Puerto Rico and the US. Today, the industry still sells the most plywood to Britain, but now other European countries such as Germany, the Benelux nations, France and Italy are major markets too. The US barely makes seventh or eighth place in the ranking, pointed out Mr Zugman.

The switch in plywood production from Brazil's poorer north eastern tropical region to the country's temperate south east naturally took its toll on employment. With around three million people employed directly by the integrated forestry, lumber and plywood sector, a large number of workers lost their jobs in the North East.

But, claims Mr Zugman, about the same number, if not more, jobs were created with the switch in emphasis to the softwood region. "This also brought a rise in labour costs for the industry.

"But the industry has some compensation nowadays with better workers who are paid more and production is higher," said the former ABIMCI president who is responsible these days for industry international affairs.

Isac Zugman's own company has seen the effects of the radical changes overtaking Brazil's plywood industry. Lavrasul, an established pine plywood supplier with a southern plant in Canoinhas, Santa Catarina state, has seen a rapid growth in its pine based business.

"We have increased our output of pine products. In fact, they have grown four times greater than in 1996, from about 1,500m3/month to 6,000m3/month. That made necessary a complete reformulation and renovation of our plywood mill, said Mr Zugman.

In fact, in the four years from 1996, his firm has been involved in a substantial US$10m investment programme to achieve better vertical integration of its operations.

It built two saw mills, renewed peeling lines, upgraded the plywood plant and improved its production procedures.

In addition, Lavrasul, part of the Lavrama group, launched a plant to manufacture edge-glued panels and laminated beams back in 1996. Business has grown well with an average shipment of 50 containers per month. It takes 9,000m3/month of raw sawn lumber to produce 2,000m3/month of edge-glued panels, said Mr Zugman.

There is a distinct air of determination, especially among the producers of pine plywood in Brazil, to capitalise on its new found strength, as well as on the advantage it has won in the European export market.

Lavrasul has joined with 10 other pine based plywood manufacturers in a fight back against what they claim are unscrupulous middlemen and "speculators". These, they say, are pressurising smaller firms and putting pressure on the market. The Brazilian companies have formed 'Brazilian Forest Products' , a joint venture representing 65% of the country's current pine plywood production. With a base and port storage at Flushing in the Netherlands, the company acts as the producers' own distributor in Europe with the aim of shipping between 12,000m3 ­ 15,000m3/yr.

The backers of the importer and distribution venture, each of whom provides around 300m3/month of plywood for Europe, are looking at launching several similar operations elsewhere in the world to help their cause.