South America, a plantation forest paradise?
I recently returned from a 2-week trip to Brazil and Argentina, visiting current and potential suppliers. Traveling from Malaysia to South America is always an adventure as it takes roughly 30 hours from boarding the plane in Kuala Lumpur to landing at my destination in Brazil. My last visit was about nine years ago. And it was a pleasure to visit the forests, view the sawmills, and meet the owners, who were eager to discuss the world’s economic and political situation and future business expectations.
Brazil has huge resources of Pine and Eucalyptus forests, which have been primarily planted for paper & pulp production and today support many sawmills, pallet components, plywood, and MDF/PB plants. Driving through the country, you will see forests and timber processing factories. Some of the larger sawmills I visited in the past have expanded their operations to produce white-primed mouldings for export to the USA. While their business thrived during the Covid pandemic, it has experienced a significant downturn, with sawn timber and moulding prices returning to pre-Covid levels and possibly declining further. A major challenge all operators face is the persistent imbalance between the high log prices and too-low timber prices. Consequently, several smaller operations have already closed, and others might follow suit.
The situation in Argentina is more challenging due to the country’s declining economic situation. The government has imposed currency controls and fixed exchange rates at a significantly lower value than the black-market rate. This has made business operations difficult for many, as importing foreign goods, such as machinery, has become nearly impossible due to the government’s restrictions on outflowing US dollars. For example, one of our suppliers could not import a complete sawmill line from Europe, forcing them to improve existing or build local machines. Another European-owned company that invested in building a new sawmill in Argentina faced a 6-month delay in completing the project because 300 containers of equipment were stuck at the Argentinian port due to widespread corruption. Furthermore, there are concerns about the availability of suitable quality sawlogs in that area, increasing the challenges for sawmills.
Despite these challenges Brazil and Argentina face, there is some good news. The global demand for legally sourced and sustainable managed timber resources continues to increase, and South America, with its vast forest resources, stands to benefit substantially. But to succeed, both countries must address the issues of too high log prices, and local governments must be more transparent and efficient in supporting our industry.