Tue Jan 31 07:57:00 EST 2012

RISI VIEWPOINT: The worlds largest market pulp line is being planned for startup in 2015-16 in Indonesia

BRUSSELS, Jan. 31, 2012 (Viewpoint) - By Kurt Schaefer, Vice President, World Fiber The January edition of RISI's World Pulp Monthly, which is being published this week, includes details that we have developed about a very large greenfield market pulp mill that is currently in development in Indonesia. This news could take many in the industry by surprise, and it will have implications for the long list of companies that are developing their own plans for BHK market pulp mills, especially in South America. We have been able to confirm with reliable sources that Asia Pulp and Paper (APP) is actively developing a large BHK market pulp mill to be located in south Sumatra. Details are not finalized, but the mill is expected to have a nominal capacity of between 1.5 and 2.0 million tonnes per year of BHK, making it the largest single pulp line in the world. APP has been doing extensive planting in the south Sumatra area for some years now, and there is a considerable amount of wood reaching maturity. It is not expected that there will be paper machines installed at the site. We believe that APP has been in discussions with equipment suppliers, but no further details are available. Startup for the mill is being targeted for 2015-16. As pulp market participants know very well, there is a long list of large BEK market pulp mills already in development in South America, starting later this year with the planned startup of the Eldorado pulp mill in Brazil. There are at least five or six more mills under development for the 2013-2016 period. Active players include Stora Enso, Arauco, CMPC, Fibria, and Suzano. If APP follows through with its plans for south Sumatra, which we think at this point is likely, then the market climate will be substantially less favorable in 2015-16 time period for the startup of a South American mill. This raises the risks that the sharp downturn in BHK pulp prices that many are expecting for 201314 could be deeper and longer than expected. Even beyond the APP's south Sumatra project, we think there's still upside risk to BHK capacity expansion in Indonesia in the 2016-2020 period. There is considerable work being done in Indonesia to rapidly expand pulpwood plantations, with a number of mills being rumored for startup in the second half of this decade. - Kurt Schaefer, RISI Vice President for World Fiber, has recently relocated to RISI's Brussels office and can be reached at Tel: +32 2 536 0741, Email:

kschaefer@risi.com.

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