Vessel with pulp

Effects of the COVID-19 Pandemic on Brazil’s Forest Sector

By Marcelo Schmid, Manager of Forest2Market's operations in Brazil

April 27, 2020 - Some players in the Brazilian forest-based industry are doing well in the face of the economic crisis caused by the coronavirus. But while the country’s pulp sector has largely been unaffected, the packaging sector has been hit hard.

Pulp Sector Reduces Inventories

Brazil is the largest global producer of market pulp and this segment is undoubtedly the most important for the Brazilian forest supply chain. While the pulp segment experienced a drop in foreign demand and exports in 2019, this created an increase in inventories among the major Brazilian producers.

The coronavirus pandemic has caused the global consumption of toilet paper to increase worldwide, which has helped to reduce large inventories and normalize production. Although this increase in consumption has been driven by a temporary sense of “panic,” the general feeling is that a market shift has occurred and the consumption of toilet and tissue paper will increase in the future as overall health and hygiene habits have changed.

Lumber Production Expected to Return to Normal in May

The situation for lumber and panel producers varies and depends primarily on the end market for each wood product. Some companies are reporting a reduction in shifts and layoffs due to reduced demand, however, others pointed out that the operations have not yet suffered a significant impact.

It is also clear that the economic effects on manufacturing operations have not been caused by structural market problems (i.e. lack of demand), but rather by restrictive measures put in place by municipal and state governments. As such, many of the clients we have consulted predict that activity will spike in May and head back towards “normal.” In general, popular export products, such as frames and related components, are less affected than products sold into the domestic market and the retail consumer sector.

Packaging Sector Suffers Greater Impact

Speaking of the domestic market, the Brazilian packaging sector represents the segment of the forest-based industry that is suffering the most impact at the moment, and it is not very difficult to understand why. The packaging segment is closely linked to the consumption of different finished products such as food, footwear, household appliances, among others. Since the consumption of various goods has been severely affected in recent weeks due to the reduction in consumer buying habits, the demand for packaging that accompanies these products has also been drastically reduced.

Plywood Sector May be Affected if Quarantine Continues

The civil construction segment, another major consumer of forest-based products, appears not to have been excessively affected by the pandemic. The sector has been recovering after a period of decline. However, with the projected decrease in construction activity on the horizon combined with restrictive “shelter in place” measures across the country, the outlook for April and May is bleak. If the quarantine lasts for another two months, the issue will begin to impact specific sectors within the forest supply chain, such as plywood manufacturers.

SOURCE: Forest2Market