In 2008 it was reported by ABRAF that expansion within the Brazilian iron and steel industry was expected to continue. Investments in new industrial plants and the expansion of existing plants was increasing, with the current annual steel production capacity of 33 million tons forecast to increase to 57 million tons over the next ten years. The National Development Bank (BNDES) predicted investments of about R$ 32 billion from 2008 to 2011 in the iron and steel sector.
Charcoal-based pig-iron production had remained stable for a number of years prior to 2008, whilst in 2008 approximately 50% of charcoal-based pig-iron ovens were inactive due to an undersupply of charcoal.
In 2008 approximately 1/3 of the Brazilian pig-iron production (32.5 million tons in 2006) was based on charcoal, for use as a thermal reductor. The charcoal used within the industry at the time was reported as coming from both forest plantations and from natural forests’ residues (estimated at 50/50 in 2006). However, due to the increasing social and environmental pressures against the utilization of wood from natural forest, chieﬂy initiatives from the public and the private sectors began aiming at substituting wood consumption from natural forests in favor of forest plantations for charcoal production.
Two initiatives were announced. First, the State Government of Minas Gerais in a public-private partnership aimed to stimulate and search for new ﬁnancing sources to boost forest plantations in the state, from 1.2 to 1.8 million hectares over an 8 year period, representing a 50% growth. This was expected to provide an answer to the charcoal shortage problem from planted forest and to the needed preservation of the remaining natural forests. The newly-established Sectoral Chamber for Silviculture, under the direction of the State Secretary of Agriculture, Livestock and Supply of Minas Gerais (SEAPA-MG), had discussed this urgent initiative internally and with the civil society. Secondly, a private initiative by mining and iron/steel companies of the Northern states, Pará and Maranhão, relies on investing and promoting large-scale forest planting in the Carajás mining cluster. This initiative has been led by Vale company through the so-called “Vale Florestar Amazonia” project with a budget of USD 200 million up to 2010. It aimed to promote the plantation of 150,000 hectares of eucalyptus forests on degraded land in the region and to recover 50,000 hectares of natural forests.
In 2009, Brazil announced at the Cop15 summit in Copenhagen it would look to reduce its emissions by replacing coking coal used in the production of pig iron with charcoal sourced from “exotic species” (eucalyptus), this initiative was expected to increase demand for charcoal within the Brazilian pig iron industry by up to 50%.
However a series of events, notably cheaper pig iron produced by Russia, the reduction in those prices paid for pig iron in China, and rising inﬂation rates in Brazil subsequently led to the wide scale closure of pig iron facilities across Brazil starting in 2012.
•In 2008 16 pig iron companies were operating in the North Brazilian pig iron stronghold of Carajas alone.
• Ferrobahia announced the development of the ﬁrst pig iron production facility to be established within the state of Bahia and located in the city of Jequie.
• In 2009 shipments to the US were 1.26 million metric tonnes.
• December 4th 2009: Brazil announces new measures aimed at removing coking coal from the Brazilian pig iron industry, and replacing it with charcoal from reforestation projects established with exotic species (ie eucalyptus).
• In 2012 Cargill the worlds largest pig iron trader, announced it was closing its pig iron business.
• In 2012 The north Brazilian pig iron company Cosipar seen widely as a pioneer in the industry permanently closed its doors after 26 years in business.
• By 2013 out of the 16 pig iron producers located in Carajas, only ﬁve remained these were Sidepar in the state of Para, and Viena Sidergica, Queiroz Galvao, Gusa Nordeste and Margusa in Maranhao.
• China reduced its price paid for pig iron to approximately $200.00 per metric tonne whilst currently in Brazil production costs rose to $300.00 per metric tonne.
• 2016 currently only a handful of pig iron producers exist in Brazil. Most producers have now shut their doors or are operating on a reduced basis. These turn of events have reduced the price per cubic meter of charcoal substantially due to a decreased demand for eucalyptus charcoal, and increased supply.
• http://blog.propurchaser.com/2014/pig-iron-brazil/ • http://www.platts.com/IM.Platts.Content/aboutplatts/mediacenter/mediakits/ brazil’s_pig_iron_struggles.pdf
Due to an increased supply and fall in demand due to the wide scale closures within the Brazilian pig iron industry unable to be foreseen at the start of the projects, charcoal prices have fallen by around 50% in comparison to those prices reported at the start of the project. Although it should be noted that prices have remained slightly above those prices projected by the company. The prices in the tables below shows current prices reported by CI Florestas
In 2009 it was reported independently by LEF that within the city of Barreiras, the three largest wood consumers; Bunge, Galvani and Cargill, were, at the time purchasing energy wood at R$78.65 per cubic meter delivered to the factory gate as shown in section A of this report. At the time of going to print Independent reports are currently showing an increased supply of eucalyptus wood in the region as such wood prices have fallen to R$63.00 per cubic meter representing a drop of approximately 20% in comparison to those prices reported by LEF at the start of the project in 2009. This fall in value is conﬁrmed in the independent document commissioned by the company below.
Due to the current existing oversupply of eucalyptus wood as reported within the region, primarily brought on by the premature harvesting of eucalyptus plantations surrounding GWD farms, wood prices are conﬁrmed to be around 20% lower than those prices reported at the start of the project. In addition to wood prices falling in the region charcoal prices the primary focus for the project have also fallen. This has been due in part to the closure of the majority of pig iron producers across Brazil resulting in a fall in demand and a reduction of prices by up to 50% in relation to those prices reported at the start of the project by AMS.
Due to these unforeseen changes within Brazil, both economically and in speciﬁc relation to the pig iron industry, it is now expected that the increased supply and reduced demand will negatively effect the value of prices received upon delivery of the crop within the domestic market as originally proposed.
Low wood and charcoal prices within the region coupled with the fall in the value of the Brazilian Real by around 40%, in comparison to its value against the euro at the start of the project, is therefore expected to affect the project and the values projected at the outset. Whilst the project may perform close to those rates projected at the start of the project in Brazilian real terms, in relation to the euro it is expected to underperform should domestic markets be focussed on as the primary exit strategy.
As such, and due to these concerns, the company has now explored several alternative options in order to bring added value to the project at harvest.
Due to the fall in value of both domestic wood and charcoal in conjunction with the fall in the value of the Brazilian Real (R$), the company has now started negotiations with wood consumers in export markets. Whilst negotiations are ongoing it is felt that wood prices will need to be attractive enough in Brazilian Real terms for wood consumers in other regions to accept. Whilst it is expected that stronger rates it is also expected that prices will need to remain attractive in Brazilian real terms. In addition, transportation costs are expected to be higher should the company look to export wood products to the major port within Salvador in advance of delivery to export markets.
Currently the company is in negotiations and has applied and been granted the appropriate export licences in advance should these markets be explored further.
Over the next 24 to 36 month period, GWD Canada will develop wood processing facilities within North America. The purpose of these facilities will be to produce wood pellets for the US market,. Due to this development, and in line with its current Canadian projects, it is felt that the company will be able to offer a superior option by adding value to raw wood products produced from its projects.
It is expected that within a 12 to 18 month period GWD Canada will be in a position to issue forward purchase agreements to clients for timber they hold at a set and pre-agreed rate. It is felt that this offers the greatest opportunity for clients, and as such should be considered a serious option in order to provide the best possible outcome for the project