High Interest Rates Delay Paraguay $3 Billion Wood-Pulp Mill

High Interest Rates Delay Paraguay $3 Billion Wood-Pulp Mill

High global borrowing costs are postponing construction of the $3 billion mill at the center of a massive wood-pulp project in Paraguay.

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(Bloomberg) — High global borrowing costs are postponing construction of the $3 billion mill at the center of a massive wood-pulp project in Paraguay.

Paracel SA’s interim chief executive officer, Per Olofsson, said he wants to see interest rates come down before he goes forward with financing the broad project, which is backed by a consortium of local and European investors. 

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All together, the venture is valued at approximately $4 billion, including the mill that is expected to open by 2027 — on the latter side of the company’s original timeline. It will be Paraguay’s first pulp mill, with a capacity of 1.8 million metric tons of cellulose a year.

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“When the stars align in the capital markets, we are ready to press that $4 billion button and build the mill,” said Olofsson, who is also a senior adviser to Paracel shareholder Girindus Investments. 

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Paracel has hired Goldman Sachs Group Inc. to arrange about $1.9 billion in export credit agency loans, $1 billion of development bank loans and $650 million from a bond or syndicated loan, he said in an interview in Asuncion, Paraguay.

Paraguay, a landlocked South American country of 7.5 million people, stands to become a major wood pulp supplier to Asia and Europe once Paracel’s mill opens. Sales of cellulose would help diversify a $43 billion economy dependent on soy, beef and renewable energy exports. 

South America has recently seen a flood of new pulp mill investments, which contributed to a drop in global prices of the commodity. While the delay in construction in Paraguay might alleviate some concerns about mid-term oversupply, neighboring Brazil is looking to house at least three new projects. Market leader Suzano is already building a plant while Arauco and Paper Excellence also revealed plans to boost production in the country.

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Paracel’s shareholders including Girindus Investments, the local Zapag family and Austria’s Heinzel Group have already contributed almost $1 billion to the project. 

Delaying construction of the mill — a 30-month process — gives Paracel more time to lower its raw-material costs by expanding its eucalyptus plantations on 185,000 hectares (457,000 acres) of company land, Olofsson said

While Paracel will initially import some wood from other South American countries like Brazil, the company plans to eventually source most of its wood from 100,000 hectares of its own land and develop third-party tree farms in Paraguay, he said. 

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“The closer we get to 2027, the more feedstock we will have from our in-house wood. The profitability of the mill is better every day,” he said. “There aren’t that many more projects that you can actually build at a competitive price level.”

—With assistance from Dayanne Sousa.

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