SAO PAULO, Aug 16 (Reuters) - The pulp and paper industry will face more consolidation, given that excess capacity reduced prices to their lowest in 20 years, said Walter Schalka, chief executive officer of Brazil’s Suzano Papel e Celulose SA , which ranks fifth in the sector worldwide.
Schalka also said on Tuesday that he expected companies to cut production capacity because low pulp and paper prices are reducing profitability across the board.
“Clearly there is an excess capacity that the market is unable to absorb,” Schalka said at an industry event in São Paulo.
The combination of weak pulp prices and the rise of the Brazilian currency hurt Suzano’s results. Operating cash per ton dropped by about half in the second quarter from 912 reais ($287) in the third quarter of 2015.
As a result, return on invested capital fell to 10 percent from 21 percent in that period. Schalka said such returns were not enough for a capital-intensive industry operating in a country with high borrowing costs.
Suzano is trying to improve its performance by diversifying its portfolio and control the supply, Schalka said. ($1 = 3.1745 Brazilian reais) (Editing by Lisa Von Ahn)