Celulosa Arauco Essay

642 Words3 Pages
Introduction
The Pulp industry is a promising industry with profit margins as high as 31%. Pulp is a commodity product which is frequently traded. Demand for pulp is expected to increase world over in the coming years.
Key Environmental, structural, competitive and market forces affecting Pulp industry (See Exhibit 1)
The pulp industry has been marked by a flat growth over the past few years. Though, it is expected to pick up with demand increasing in the emerging economies such as China. The pulp producers have been known for controlling inventories releasing products to marketplace at a targeted price. But the overall market trend is changing from a supply driven market to a demand driven market. The Chilean government and free trade
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Recommendation for Horizontal Integration (See Exhibit 4)
I would support and recommend Perez to make investments to increase capacity and expand horizontally. The greatest competitive advantage of Celulosa Arauco is cost. I believe that Celulosa Arauco can take advantage of its low cost effectiveness and become a low cost leader in pulp. If Celulosa Arauco is consistently able to price their pulp lower, it will be increasingly difficult for vertically integrated companies to produce their own pulp in-house. In a commodity market it is critical to keep costs low by maintaining high production efficiencies. I would also recommend Perez to invest further in Research and Development, Forest Management and Genetics to improve the overall quality and life of plantations. Generating electricity from surpluses at the pulp mills will help it to reduce costs further. Concentrating a large amount of revenues from a single source (pulp) carries a lot of risk. Hence, I would recommend Perez to diversify into as many by-products as possible. The panels, timber and wood products market can create a buffer to maintain their margins when the pulp prices are volatile. Celulosa Arauco has an established distribution network including ports that plays an important role to reduce transportation costs. Integrating vertically into paper manufacturing will require different sets of skills and resources. Unlike pulp, paper is

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