Aracruz Problems Compounding
Brazil-based Aracruz Celulose S.A. (ARA) is the world's largest producer of bleached eucalyptus pulp, as well as one of the low-cost producers of this product. The international outlook for pulp and paper prices is uncertain due to the current global financial crisis.
The difficult economic environment in the U.S. and Europe resulted in a decrease in pulp’s list prices all over the world. In addition, the recently announced shareholder lawsuits against the company for undisclosed currency derivative contracts to purportedly hedge against the company's U.S. dollar exposure reduces the market’s confidence in Aracruz’s management.
Moreover, the postponement of the merger with Votortantim Celulose S.A. (VCP) and the one-year suspension of the Guaíba project expansion will prove to be negative for the company. We are reiterating our Sell recommendation on the shares.