Arauco Swings to Profit as Copec Backs $4.6bn Brazil Mill

Chilean pulp and forestry group Arauco returned to profit in the first half of 2026, posting net income of about $71 million to $72 million after a $10 million loss in the same period a year earlier. The recovery was driven entirely by volume rather than pricing.

Second-quarter sales climbed 5.2% year on year on higher pulp and wood shipments, while cumulative first-half revenue edged up just 0.7%. This dynamic indicates the company is relying on operational efficiency and cost control to navigate a market where buyers are active but unwilling to pay a premium. Arauco is effectively keeping its mills running and waiting for the price cycle to turn.

The more consequential development for capital markets is parent company Empresas Copec’s financial backing for Arauco’s Sucuriú megaproject in Brazil. Copec has approved an irrevocable, unconditional commitment of up to $450 million, available between January 2027 and December 2028 if specific trigger events occur.

While the exact triggers are undisclosed, such mechanisms typically relate to construction milestones, cost overruns, or working capital shortfalls. The commitment functions as a safety net and a signal to lenders, with Arauco’s own cash flow and project financing expected to cover the bulk of the costs.

A cross-border supply bet

The total investment for the Sucuriú mill in Mato Grosso do Sul stands at roughly $4.6 billion. Slated for startup in late 2027, the facility is designed to produce 3.5 million tonnes of pulp annually. That volume will enter a global market that is already well supplied, which could pressure short-term prices once production begins.

However, Arauco’s decision to build in Brazil rather than its home market reflects a strict capital allocation logic. Brazil offers faster eucalyptus growth cycles and more favorable logistics, integrating Chilean capital with Brazilian land to serve global markets.

For investors, the first-half earnings demonstrate Arauco's ability to generate returns in a flat pricing environment. Sucuriú is a longer-term wager that structural demand from packaging, tissue, and textiles will eventually absorb the new supply and reward low-cost producers. Over the next 18 months, the key metrics to watch are global pulp prices, the Brazilian real exchange rate, and the project's construction progress.