The move is likely to increase pricing pressure on paper manufacturers, with pulp prices forecast to drop to around 295 ($540) per tonne by the end of next year, compared to 350 in the first quarter of 2005.

Stora Enso has revealed that it is in talks to build a second pulp mill in Brazil following the start-up of commercial production this week at its low-cost, high-production Veracel eucalyptus plantation in the country's Bahia region.

The first Veracel plant, a 660m joint venture with Brazilian pulp manufacturer Aracruz, is expected to produce 300,000 tonnes of hardwood pulp by the end of this year, before ramping up to full production of around 900,000 tonnes per year.

Keith Russell, Stora Enso senior vice president, investor relations, said: "The growth conditions [in Bahia] are the very best, so if we can recreate the first Veracel plant with Aracruz it would make sense. If we don't do it, somebody will."

A single hectare in Bahia produces around 50m3 of wood per year, around ten times that of Scandinavia. Russell added that Stora Enso was also looking at producing pulp in other Latin American countries.

Pulp production costs in Brazil are far below those in the Northern hemisphere, at around 65 per tonne compared with 175 in North America and 220 in Europe according to estimates in the Financial Times.

Russell said that even when transport and capital costs were added, it was still "significantly" cheaper to import Brazilian pulp to Europe than produce it here.

Investment bank Smith Barney has forecast a 55 drop in  pulp prices by 2007. It also estimates that of the 8.2m tonnes of pulp capacity likely to hit the 270m-tonne global market by 2008, around 7m would come from Latin America.

Story by Josh Brooks