ITOCY Itochu Corp (PK)

Japanese controlled pulp maker Cenibra may suspend a $2.5 billion investment in Brazil due to government restrictions on purchases of land by foreign companies, Estado de S Paulo newspaper reports.

Cenibra, which is controlled by Japanese companies Oji Paper Co. (3861.TO), Itochu Corp. (8001.TO) and Nippon Paper Group (3893.TO), plans to double its annual capacity to 2.6 million tons of pulp by expanding operations in Minas Gerais state, the newspaper said in a Dec. 17 report.

However, the Brazilian government last year limited purchases of land by foreign companies or companies controlled by non-Brazilians. As a result of the restrictions, the Japanese partners are unable to go forward with planned land purchases and decided to hold off on the investment, Estado reported, citing Cenibra President Paulo Eduardo Rocha Brant.

Cenibra's press office told Dow Jones Newswires on Monday the company is awaiting changes in the rules by Brazil's government before going forward with the investment.

Another possible impediment to the project is the high cost of production since the company cultivates trees on steeply inclined land which requires manual cutting, Estado said. Cenibra is seeking to expand mechanization, which currently accounts for 60% of production.

The company may invest in new technology that would allow it to mechanize production on steeper slopes, Brant told the newspaper. The company also may buy raw materials from outside suppliers, who currently provide 10% of material.

-By Paulo Winterstein, Dow Jones Newswires; 55-11-3544-7073; paulo.winterstein@dowjones.com

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