UPDATE 2-Fibria sees China demand rebounding from tough first quarter

(Recasts with Chinese outlook, CEO comments)

SAO PAULO, April 27 (Reuters) - Brazil’s Fibria SA expects Chinese wood pulp demand to recover this quarter, executives said on Wednesday after reporting weaker-than-expected earnings on soft sales there.

First-quarter net income of 978 million reais ($278 million) missed the average estimate of 1.26 billion reais in a Reuters poll of analysts. The results were an improvement over a year-earlier loss of 566 million reais, though, as a weaker currency aided the company’s export-focused business.

Shares of the world’s largest producer of eucalyptus pulp were down 3 percent in Sao Paulo trading. At Tuesday’s close, they had fallen nearly 40 percent in the last four months as a recent rebound for Brazil’s currency and soft demand in China hurt one of last year’s best-performing stocks on the Sao Paulo exchange.

Chief Executive Officer Marcelo Castelli tried to allay fears of collapsing Chinese demand, assuring analysts that weak sales in China were due to buyers burning through inventory as a negotiating tactic.

“The Chinese were using inventory to bring down prices,” Castelli said on a conference call. “The demand was absolutely back in March and April  as they need to restock inventories.”

He said recovering demand in China was contributing to “very good” sales this quarter, when production should also benefit from a lack of scheduled maintenance at Fibria’s plants.

Two other pulp producers have already raised prices in China from March lows, Castelli said, adding that Fibria would wait for more clarity before deciding to do so.

Earnings before interest, taxes, depreciation and amortization rose 25 percent from a year earlier to 1.254 billion reais, excluding one-time accounting losses of 21 million reais.

Exchange rate variations also helped earnings. A nearly 10 percent rebound in Brazil’s currency during the quarter reduced the cost of dollar-denominated debt in reais, generating a net financial gain of 922 million reais, compared with a year-earlier loss of 1.746 billion reais.

$1 = 3.52 Brazilian reais Reporting by Brad Haynes and Guillermo Parra-Bernal; Editing by Paul Simao and Lisa Von Ahn