Sappi says demand is slowly returning


Sappi says demand is slowly returning

Published Date: 2020-07-31 | Source: Stephen Gunnion | Author: Stephen Gunnion

Sappi says demand is slowly returning

The pulp and paper producer fell into a quarterly loss as Covid-19 added to already weak markets for dissolving pulp and graphic paper.

Sappi says already tough markets for graphic paper and dissolving pulp (DP) have been exacerbated by the spread of Covid-19. The pulp and paper producer says the overall effect of the pandemic and related lockdowns, changes in consumer behaviour and logistical challenges have had a severe impact on its business, sending it into a loss for the third quarter of its financial year.

The group experienced a rapid downturn in demand for DP, which is used to create viscose fibre for fashionable clothing and textiles, as retail stores globally were shut in response to the pandemic, with clothing sales particularly hard hit. This led to a chain reaction throughout the supply chain as orders were cancelled. In response to the lower demand, curtailment was taken and some production was switched at its Ngodwana mill in Mpumalanga and the Cloquet mill in the US from dissolving pulp to paper pulp for internal consumption as well as external sales.

It said the lockdowns and the corresponding economic slowdown also had a serious impact on graphic paper demand. Many companies including retailers and consumer-related businesses reduced advertising spend and printers halted production.

However, its packaging and specialities business increased sales volumes during the quarter. It said this segment continued to support its strategy to diversify its product portfolio into higher margin and growing segments.

For the three months to end-June, DP sales volumes fell 29%, while it sold 40% less graphic paper. Initiatives to cut costs and positive currency movements helped it reduce fixed costs by $67 million from the same quarter last year. Still, earnings before interest, tax, depreciation and amortisation (EBITDA) before special items fell 78% to $26 million. It reported a $73 million loss.

Sappi said it expected the slow recovery in its markets to progress in the coming quarter, with estimated sales volumes of 75% and 70% of last year's levels for DP and graphic papers respectively. Demand for DP appeared to reach low point in late May, with a steady recovery in demand since then.

Its shares fell 13% to R25.51 yesterday.

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