Sappi cushioned by rising dissolving pulp prices

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Sappi cushioned by rising dissolving pulp prices

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Published Date: 2021-05-07 | Source: Stephen Gunnion | Author: Stephen Gunnion

Sappi cushioned by rising dissolving pulp prices

The pulp and paper producer expects quarterly earnings to continue recovering from the impact of Covid-19.

Sappi says dissolving pulp markets have continued their rapid recovery, with Chinese market prices at their highest levels in nine years. That's been countered by weak demand for graphic paper, holding back second-quarter earnings.

Releasing results for the three months to 31 March, the paper and pulp producer said it was steadily recovering from the ongoing challenges of the Covid-19 pandemic, with core earnings continuing to improve from last year's lows and further improvement expected in the current quarter. Its North American and South African regions recorded higher profitability. This was in contrast to Europe where extended lockdowns and restrictions on economic activity hindered the performance. Covid-19 also severely affected global shipping and container availability, which impacted sales volumes in a number of product categories.

Sappi said the key factors supporting the positive sentiment in the DP sector included continued tight supply, low viscose staple fibre (VSF) inventory levels throughout the textile value chain, improved apparel retail demand in the US and Asia, higher paper pulp prices and a continued weaker dollar/renminbi exchange rate.

Sales volumes in the packaging and specialities segment increased by 25% compared to last year due to a further ramp-up of board products in North America and strong containerboard demand in South Africa. While demand for most categories in Europe was positive, it said some non-essential products were affected by Covid-19 related lockdowns.

The steady rate of recovery in graphic paper demand over the last two quarters slowed and sales volumes in the segment were 17% lower than the same quarter last year. Capacity closures enabled the company to gain market share but pressure on input costs, particularly pulp, and rising delivery charges impacted profitability negatively.

For the quarter, earnings before interest, tax, depreciation, and amortisation (Ebitda) came in at $112-million, down from $131-million in the same quarter last year but higher than the $98-million reported for the December quarter. It reported a net loss for the period of $23-million from a $2-million profit in March last year. Earnings per share excluding special items came in at a 1c loss from earnings of 4c last year. At the end of March, net debt amounted to $2.07-billion.

The company said graphic paper markets remained challenging and demand was still well below the long term pre-Covid-19 trend levels. Persistent weak demand in Europe was likely to keep the market in oversupply and diminish pricing power. The lag in sales price increase realisation in combination with rising raw material and logistics costs could exacerbate the margin squeeze even further in that region, it said.

Sappi's shares fell 4.3% to R48.05 yesterday.





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