Sappi may close more mills in Europe amid falling demand, rising input costs; world's largest fine paper producer being squeezed by shift to digital from print, now focusing investment on higher-value chemical cellulose

Debra Garcia

Debra Garcia

May 29, 2013 – Industry Intelligence Inc.

LOS ANGELES , May 29, 2013 () – The world’s largest producer of fine paper used in glossy magazines, Sappi Ltd., could close more European mills as it is being squeezed by falling consumer demand and the transition to digital from traditional print media, Reuters reported on May 28.

The Johannesburg-based company is cutting costs in every area of its European business to boost margins, CEO Ralph Boettger said in a Reuters interview. He added that capacity would need to be taken out, which could result in machines or entire mills being closed.

Amid a paper industry-wide struggle with a slump borne of overcapacity and weak demand, Sappi has already taken steps to cut capacity in all its operations, Reuters noted in the article carried by South Africa’s Independent Online.

Rising costs of inputs such as pulp have contributed to pressure on the company’s margins, Boettger said.

As reported on May 9, Sappi's fiscal Q2 profit fell to US$7 million from US$58 million a year earlier, on sales down 8% to US$1.5 billion, amid the weaker market conditions in Europe—Sappi’s biggest market—and the company’s inability to raise coated graphic paper prices.

Sappi is looking to shift its focus toward higher-margin, non-paper products, in particular chemical cellulose, of which the South African company is the world’s largest producer. While cutting back on paper capacity, Sappi is investing $500 million to boost its chemical cellulose capacity, according to a May 28 article in Business Day, Johannesburg.

On February 15, Industry Intelligence reported that Sappi aims to maintain its position as a global leader in the chemical-cellulose market with mill conversions to dissolving pulp in Ngodwana, South Africa, and Cloquet, Minnesota, enabling the company to produce more than 1.3 million tonnes/year.

While Sappi has capacity in chemical cellulose--used in clothes, packaging and other goods—set to come on line this financial year, an analyst with Avior Research (Pty) Ltd. in South Africa noted that the company had not yet eased its reliance on Europe, Business Day reported. However, while revenues will likely go down, profits will rise because of the change the Sappi’s product mix and the higher margins in chemical cellulose and the company’s product mix, the analyst noted.

The primary sources of this article are Reuters, via Independent Online, Johannesburg, South Africa, on May 28, 2013, Business Day, Johannesburg, South Africa, and Industry Intelligence Inc. archives.

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