11 August 2019 Paper

Sappi revenues hit by weakening market

Declining demand for coated papers has been mitigated for Sappi by the loss of some competitors and shifts from graphic grades to packaging papers.

Demand for coated printing papers continues to decline in Europe and North America according to Sappi, reporting third-quarter results.

Its earnings fell to $118 million ($155 million) with profit dropping to $8 million compared to $51 million. Sales were $1.37 billion ($1.45 billion) with 51% coming from woodfree coated papers.

CEO Steve Binnie says: "We faced challenging market conditions across all our major product categories, but in particular from sluggish graphic paper demand in Europe and North America which necessitated production downtime.”

This has been worse than that associated with the normal summer holiday slowdown in Europe and underlines Sappi’s shift to packaging papers at its Maastricht mill and at the Somerset mill in the US. It has, however, increased capacity to produce woodfree coated paper at its Lanakan mill in Belgium.

The rebuild of PM8 has been completed in the quarter to enable it to produce WFC papers as well as LWC magazine papers, which are also under pressure as demand drops. Volumes from this machine are not yet at commercial levels.

It is not all bad news for Sappi. “In Europe, Sappi gained significant market share in coated woodfree paper as competitors looked to exit the market,” the company says. This meant that its volumes were down just 3%. “Higher average net selling prices and purchased pulp prices that declined throughput the quarter partially offset the impact of weak graphic paper sales into the publishing sector in Europe.”

And with slowing economies, the demand for packaging and speciality papers was flat in Europe.

Binnie is predicting that Sappi’s profits for the final three months of its financial year will be below those of last year, “given the current weak market conditions for graphic paper”. Demand for dissolving wood pulp and for viscose staple fibre are both soft, the latter affected by the US/China trade war.

The lower pulp prices are helping compensate for lower paper prices in both the US and Europe, but this will not prevent the need to shut down capacity or convert more machines to packaging in order to bring production and demand back into the balance that the paper company needs.

During the quarter, Sappi took production downtime in Europe equivalent to 30,000 tonnes of production. In the US, rising prices of woodfree coated papers has led to some switch to lower grades, to coated mechanicals and uncoated papers.

This has led to the liquidation of several mills specialising in coated papers, including Heaven 42. This had been produced at Scheufelen until the closure of that mill, shifting then to Feldmuehle which has since collapsed. During the quarter Sappi began making the ultra bright ultra smooth paper in the quarter.

By Gareth Ward

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Sappi's largest

Sappi's largest

Sappi has noted a year on year decline in coated paper volumes, but says that thinks to rivals closing down or converting machines, the decline was not as great as it might have been. There has still been unscheduled down time to reduce volumes in the market.

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