Sappi will continue to work to strategically lower its exposure as the graphic paper market contracts, eliminating more capacity in 2025 by reorienting and modernising its factories to produce highly sought-after paper and pulp products.
The group is also further diversifying its packaging and speciality paper portfolio with the creation of several new products.
Graphic paper includes newsprint, coated wood-free, coated mechanical and uncoated wood-free, used in commercial printing.
Sappi’s market-leading range of coated and uncoated graphic paper products is used in magazines, corporate reports, direct mail, high-quality brochures, catalogues, calendars and books.
These markets have experienced a permanent structural decline in demand and are expected to resume the historical 6%-8% decline through the 2025 financial year amid significant overcapacity globally.
With more than 70% of its capacity in Europe catering to this dwindling industry, Sappi’s European division is especially vulnerable to declining graphic paper markets. The closure of the Stockstadt and Lanaken mills reduced graphic paper capacity in Europe by 30% in 2024, but the group said further reconfigurations would be made to diversify production away from the dwindling graphic paper segment.
The PM9 machine at Gratkorn Mill in Austria was successfully converted at the end of the financial year to produce high-quality label paper, Sappi told shareholders in its latest annual report.
This increased the machine’s production capacity to produce a wide variety of label papers, including self-adhesive and wet-strength label papers in addition to conventional coated wood-free graphic paper grades.
CEO Steve Binnie said the strategic conversion greatly improved the Gratkorn Mill’s competitive position because the PM9 machine’s improved technical capabilities expanded the product portfolio, giving more flexibility to optimise the product mix and successfully counteract the expected slow decline in graphic paper volumes.
Challenges persist in the short term in Europe as market recovery is taking longer than expected and the macroeconomic landscape remains unpredictable, which is likely to continue to weigh on consumer sentiment.
— Steve Binnie, Sappi CEO
Binnie said as the group increased the wet-strength label manufacturing on Gratkorn PM9 in financial year 2025, it would remove additional graphics paper capacity.
“In the short term, we will continue to reduce our graphic papers capacity as we increase label production on our Gratkorn PM9 machine following the successful capital project to expand our label capabilities to produce wet strength labels,” said Binnie. “Through this project, we will remove a further 100,000-150,000 tpa of CWF capacity thereby maintaining our capacity/demand balance for the near future.”
Through the investment, Sappi is looking to introduce advanced technological innovations, such as a new embossing calendar and updated water and material cycles, critical for producing durable wet-glue label papers suited for returnable beer bottles.
The group said certain mills are able to switch between different products, and it was technically and financially feasible to separate graphic papers from packaging and speciality papers.
The group reported that at the same mill in Austria, it was making considerable progress with the multiphase modernisation of PM11, which is the largest coated wood-free paper machine in Europe, set for completion in the upcoming year.
Advanced automation, electrical upgrades, new control systems, and improved quality inspection technologies are just a few of the major enhancements the project brings to the machine.
“This project, pivotal to our graphic papers strategy, strengthens Sappi’s position in a challenging market and supports our commitment to delivering consistent, high-quality output in the print industry,” said the CEO. “The modernisation of PM11 at Gratkorn Mill will allow us to continue to serve the print market profitably.”
Sappi has faced a challenging operating environment in Europe due to a combination of delayed recovery, market overcapacity, and dwindling demand for graphic paper. While restructuring the European business, its board has been implementing strategies to control the excessive exposure of graphic papers in North America and Europe, where constraints remain unabated.
“Challenges persist in the short term in Europe as market recovery is taking longer than expected and the macroeconomic landscape remains unpredictable, which is likely to continue to weigh on consumer sentiment,” said Binnie. “We therefore do not expect any meaningful volume recovery in the region in the first quarter of the financial year.”
Sappi Biotech continued to create new circular products for adjacent markets while maintaining its long-term strategic emphasis.
New biomaterials for various industries were added to Sappi's Valida product line during the year, including Valida T, a biodegradable rheology modifier that complies with EU environmental requirements, and Valida fibrillated cellulose for cosmetics and home care, which uses 60% less energy.
In the agricultural sector, Valida’s microplastic-free formulation supports crop protection and fertiliser with a 30% energy reduction, making it a sustainable choice over synthetic polymers, the group said.
It has expedited the development and commercialisation of higher-value lignin-based products and its lignin business continues to present a strategic growth potential. Additionally, in 2024, Sappi successfully introduced Viscowell, a lignosulfonate-based product used in oil-well drilling to thin mud, reduce fluid loss, and delay well cementing.
The group said it would continue exploring the possibility of making small investments to increase its capacity for packaging and speciality papers.
“We are targeting to spend an estimated $500m on various capital projects, resulting in increased debt,” Sappi said
Though Sappi anticipates a minor short-term increase in net debt from the $1.4bn tallied at year-end, its medium-term goal is to have net debt at about $1bn and sustain net debt/ebitda at 1.5x through the cycle.
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