Global trade wars have dealt a blow to paper and pulp producer Sappi in recent months as China’s clothing sector adopts a more cautious stance towards the US.
The group swung to a $20m loss in the three months to end-March, compared with a $29m profit in the previous second quarter, as concern about declining US clothing imports put pressure on the price of dissolving wood pulp (DWP).
DWP, used to make lyocell and viscose to produce clothing and textiles, is one of Sappi’s most popular products, contributing just under 20% of the group’s sales.
The US imports most of its clothing, with a large proportion of imports coming from China. As tension between the world’s two largest economies escalated in the first few months of the year, demand for DWP came under pressure and, in turn, prices.
“Because of the uncertainty, there’s been a stalling of shipments from China to the US. Everybody is adopting a ‘wait-and-see’ stance, which has had a big impact on selling prices of dissolved pulp,” said Sappi CEO Steve Binnie.
As a result, Sappi’s adjusted earnings before interest, taxation, depreciation and amortisation (ebitda), or core profit, slumped more than 40% to $107m in the second quarter.
As US tariffs on Chinese textile and apparel manufacturers continue to pose a significant threat to Sappi’s balance sheet, the group warned that its third-quarter adjusted ebitda was likely to be “at a similar level”, meaning more losses were on the horizon.
At least 7% of the group’s sales involve cross-border trade with the US, but the indirect inflationary effect of US President Donald Trump’s tariffs “may materially weaken consumer demand across all of our key markets,” said the company.
In the light of those headwinds, Binnie told Business Day that the group’s focus remained on maintaining operational flexibility and cost discipline. He was confident that the worst was over.
“I do firmly believe that things have to normalise. The US needs clothing, and eventually trade will return to normal,” he said.
On top of macroeconomic and trade challenges, the group’s second-quarter performance was negatively affected by scheduled maintenance shutdowns in SA, costing the group $57m.
An extended pause in operations and expansion of the group’s Somerset Mill PM2 in North America cost a further $20m.
Update: May 8 2025
The article has been update with new comment.
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