Paper and pulp producer Sappi has reported a loss for the second consecutive quarter as global trade wars weigh on its earnings.
The group reported a $33m loss in the third quarter to end-June after a $20m loss in the second quarter.
As European manufacturers and Chinese clothing makers adopt a more cautious stance to their exports in the face of US President Donald Trump’s hostile tariff policies, Sappi has seen the demand for its biggest products take a hit in recent months.
First is dissolving wood pulp (DWP), used to make semisynthetic materials lyocell and viscose to produce clothing and textiles. DWP is one of Sappi’s most popular products, contributing just under 20% of the group’s sales.
However, one of the biggest markets for Sappi’s DWP is China, where sentiment across the textile value chain has soured on US policy uncertainty and the country’s deflationary environment which, with low paper pulp prices, encouraged local producers to increase DWP production this year.
Amid the heightened competition and subdued sentiment in Asian markets, China’s benchmark DWP price dropped by $100/tonne in the third quarter alone, resulting in sales for Sappi’s pulp segment being down 4% year on year in the three months to end-June.
“The textile and apparel sector, which is a key driver of DWP demand, remains highly sensitive to ongoing trade tensions and inflationary pressures,” said the company.
Trade tension has also weighed on the group’s packaging segment, in which profitability was “significantly below” that of the previous year as manufacturers, particularly in Europe, pulled back production in response to uncertainty and subdued sentiment globally.
Sappi said demand across its packaging and speciality paper markets was weighed down by “lingering economic challenges and cautious consumer behaviour”.
“Escalating tariff-related trade tensions between the US and key global trading partners continue to contribute to significant uncertainty in the international economic landscape,” said the company.
The group attributed the slip in packaging sales to increased competitive pressures in Europe and extended downtime at its Ngodwana mill in the second quarter.
Sappi reported adjusted earnings before interest, tax, depreciation and amortisation (ebitda) of $390m for the first nine months, down 15% year on year. For the year to date the company’s profit is $17m.
As trade wars put pressure on profitability, the firm posted a net debt position of $1.95bn at end-June, up 45% from the previous first three quarters.
On the weaker results and a growing debt burden, the group announced that no dividend would be declared for the 2025 financial year.
CEO Steve Binnie attributed the jump in the company’s debt levels to weaker profitability, a softer dollar and investment in its Somerset Mill in the US.
In about the past year, Sappi has invested $500m in the mill in a bid to grow its presence in North America. The mill’s expansion was completed in early May, shaving $22m off the group's third quarter ebitda.
“Now that the project is complete, there’s a strong focus on bringing down debt, so our capex over the next two years will be substantially lower and focused more on sustaining capex,” Binnie told Business Day.
Profitability in the paper and packaging segments is expected to improve in the final quarter of the year as the Somerset Mill ramps up production.
Packaging comprises about 35% of the company’s sales, a figure that Binnie expects to push up to 40% in the coming years as Somerset ramps up. He was upbeat that a recovery in this component of the business would boost overall profitability, helping Sappi to cut its net debt to $1bn in the next three years.
“A combination of higher profitability, reduced capex, no dividend [being declared] and cost-cutting will allow us to reduce debt,” he said.
“Reducing net debt is our immediate priority and we will continue to assess our capital allocation in line with our financial position and long-term strategic objectives,” said the company.
Update: August 7 2025
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