Pulp and paper producer Sappi’s loss widened in the June quarter as its performance was affected by depressed selling prices, cost inflation associated with the Middle East conflict and a $22m hit from the scheduled maintenance shut at its Ngodwana Mill.
On Thursday, the group reported that its loss for the June quarter widened to $181m from $33m a year ago, taking its loss for the nine months to end-June to $631m.
Revenue for the June quarter was up 1% at $1.33bn while adjusted earnings before interest, tax, depreciation and amortisation (ebitda) was down 34% at $53m from a year ago.
However, it said the continued ramp-up of Somerset Mill PM2 and anticipated lower maintenance costs are expected to make for a better final quarter.
The group said the highlight for the June quarter was improved profitability in the North American region, where paperboard sales volumes from its Maine, US, Somerset Mill PM2 and operational efficiencies improved.
However, the stronger rand significantly lowered the profitability of the South African business.
The forestry fair value price adjustment for the quarter was a loss of $152m, driven largely by adverse currency movements on hardwood timber pricing and the negative effects of escalating fuel costs, it said.
The group said the pulp segment operated within a more supportive market backdrop during the quarter, with demand for dissolving wood pulp robust despite it being a seasonally slower period.
Demand was underpinned by healthy viscose staple fibre (VSF) industry operating rates and favourable demand for cellulosic fibres, as higher petrochemical costs associated with the conflict in the Middle East continued to pressure competing polyester textile fibres.
The packaging and speciality papers segment delivered significant sales volume growth of 14%, driven by improving paperboard demand in North America and the continued commercial ramp-up of Somerset Mill PM2.
However, segment profitability deteriorated year on year due to higher operating costs, which included the effect of the scheduled maintenance closure at Ngodwana mill.
In Europe, sales volumes were marginally ahead of last year, driven by growth in label paper sales, Sappi noted. Despite the implementation of price increases to recover higher input costs, selling prices and margins in the European region remain depressed.
In South Africa, demand for containerboard was robust, but selling prices remained under pressure from low-cost imports supported by the stronger rand. The graphic papers segment continued to operate in a challenging environment characterised by structural demand decline and ongoing industry overcapacity.
The group’s shareholders recently approved the proposed formation of a 50-50 graphic papers joint venture between Sappi and UPM. The remaining conditions are expected to be completed by the end of 2026.
“While demand in several of our end-markets has shown signs of improvement, underlying macroeconomic conditions remain uncertain.”
It said conditions across a number of its product categories are improving, driven by strengthening pricing dynamics and operational momentum.
Sentiment in global packaging and speciality paper markets is slowly improving, and the segment is expected to benefit from the continued ramp-up of Somerset Mill PM2 and recent paperboard price increases in North America.
Containerboard demand in South Africa remains healthy, supported by agricultural export markets.
A scheduled annual maintenance shut for one of the lines at the Saiccor mill in KwaZulu-Natal is planned for the fourth quarter and is expected to reduce earnings by about $7m, Sappi said.
Capital expenditure for the full year is expected to be about $240m, slightly below previous guidance of $250m.
The forestry fair value price adjustment for the fourth quarter is expected to be positive.
Taking into account current trading conditions, the continued ramp-up of Somerset Mill PM2 and the lower maintenance costs anticipated in the quarter, offset by ongoing geopolitical uncertainty and volatility in global markets, Sappi estimated adjusted ebitda for the fourth quarter will be “materially above” that of the third quarter.
The market gave Sappi the benefit of the doubt, with its shares rising the most in a month, up 12.56% to R14.07.
Business Day
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