Brussels, Belgium, 02 March 2010 -- Global pulp and paper group Sappi on Monday said it expected a scheduled major pulp mill maintenance shutdown at the Ngodwana mill, and a 5-day shutdown at Saiccor mill in South Africa, during January and February 2010, to negatively effect its results during the second financial quarter.
Speaking during the company's annual general meeting, Sappi independent non-executive chairman Danie Cronje said in Europe the Stockstadt coated woodfree paper machine, which was shut as a result of an electrical fire in December, was expected to restart toward the end of March 2010. But the cost of restoration and business interruption is expected to be about USD 30 million (R230 million), most of which is self-insured.
"It will be too early to see any major impact from the price increase in Europe in the financial results for the quarter ending March," Cronje said. "We expect the operating profit excluding special items in our second financial quarter to remain positive but to be below the level achieved in the first quarter."
For the balance of the year, conditions in Sappi's major markets were expected to "improve gradually" in 2010, resulting in rising demand for its products. Although the company expects demand and its capacity utilization to improve compared to financial 2009, it does not expect demand to return to 2008 levels. "We will therefore continue to manage our output to meet customer demand," said Cronje.
The global recession has left papermakers struggling to balance declines in demand, weaker prices, and excess capacity.
Sappi last year took steps to balance its output with demand by closing several mills, the latest of which was the Usutu Pulp Mill in Swaziland with a capacity of 190,000 tons annually.
In October last year Sappi announced the permanent closure of the Kangas mill in Finland, which removed 210,000 tons of capacity.
This was preceded by the proposed closure of its Blackburn mill in the United Kingdom and the permanent closure of its Muskegon, Michigan, coated fine paper mill in the United States earlier in the year.
"Current indications are that recovery of coated mechanical paper is lagging that of coated woodfree paper, which will negatively impact our European business," warned Cronje. He said input prices for raw materials and energy were also likely to continue rising.
The strong demand for pulp and chemical cellulose, accompanied by rising prices, is expected to favorably affect South African and North American businesses, which are net pulp sellers. Increased pulp prices are expected to result in rising costs for Sappi's European business, however, which purchases more than half of its pulp requirements.
"As a result of the very low prices of coated woodfree paper, good capacity utilization and these cost pressures, we have announced price increases of at least 10% for coated woodfree paper in Europe, with effect from March 2010," Cronje said. "The achievement of synergies from our European acquisition last year is already close to our target to achieve EUR 120 million per annum within 3 years. This, together with cost reduction initiatives and mill and capacity closures over the past year, is expected to help offset rising input costs," he said.
"We continue to expect an improvement in operating profitability excluding special items in financial 2010," Cronje said. "While we continue to face volatile market conditions and our finance costs will be substantially higher than in the past," he said, "We believe we are on the way to improved profitability and returns and lower debt levels."