Sappi, the world’s largest maker of dissolving wood pulp, expects profits to fall in the year ending September 2019, partly because of subdued demand for graphic paper.
Shares in the group, which said as recently as March that earnings for the full year were expected to rise, were 8% down on Thursday morning at R61.43, the worst level in about three years.
“Given the current weak market conditions for graphic paper, dissolving wood-pulp pricing pressure from oversupplied viscose stable-fibre markets and our more conservative outlook on the global economy, the second-half and full-year profitability are now expected to be below that of last year,” CEO Steve Binnie said on Thursday.
Sappi said profits fell in the second quarter to March as demand for graphic paper fell.
“Graphic-paper markets were much weaker than expected due to an economic slowdown and the impact from selling prices implemented last year,” Binnie said.
Demand in the company’s major graphic-paper product categories was down between 8% and 13% in Europe and North America, Sappi said. In response, the group had scaled back production.
Despite expected closures or conversions of graphic-paper mills by competitors, “it may take the remainder of the calendar year before sufficient capacity is removed to allow operating rates and margins to recover”, Sappi said.
Second-quarter profit fell to $72m from $102m a year before, while net debt rose marginally to $1.7bn.
Group packaging and “specialities” sales volumes rose 18% and dissolving wood-pulp sales grew 16% year on year.
As part of its plans to target higher-margin segments, Binnie said Sappi’s capital expenditure for the rest of 2019 was expected to be about $370m.