Sappi’s third quarter lifted by strong pulp market

Pulp and paper producer Sappi has delivered a strong third-quarter operating performance despite the period being traditionally the weakest for its business.

Sales for the three months to end-June were up 3% to $1.37bn, while profit for the period rose 28% to $51m. Earnings before interest, taxes, depreciation and amortisation (ebitda) excluding special items of $151m was 42% ahead of a year ago.

“Despite the third quarter being seasonally the weakest for our business and a sluggish global economy, the underlying profitability, excluding a $30m impact of the scheduled maintenance shuts at Saiccor and Somerset mills, remained steady quarter on quarter,” the group said in a statement on Thursday.

The performance was driven by sustained strong market conditions in the pulp segment, offset by a muted recovery in paper markets. Included in ebitda was a positive plantation fair value price adjustment of $3m.

Globally consumer sentiment showed signs of improvement as inflation subsides, which provided a boost for packaging and textile markets. However, graphic papers markets generally remained subdued with the recovery after the destocking cycle of 2023 slowing during the quarter.

Market conditions for dissolving pulp remained favourable, supported by tight supply and strong demand, which was enhanced by high downstream viscose staple fibre operating rates and low inventory levels.

Pulp sales volumes declined by 5% compared with the previous year and quarter, driven by low inventory levels at the beginning of the quarter and lower external high yield pulp sales due to the scheduled annual maintenance shut at the Matane Mill in Canada.

Graphic papers sales volumes increased by 13% compared with the weak performance last year, which supported a substantial year-on-year improvement in profitability for the segment.

The packaging and speciality papers segment experienced a challenging quarter. Paperboard demand in North America rebounded, but selling prices came under pressure and the scheduled Somerset Mill maintenance shut had a negative effect on the region.

European demand also improved, albeit off of a low base.

A weaker-than-forecast citrus fruit season, due to adverse weather, had a negative effect on containerboard demand in SA. Despite these headwinds, sales volumes were 22% above the prior year and improved by 10% quarter on quarter.

The positive sales volumes momentum was offset by rising costs and declining prices, which negatively affected the profitability of the segment.

While global macroeconomic conditions and consumer sentiment are slowly improving, a high level of uncertainty remains, worsened by logistical challenges.

Sappi said it remained well positioned with its competitive dissolving pulp business and strategic focus on growing the packaging and speciality papers segment to benefit from a global economic rebound.

Capital expenditure for the full year is expected to be slightly below previous guidance due to phasing projects and was likely to be in the region of $480m. This includes about $154m for the Somerset PM2 conversion and expansion project.

“Market prices for hardwood timber have reduced in recent weeks and we anticipate that the plantation fair value price adjustment for the fourth quarter will offset the majority of the gain from prior quarters,” it said.

Notwithstanding the slow recovery in global macroeconomic conditions, and taking into consideration the effect of rising costs, the group expects ebitda for the fourth quarter to be above that of the equivalent quarter last year.

mackenziej@arena.africa