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Business|Electrical|Energy|Fire|Paper|Maintenance|Products
Business|Electrical|Energy|Fire|Paper|Maintenance|Products
business|electrical|energy|fire|paper|maintenance|products

Sappi expects weaker Q2 profit as input costs rise

1st March 2010

By: Chanel de Bruyn

Creamer Media Senior Deputy Editor Online

  

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Paper and pulp producer Sappi expected its 2010 second-quarter operating profit, excluding special items, to remain positive, but said this would be below the level achieved in the first quarter of the year, given rising input costs.

Speaking at the group’s annual general meeting, on Monday, nonexecutive chairperson Dr Danie Cronje noted that conditions in the group’s largest markets were expected to improve gradually in 2010, which would result in rising demand for its products. 

“Input prices for our raw materials and energy are likely to continue rising,” he stated.

Further Cronje highlighted that strong demand for pulp and chemical cellulose, which would be accompanied by rising prices for these products, would have a favourable impact on the group’s South African and North American businesses, as these were net pulp sellers.

However, the increased pulp prices would lead to higher costs for Sappi’s European business, which bought more than half of its pulp requirements.

The European business would already have been negatively impacted on by the fact that the recovery in the coated mechanical paper segment was lagging that of the coated woodfree paper.

Sappi would, subsequently, increase its European coated woodfree paper prices by 10% from March.

“While we continue to face volatile market conditions and our finance costs will be substantially higher than in the past, we believe we are on the way to improved profitability and returns and lower debt levels,” said Cronje.

Meanwhile, he added that a schedule pulp mill maintenance shut down at its Nogdwana Mill and a five-day shut down at its Saiccor Mill, in January and February, would impact negatively on the group’s second-quarter results.

Further, the group expected its Stockstadt coated woodfree paper machine to restart at the end of March.

The machine had been shut down as a result of an electrical fire in December. Restoration costs and the business interruption would amount to about $30-million.

Edited by Mariaan Webb
Creamer Media Senior Deputy Editor Online

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