08-05-2025
Sappi slumps almost 15% as it takes hits from SA maintenance, trade war jitters
Shares of Sappi slumped on Thursday after it reported a second-quarter loss.
Global uncertainty weighed, as did a sizeable fair-value loss, as well tougher-than-expected maintenance.
But the group reported positives, including some market share gains, and it is optimistic about improving conditions.
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Shares of paper, pulp and packaging group Sappi slumped almost 15% on Thursday morning after it reported a disappointing second quarter amid depressed SA wood prices, as well as longer-than-expected local maintenance shuts.
Sappi reported a loss of $20 million (R365 million) for its second quarter to end March from a profit of $29 million previously. Its adjusted earnings before interest, taxation, depreciation and amortisation fell 40.5% to $107 million.
The group reported a financial hit of $13 million more than expected as a result of extended maintenance at its Saiccor and Ngodwana mills due to wear and tear on equipment being worse than expected, though these issues have now been resolved. It also saw a R307 million ($17 million) forestry fair value loss amid depressed SA wood prices.
Valued at about R20 billion on the JSE before the fall on Thursday, Sappi's markets include SA, Europe, North America and Asia. Coated paper is its biggest product, accounting for 40% of sales, but the group also produces specialty paper for packaging, among other things, uncoated paper as well as containerboard. North America and Europe are its biggest markets, while SA only makes up 9% of sales by destination, but still represents 26% of its sales by source.
Speaking during a media call CEO Steve Binnie said despite headwinds the group did see some more positive longer-term trends, and while the US tariff push had introduced a great deal of uncertainty, it may offer strategic benefits as well.
The group said direct impact of the currently proposed US trade tariffs on its business to be relatively limited. At present, less than 7% of its sales volumes involve cross-border trade with the US limiting the direct revenue exposure to tariff-related risks.
Given its US footprint, 'tariffs could present a strategic opportunity as downstream participants in the value chain may increasingly shift towards domestic supply,' said Binnie.
More concerning was the inflationary impact of the tariffs as well as the potential effect on trade flows, he said.
'Everybody's adopting a kind of wait and see attitude and that's had an indirect impact on the pricing of our dissolving pulp. That is our most serious concern... hopefully, this can be resolved.'
'I do firmly believe that things have to normalise. The US needs clothing, and eventually the vessels will start flowing again once again and trade will start normalising and that will help pricing,' he added.
In addition, softness in wood prices is also expected to be short-term, given the long-term drive to more renewable production, he said.
The group also saw positives in the form of relatively good demand for packaging and speciality paper - used for example in ecommerce - which again gave it confidence about the long-term potential of this growing market.
The group reported that demand for dissolving wood pulp (DWP) remained steady during the quarter, but the typical seasonal boost in demand post Chinese New Year was not observed as textile and apparel markets slowed on the back of increasing geopolitical trade tensions and macroeconomic uncertainties.
Sales volumes in the packaging and speciality papers segment increased by 9% year-on-year, reflecting a normalisation of inventory levels and modest recovery in demand in North America and SA, though overall global demand remained subdued as a result of global uncertainty.
While market conditions for graphic papers remained soft, targeted efforts to grow market share delivered positive year-on-year gains, the group said. Graphic paper is an industry in structural decline amid the rise of digital media and ecommerce.
Binnie said this was all about customer relationships, with the group working with key customers to consolidate its footprint, with this at the expense of weaker players, being reflective of an industry where stronger players have an edge.
Sappi's shares had slumped just under 15% in mid-morning trade on Thursday, trimming its market value to about R16.8 billion. The shares had now just under halved on a one-year basis.
