Sappi sees gradual recovery

Johannesburg - Paper maker Sappi expects demand and prices to recover gradually, with cost and capacity cuts helping to balance a market plagued by weak earnings and oversupply, its head said on Monday.

Chief Executive Ralph Boettger said demand for its key coated fine paper grade, used in magazines such as Vogue, has seen a strong recovery in North America, and volumes in Europe have been on the upside as well, although at a lower pace.

"(European) volumes are recovering, but prices are still under pressure... we believe the recovery will be a gradual one and we hope to get back to the 90 percent operating rates ... by the end of next year," Boettger told Reuters in an interview.

Boettger said demand for high-end magazines had been holding up well, although the market for coated mechanical paper, used in non-specialty titles, is taking longer to recover as a lot of the magazines have disappeared from the market.

The global paper industry has struggled for nearly a decade to climb out of a slump caused by overcapacity, soft demand, low prices and weak earnings. The drop has been exacerbated by the recession, which has further eroded demand for basic materials, including paper, as print advertising has dropped steeply.

Europe's largest paper and board maker Stora Enso and leading magazine paper maker UPM-Kymmene reported better than forecast earnings for the third quarter, but said that outlook remained weak.

Boettger, who said last month that prices might start to pick up as of early January 2010, said it may take a bit longer.

"The recovery has been a lot slower than we thought. We are still optimistic that we will get price increases through next year... but it's a wait and see at this point," he said.

- Reuters