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Johannesburg - The promise of future profits may have seen a temporary leap in Sappi's share price on Monday after the release of its year-end results, but the further restructuring of its European mills continues to cast a pall over its prospects.
The global pulp and paper group's share price gained 3% in early morning trade, but the enthusiasm fell away before ending the day only 0.42% higher at R28.77 per share.
"Europe is a market where further consolidation is needed and further closures could be required to improve our performance," said Sappi CEO Ralph Boëttger in an interview with Fin24.com.
Europe has become a sore point in recent times for most paper, packaging and pulp producers as paper markets there are over-supplied by an estimated million tonnes. As a result, consolidation is urgently needed, according to market watchers.
"Sappi is very much aware of the need for consolidation and open-minded to it. There are certain constraints for us such as debt levels and funds," said Boëttger. "But if it's within those parameters, we are open-minded - and in fact, keen."
Efforts towards consolidation will only benefit the industry as a whole if it leads to "capacity rationalisation", said Kurt Benn, a senior portfolio manager at Cadiz African Harvest. "Consolidation is typically led by the industry majors."
Sappi, which prides itself on being one of the lowest-cost producers in Europe, conceded it would have to watch what other players in the industry were doing.
Mondi, although not a direct competitor to Sappi's market in coated fine paper, has said it would not lead consolidation in Western Europe.
Boëttger declined to disclose if Sappi had been approached by other firms in Europe for consolidation purposes.
Aside from consolidation, aligning capacity with demand had also taken shape through company closures. Sappi had right-sized parts of its business and in the period under review "closed or announced the possible closure of two mills and one paper machine in Europe, and one paper mill in North America", it said.
It has also scheduled the closure of its Usutu pulp mill in Swaziland, owing to poor markets and extensive forest fire damage.
- Fin24.com