Johannesburg - South African paper maker Mondi said on Tuesday third-quarter underlying operating profit fell slightly compared with the previous three months and cost pressures may impact future earnings.
Mondi said volumes at its European and international division picked up, and the company announced price increases in the main paper grades on the back of higher input costs.
But its South African unit struggled due to softer volumes, higher costs and weak export prices owing to a stronger rand, which is up 22% against the dollar since January.
"While volumes in most areas of the business continue to recover from the lows reached earlier this year, this has been offset by lower average selling prices for the majority of the group's products," Mondi said in a market update, but did not give specific earnings figures.
"Price increases have been announced across all the main packaging paper grades... many of these increases have come too late to materially impact current year performance, but support our view that prices in the packaging grades have bottomed out."
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.
Mondi, with 80% of its assets in emerging markets, said demand for uncoated fine paper, one of its key grades, was hit by seasonally weaker summer months in Europe.
Prices in that grade were down 2% on average compared with the previous three months, owing to a weaker Russian rouble and rising input costs.
In corrugated packaging paper, largely used for food, beverages and non-food consumables, volumes continued to improve, with prices developing positively in recent weeks.
Mondi said its new 470 000-tonne lightweight recycled containerboard machine in Poland produced first saleable output in September, ahead of schedule.
"It is anticipated that the project will have a marginal effect on underlying operating profit in 2009," it said.
While order volumes for sack kraft paper have been higher, a 12% rise in prices for that grade announced in September is only expected to impact margins in the new year.
Mondi said it remains on track to achieve its cost savings target of €180m and said that net debt at the end of September stood at €1.6bn.
Shares in Mondi were trading 1.65% lower at R41.81, roughly in line with a 1.4% weaker JSE All-Share Index.
- Reuters