Sappi Expands South African Chemical Cellulose Production to Maintain Global No. 1 Rank

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Johannesburg, South Africa)--Sappi Limited (NYSE:SPP) (Johannesburg, South Africa), the global pulp and paper producer, is to expand its mill in Ngodwana, in South Africa's Mpumalanga province, to produce 220,000 tons a year of chemical cellulose, in addition to kraft linerboard and newsprint.

Sappi, which currently is the largest supplier of chemical cellulose in the world, produces 750,000 tons a year at its Saiccor plant, which is in the province of KwaZulu-Natal. This represents about 15% of global demand for the product, which is mainly used for viscose fiber in the textile industry.

The expansion project will be completed by 2013. The company is considering further expansion of its chemical cellulose production capacity in plants worldwide. Ralph Boettger, the company's chief executive officer, said that the expanded production globally would maintain the company's market position, as demand for the product was growing at about 6% a year.

Boettger also said that Sappi is launching a $100 million cost-saving drive in its European operation where margins have been squeezed as a result of increased input costs for pulp, wood, latex and energy. He said that the company already has paid $118 million toward the planned closure of the Biberist mill in Switzerland. This would provide savings of about $50 million a year when the closure is completed.

Seasonal factors and significant maintenance shutdowns at five mills could weaken results for the fiscal third quarter. Boettger said that the shutdowns would result in a substantial increase in maintenance costs and lost contribution from reduced output, but the expected results, excluding special items, would be in line with the same quarter last year.

He said that the paper industry had only recently started to see demand returning after suffering from over capacity and soft demand for nearly a decade. Sappi would start realizing the benefits of the European profit improvement measures by the fourth quarter and should see the improved trend in underlying operations maintained through the rest of the year.

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