Sappi earnings hit by pulp prices and rand strength as global pressures mount

Sappi’s earnings slumped as weaker dissolving wood pulp (DWP) prices and currency volatility squeezed margins, with the group pointing to South African cost pressures while advancing its North American expansion.

The manufacturer, which operates in more than 100 countries, reported a 51% decline in adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) to $52m (about R852m) for the quarter ended March 2026, down from $107m a year earlier.

The group also posted a loss for the period of $413m compared with a $20m loss in the prior-year quarter, while revenue slipped 1% to $1.3bn as net debt rose to $1.9bn.

“Against a backdrop of continued market uncertainty arising from ongoing trade tensions, escalating geopolitical conflicts, and their broader indirect effects on global macroeconomic conditions, input costs and currency movements, we are adopting a cautious outlook,” said Sappi CEO Steve Binnie, adding that adjusted Ebitda for the third quarter of financial year 2026 is expected to be lower than in the second quarter.

Binnie said the weaker quarter was driven mainly by two factors: persistently low DWP prices for much of the period, and a stronger rand resulting from a weaker US dollar.

He said the South African business was particularly affected, as it earns most of its revenue in dollars but incurs costs in rand, amplifying the impact of both currency movements and softer pulp pricing on profitability.

He added, however, that demand for DWP remained robust, supported by seasonal uplift following the Chinese New Year and strong textile fibre activity.

Although prices were weaker year-on-year, he said they recovered towards the end of the period as market conditions tightened and input costs rose, with further improvement being observed in the current quarter.

Despite this, Binnie cautioned that a new cost pressure has emerged across its operations. “We’re getting an improvement in market conditions for our selling prices, but unfortunately now cost is the headache for us as we move forward,” he said. “Since the Iran war started, we’ve seen a huge rise in costs.”

He added that this has fed through into higher shipping and supply chain expenses, driven largely by elevated fuel and oil prices, while several chemicals used in production have also become more scarce, pushing up input costs as suppliers pass on increases to the group.

Sappi is also seeking tariff protection in South Africa, applying to the International Trade Administration Commission of South Africa (ITAC) in March for a 5% tariff on imported newsprint. The group says that low-priced imports are putting pressure on local production.

Binnie said conditions for South African exporters remain difficult. “It’s very challenging for South African exporters at the moment, with the market conditions where they’re at,” he said, pointing to sustained increases in electricity costs, inefficiencies in rail and port infrastructure, and rising logistics expenses as long-term pressures on competitiveness.

Despite these challenges, liquidity remained well managed during the quarter, with cash on hand of $192m and access to a further $632m of committed, undrawn revolving credit facilities in Europe and South Africa. Additionally, sales volumes increased year-on-year, despite selling prices declining across all regions.

North America provided one of the few areas of volume growth in the quarter, with regional paperboard volumes increasing 27% year-on-year, reflecting progress in the upscaling of the company’s Somerset Mill PM2.

“I’m pleased with how we’re progressing and ramping up, and we’re going to continue to add volume in the quarters ahead,” said Binnie.

But he added that this improvement in volume is being offset by pricing pressure across global packaging markets. The key challenge is no longer demand but pricing, with US selling prices for Sappi’s products down on average about $100 a tonne compared with the previous quarter. “That’s reflective of the broader macroeconomic environment,” he said.

In Europe, Sappi said profitability was supported by stronger sales volumes and ongoing fixed-cost savings, despite oversupply in the region’s graphic paper market. “One of the challenges you have in Europe is there has been excess capacity, and the market is very fragmented,” Binnie said.

To address these structural challenges, Sappi is moving ahead with plans to merge its European graphic papers business with UPM-Kymmene Corporation in a 50/50 joint venture to create a more efficient standalone entity. The deal remains subject to regulatory approval and final agreements, with completion expected by the end of 2026.

“This [joint venture] would enable two of the largest players to combine their operations, and we think we can achieve substantial efficiencies and synergies that will ultimately generate more profit and cash flow,” Binnie said.

Sappi also said it had agreed with its banking group to suspend leverage covenant testing until March 2027, in response to market volatility and weaker earnings.

Business Times