Paper and packaging group Sappi has issued over 400 of its staff members with Section 189 notices regarding its decision to mothball the PM4 paper machine at its KwaZulu-Natal-based Tugela mill, from January 1.
Although expected to be substantially lower, Sappi pointed out on Friday that the eventual number of positions impacted by the suspension would be known at the conclusion of the 60-day consultation period.
“Sappi remains committed to its approach that retrenchments are a last resort, and as such, will work with staff to investigate options to minimise retrenchments,” the company assured.
PM4 was manufacturing lightweight containerboard products; however, the current cost structure and market conditions did not allow it to operate profitably.
Sappi said the Tugela mill had not delivered satisfactory financial returns in recent years, despite ongoing corrective actions and interventions to address increased energy, labour and raw materials costs.
The mill’s competitiveness has further been challenged by overcapacity in the local paper market, an influx of imported products, weak demand for certain papers and depressed selling prices.
The company indicated that suspended production at PM4 would enable the repositioning of the Tugela mill’s cost structure and ensure the sustainability of its other paper machine, PM2, which produced a range of fluting and liner products.
Sappi said it would be in a position to restart PM4 when market conditions improved, adding it was confident that, given current market conditions, sufficient capacity still existed at the mill to meet all local containerboard requirements.
No disruptions in supply as a result of the closure of PM4 were anticipated.
During 2011 and 2012, Sappi undertook various measures to return the Tugela mill to profitability, including closing the PM3 paper machine, the kraft continuous digester pulp circuit, right-sizing the mill to service the remaining assets and ceasing sack kraft production at PM4.