JSE-listed woodfibre-based products company Sappi posted earnings before interest, taxes, depreciation and amortisation (Ebitda) of $52-million for the quarter ended March 31 – the second quarter of its 2026 financial year.

This was down from the Ebitda of $107-million reported for the March 2025 quarter.

Sappi also widened its loss to $413-million in the quarter under review, compared with the loss of $20-million reported for the prior comparable quarter, while net debt increased to $1.96-billion, from $1.67-billion in the prior comparable period.

Sappi posted a loss a share of $0.08 for the March quarter, compared with the earnings a share of $0.01 reported for the March 2025 quarter.

Sappi CEO Steve Binnie pointed out that the average market price for hardwood dissolving wood pulp (DWP) declined by 14% year-on-year, while the rand strengthened against the dollar by 12% year-on-year.

Although sales volumes increased year-on-year, selling prices declined across all regions. In particular, DWP prices were significantly lower than last year.

Profitability was further adversely impacted by the strengthening of the rand against the dollar.

In South Africa, the combined impact of lower dollar pricing and unfavourable exchange rate movements reduced rand-denominated DWP selling prices by about 23% year-on-year, which weighed materially on Sappi's pulp segment margins.

Additionally, the forestry fair value price adjustment for the quarter resulted in a negative revaluation of $101-million, he said.

While hardwood timber export prices from South Africa remained stable in dollar terms, the rand-denominated prices declined materially owing to the strengthening of the rand against the dollar, thereby impacting on the fair value of Sappi’s plantations.

Meanwhile, Sappi said demand for DWP remained robust during the quarter, supported by the typical seasonal uplift following the Chinese New Year, with the associated high viscose staple fibre (VSF) industry operating rates and healthy order backlogs.

However, the pulp segment’s net dollar selling price was 12% lower year-on-year, which adversely impacted on profitability.

The scheduled maintenance shut at the Saiccor Mill, in KwaZulu-Natal, also reduced earnings by $10-million, said Binnie.

Against the backdrop of rising input costs and improving fibre demand, VSF fibre producers implemented price increases. In addition, Bleached Eucalyptus Kraft (BEK) pulp prices in China – an increasingly important reference point for DWP – also trended higher, albeit more moderately.

These factors created a more supportive pricing environment for DWP, with hardwood DWP prices having increased by $60/t year-on-year to close the quarter at $845/t, Binnie pointed out.

Sappi’s packaging and speciality papers segment, meanwhile, faced significant challenges from subdued demand, excess capacity in Europe and depressed selling prices, which resulted in continued pressure on profitability.

This was further exacerbated by poor absorption of fixed costs associated with the Somerset Mill PM2, in the US, which remained in its commercial ramp-up phase, Binnie noted.

Paperboard volumes in North America rose by 27% year-on-year, and 14% quarter-on-quarter, which reflects continued progress in the ramp-up of Somerset Mill PM2, and Sappi's profitability in this region improved quarter-on-quarter.

“Our investment in North America could change the make-up of the group over time and we have made gains in ramping up in this region,” he said.

The market in North America was also highly competitive and market prices for paperboard declined significantly compared to last year.

“While the commercial ramp-up of PM2 is progressing at a slower pace than initially anticipated, sales traction improved steadily during the quarter and market feedback on product quality was positive.

“Despite weak market conditions, we are making steady progress in improving on our recent conversion and ramp-up of the Somerset PM2 machine. Customer trials continue to translate into sales,” said Binnie.

Further, in Europe, underlying profitability benefited from solid sales volumes and ongoing fixed-cost savings initiatives. Despite the excess industry capacity in Europe, Sappi increased sales volumes by 12% in the region.

Market conditions shifted materially late in the quarter following the escalation of the conflict in the Middle East, leading to higher oil, energy and logistics costs and increased cost pressure across the textile value chain.

Rising petrochemical input costs narrowed polyester’s traditional cost advantage over cellulose-based fibres, while sharply higher sulphur and sulphur-based chemical prices increased VSF production costs, he added.

However, paper and packaging segment sales volumes increased by 10% year-on-year.

Demand for containerboard in South Africa remained healthy, supported by continued strength in agricultural end-markets. However, selling prices continued to be constrained by weak global dynamics and competitive imports, Binnie said.

Graphic papers sales volumes declined by 5% year-on-year but increased by 3% compared with the prior quarter, with the year-on-year decline remaining below the contraction experienced in the broader market.

The lower volumes were primarily attributable to the North American operations following the planned capacity reduction associated with the conversion of Somerset Mill PM2.

Overall, graphic papers segment profitability improved year-on-year, supported by fixed-cost savings in Europe and resilient pricing in North America, which more than offset the volume impact, Binnie noted.

Further, the group's liquidity remained well managed during the quarter, with cash on hand of $192-million and access to a further $632-million of committed, undrawn revolving credit facilities in Europe and South Africa.

Meanwhile, in terms of its outlook for the third quarter, demand for DWP is expected to remain strong.

Hardwood DWP prices increased further in recent weeks, rising to about $880/t, although the full benefit of these higher prices was expected to be realised progressively over the next two quarters, Binnie said.

Sappi also expects the packaging and speciality papers segment to continue facing headwinds from ongoing pressure on selling prices across its key markets.

“In North America, sales volumes are expected to grow as we continue to expand our paperboard customer base. We remain focused on optimising capacity utilisation and product allocation across our graphic papers asset base.”

The Middle East conflict has further increased uncertainty in global markets and contributed to higher global oil prices, including upward pressure on fuel-related delivery and logistics costs.

“The ongoing conflict-related disruptions to global supply chains increases the risk of supply constraints and will likely result in cost inflation across certain raw material categories, particularly chemicals,” Binnie said.