As a result of the global Covid-19 crisis, JSE-listed paper manufacturer Sappi expects lower demand for some of its products, especially dissolving wood pulp and graphic paper.
The company is not yet able to provide an accurate profit forecast or a fuller view of the virus’ impact on the market.
Sappi’s production, warehousing and distribution facilities, in South Africa, North America and Europe remain operational for essential services.
The Condino mill, in Italy, was temporarily shut for the week ended March 27. The company also halted its R2.7-billion expansion project at its Saiccor mill, in KwaZulu-Natal, which meant that the company had to declare force majeure on some of its contracts.
The company warns that there may be future interruptions to operations, as government’s globally step up efforts to curb the spread of the virus, but the disruption to Sappi so far has been minimal, in terms of logistics, as well as the supply of raw materials.
“The closure of many clothing retailers globally will have a substantial impact on demand for textiles, and consequently dissolving wood pulp. Order activity for graphic paper has slowed markedly.
“The packaging segment, with much of our volumes sold into the food industry, proves to be more resilient during the crisis,” Sappi explains.
Sappi has received separate notifications of the intention to reduce dissolving pulp purchase volumes from some major customers in relation to their contractual volume commitments in the coming quarter. Dissolving pulp sales volumes are, therefore, currently expected to reduce materially in the quarter ending June.
The company adds that lower oil prices will provide some input cost relief, while the weaker rand:dollar exchange rate will benefit Sappi’s South African business.
Sappi does have sufficient liquidity headroom, with cash of more than $200-million on hand and two undrawn revolving credit facilities totalling $640-million.
The company is, nonetheless, implementing cost saving measures across its operations, curtailing, where possible, all non-essential capital expenditure and applying measures to optimise working capital.