Diversified woodfibre company Sappi on Thursday announced that it will buy the 270 000 t Matane high yield hardwood pulp mill, in Quebec, Canada, from Rayonier Advanced Materials for $175-million.

The acquisition, which is subject to approvals from competition authorities, will increase Sappi’s pulp integration for its North American and European packaging businesses, while simultaneously lowering the group’s cost of pulp, reduce volatility in earnings throughout the pulp cycle and provide supply certainty.

The acquisition would be financed from internal resources and was expected to be concluded in the fourth quarter of 2019, Sappi said.

Meanwhile, the JSE-listed group also reported on its results for its third quarter ended June 30, which were characterised by challenging market conditions.

Sales fell by 5% year-on-year to $1.37-million, while earnings before interest, taxes, depreciation and amortisation, excluding special items, were 24% down to $118-million. Profit reduced by 84% year-on-year to $8-million, impacted by lower operating profit and a $9-million one-off charge for the refinancing of 2022 bonds. Headline earnings a share fell by 78% to 2c a share.

Sappi reported that graphic paper demand was sluggish, which resulted in 89 000 t of production downtime scheduled across Sappi’s European and North American paper operations, and that dissolving wood pulp (DWP) prices had weakened, owing to soft viscose staple fibre (VSF) markets.

Owing to the business’ seasonality, Sappi also scheduled much of its maintenance activity during the period, including its yearly shutdowns at its two South African mills, Ngodwana and Saiccor, as well as the Cloquet Mills, in the US.

Packaging and specialty markets were mixed across Sappi’s regions, with demand for packaging offsetting weakness in the consumer specialty grades.

Results in South Africa were impacted by lower average dollar-pricing for DWP and a delayed start to the citrus season, which affected containerboard sales volumes.

In North America, business also remained under pressure, with weak graphic paper markets, lower DWP prices, the yearly maintenance shut at Cloquet and the continued ramp-up of Somerset PM1, all weighing on margins.

Higher average net selling prices and purchased pulp prices that declined throughout the quarter partially offset the impact of weak graphic paper sales into the publishing sector in Europe.

Commenting on the results, Sappi CEO Steve Binnie said although the third quarter was traditionally lower owing to summer holidays in the northern hemisphere, the results for the quarter were under pressure.

Notwithstanding a tough quarter, he said during a media conference call that the company continued to focus on executing its strategy to diversify its product portfolio into higher margin segments to position Sappi for future growth.

“The recent projects to increase capacity at each of our DWP mills and convert capacity at the Somerset and Maastricht mills towards packaging boosted sales volumes in each of these segments during the quarter, thereby lessening the impact of particularly weak graphic paper markets,” he said.

Looking towards the rest of the year, Binnie indicated that, “given the current weak market conditions for graphic paper, DWP pricing pressure from oversupplied VSF markets and global economic uncertainty related to trade wars, our fourth quarter profitability will likely be below that of the prior year”.

Capital expenditure for the remainder of the year was expected to be about $200-million as Sappi continued the transition to growing and higher margin segments.

Major projects currently under way include the 110 000 t expansion at Saiccor mill and the final commissioning of Lanaken PM8, in Belgium, after the conversion from coated mechanical to coated woodfree paper.