Paper and packaging manufacturer Sappi says there has been a pronounced recovery of pricing and demand in dissolving pulp (DP) markets.

As of January 29, 2021, the Chinese market price had improved to $895/t, driven by a number of positive factors including low inventory levels, rebounding textile demand, higher viscose staple fibre (VSF) prices, and favourable Dollar/Renminbi currency movements.

Sappi CEO Steve Binnie notes that the full benefit of the rising DP prices will be phased through future quarters owing to the quarterly lag in contract pricing. A strengthening Rand/Dollar exchange rate is expected to negate some of the pricing benefits for the South African DP segment.

“Despite the improved market conditions, we are encountering logistical and production challenges at our South African DP facilities as a result of Covid-19. Notably, a severe second wave of Covid-19 infections in South Africa has necessitated a prioritisation of oxygen supplies into the healthcare sector,” he explains.

Consequent restrictions on the procurement and transport of oxygen to the South African mills have resulted in a temporary curtailment of DP production at the Ngodwana Mill in the second quarter.

Underlying demand for packaging and speciality paper products remains resilient as consumer preferences default to more sustainable alternatives.“We continue to ramp-up sales and production in North America and Europe following the completion of the Somerset Mill and Maastricht Mill conversions. However, Covid-19 may adversely impact demand for certain non-essential consumer products.”

Further, the global resurgence of Covid-19 and associated extended lockdowns and restrictions on economic activity are expected to stall the graphic market recovery, particularly in Europe. A rapid and significant rise in paper pulp costs is expected to reduce margins in this segment.

“While we have announced selling price increases in most of our markets to mitigate this risk, there will be a lag before the benefits of the increases are realised.

“The recent series of paper machine and mill closures or conversions in the industry are expected to improve the supply/demand balance resulting in a recovery of operating rates in the coming quarter and year,” says Binnie.