Sappi Slumps to Three-Year Low as Weak Paper Demand Hits Profit

(Bloomberg) -- Sappi Ltd. shares fell to a three-year low after the South African pulp and paper maker warned that full-year profit will be below that of last year, citing weakness in its main graphic-paper markets.

Demand for certain types of paper products was down between 8% and 13% in Europe and North America, forcing the Johannesburg-based company to cut production, according to a Thursday statement.

“Graphic paper markets remain weak, and despite expected closures or conversions by competitors, it may take the remainder of the calendar year before sufficient capacity is removed to allow operating rates and margins to recover,” Chief Executive Officer Steve Binnie told reporters by phone.

The shares slumped 10% to 60.16 rand as of 10:58 a.m. in Johannesburg, the lowest since May 2016.

The company reported second-quarter profit of $72 million, compared with $102 million last year. Net debt rose to $1.7 billion.

In the next fiscal year a combination of cost cutting, recovering markets and higher dissolving pulp volumes will boost profitability, Binnie said.

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