Sappi says cheap imports are a threat to SA operations

Sappi says it is intensifying engagements with the government over what it views as dumped imports entering the South African market, warning that low-cost products are putting pressure on local manufacturers despite resilient demand in some segments.

The JSE-listed paper and pulp producer raised the issue while reporting third-quarter adjusted earnings before interest, tax, depreciation and armotisation (Ebitda) of $52m (R850m), in line with guidance issued in July. Though group profitability remained under pressure, management pointed to improving conditions in North America and signs of recovery in several key markets.

CEO Steve Binnie said South Africa continued to deliver solid demand for dissolving wood pulp (DWP), while containerboard volumes were supported by seasonal citrus export activity. However, the stronger rand-US dollar exchange rate significantly lowered the profitability of the South African business, which reduced the competitiveness of locally produced goods. South Africa accounts for about 26% of group sales.

Binnie said the company’s concerns extend beyond currency movements.

“Even before the rand had started to strengthen, we did see low-cost imports for different categories coming in, especially from China, and we view that as dumping,” he said during the results presentation.

He said “there is a growing recognition among government and industrial policymakers of the impact of low-cost imports on the country’s industrial base. As a result, discussions around possible trade and tariff measures have become more prominent, and we continue to engage constructively with policymakers.”

Sappi has already submitted one formal application, while additional actions are being considered.

“We have made one specific application, and we are engaging on the possibility of others. But in our mind, there is dumping going on, and it is something that the authorities need to look at,” he said.

Sappi operates four production facilities in South Africa with three sales offices, and remains one of the country’s largest forestry, pulp and paper manufacturers. The company believes a moderation in the rand’s strength would provide additional support to earnings generated by its South African operations.

It makes a range of paper packaging material including paperboard, used for among other things consumer products such as health, beauty and food.

While South Africa faced headwinds, North America emerged as the standout performer in the quarter. Paperboard sales volumes from the Somerset mill reached record levels following the ramp-up of the company’s PM2 (paper machine) conversion project in the US, helping lift packaging and speciality papers volumes significantly.

North America produces 22% of Sappi’s group sales and has four production facilities and 12 sales offices while Europe accounts for 42% of group sales with seven production facilities and six sales offices.

Sappi said global economic uncertainty and conflict in the Middle East continue to create volatility.