- Demand for newsprint in South Africa has seen a decline of 20% year-on-year.
- The issues that Sappi faces are not unique to the company, reflecting global consumer preferences and CEO Steve Binnie believes there is still a market for graphic paper.
- Sappi is focusing on growth in paper-based packaging and speciality products used for product labels paperboard for food products, Covid-19 test kit packaging, pet food bags and containerboard for corrugated boxes.
South Africa’s sole newsprint producer Sappi may be feeling pressure as demand for graphic paper declines but CEO Steve Binnie believes that there is still hope for the product outside the local market.
Demand for newsprint in South Africa has seen a decline of 20% year-on-year, as consumers turn to online news sources. In its results for the quarter ending at the end of December 2020, Sappi, which produces the graphic paper used for newsprint it had been adversely impacted by the weaker local economy.
The company has had a tough run due to low demand, an issue exacerbated by Covid-19, reporting a loss of $17 million (R254 million at the current exchange rate) for the quarter, from a profit of $24 million (R358.8 million) in the first quarter of 2020 and debt that grew from $1.9 billion to just over $2 billion (R29.8 billion).
The issues that Sappi faces are not unique to the company, reflecting global consumer preferences, but Binnie believes there is still a market for graphic paper, which is also used to produce glossy marketing and advertising material, in other markets. So, the group will continue producing it, while looking at new avenues for growth.
"I think for the foreseeable future, we will still have graphic assets, particularly in Europe, although the sector is in decline because we have some great assets there, they are amongst the lowest costs and they still generate cash for us," said Binnie.
He added that the cash would enable the group to pay down its debt and convert its capacity to produce paper for other segments.
“We are the market leader in graphic paper and our competitors have taken out a lot of capacity so once the full impact of Covid is behind us, that market will go back into balance and we can still make reasonable profits,” he said.
One of the segments Sappi is focusing on is paper-based packaging and speciality products used for product labels paperboard for food products, Covid-19 test kit packaging, pet food bags and containerboard for corrugated boxes.
There has been a big push for green and sustainable products, said Binnie as big brands covert from plastic to paper packaging.
"Our strategy has been, rather than close or dispose of those assets, is to try and convert them into higher margin segments. We’ve converted a couple of mills in the last couple of years to packaging and the big push for paper-based solutions for packing purposes is actually creating opportunities for us," Binnie said.
In South Africa, the group says its food packaging business performed well and it was looking at growth in fruit packaging for increasing exports.