Up against logistics blocks

It was not all plain sailing over at Sappi, despite CEO Steve Binnie pointing to earnings before interest, tax, depreciation and amortisation rising steadily quarter on quarter as a sign that the company is recovering from the worst effects of the pandemic. Sappi notched up decent performances in North America and SA but made little headway in Europe, which is struggling with a glacial vaccination rollout, resurgent infection rates and extended lockdowns, and market uncertainty is expected to keep demand subdued for nonessential consumer products for the time being.

Demand for packaging was strong, as might be expected given consumers’ decision to just order everything from Amazon. But Sappi ran into considerable issues with logistics, with networks congested, shipping line schedules disrupted, a lack of containers and constraints on vessel space all contributing to ensure that the company struggled to capitalise on increased export demand. It is expecting these challenges to remain an issue into the third quarter at least.

One of the highlights of the quarter was the strong performance of dissolving pulp, which saw prices in China at their highest since 2012, while demand for graphic paper slowed and rising input costs squeezed margins. The group is planning capex for the year of about $400m, led by the Saiccor Mill expansion project, which should start production in the fourth quarter. Overall the picture is looking a lot rosier than it did in the depths of 2020, but it needs an improvement in Europe and an end to the logistical issues.