Sappi shares rise as it ceases paper production at its Lanaken Mill in Europe

Sappi production line. Photo: Supplied

Sappi production line. Photo: Supplied

Published Jan 15, 2024


Sappi’s share price ended higher on Friday after it said it had concluded a consultation process at its Sappi Lanaken Mill in Europe and ceased paper production.

Sappi Lanaken Mill is an integrated pulp and paper mill located in Belgium, which employed 581 workers.

The move comes as the firm continues to execute its strategy to reduce its exposure to graphic paper.

The share price rose 1.91% on Friday to end the day at R43.28.

The paper firm had announced on October 10, 2023. the start of a consultation process on the possible closure of Sappi Lanaken Mill.

“The persistent global economic downturn is proving to be much tougher than anticipated, with depressed markets, geopolitical instability and weak economic growth combining to put significant pressure on Sappi, particularly in Europe,” it said on the Stock Exchange News Service.

Sappi Lanaken Mill has a production capacity of 165 000 tons per annum (tpa) of pulp used to produce 530 000 tpa of coated wood-free paper, which was mainly sold into the European print market.

Sappi said, “We have completed this process and agreed on the social plan for the employees. Production of paper ended in December 2023. The closure of the site should be completed during the second calendar quarter of 2024. Details regarding the financial impact once all closure elements are taken into account will be provided during the first quarter financial results announcement.”

It reiterated that for Sappi, its strategic focus included reducing exposure to the graphic paper segment while expanding its presence in packaging, speciality papers, pulp and biomaterials.

“Sappi Europe is focused on building a sustainably resilient company. This requires evaluating the future of all facets of the business based on market dynamics and the market segments Sappi believe will be strongest in the future,” it said.

While continuing to serve the graphic paper market through its competitive assets, the overall priority of the European business would be to grow the packaging and specialities segment specifically within flexible packaging, functional papers, self-adhesives including glassine and labels, as well as dye-sublimation categories.

The transfer of production to other Sappi facilities and increasing capacity utilisation had commenced, and there would be no disruption to its customers, the firm said.

In December, Sappi released its annual report for the year to September 2023.

In it, chief executive Steve Binnie explained the reasoning behind the firm’s decision to reduce its exposure to graphic paper.

"Graphic paper demand declined sharply and remained weak throughout the year due to weak consumer confidence related to the slowing global economy and an inventory de-stocking cycle, which took longer than anticipated.

“Sales volumes declined 38% year-on-year and production curtailments were required to manage these weak demand dynamics,” he said.

Selling prices were 14% higher than the prior year and remained resilient.

However, cost inflation and operational inefficiencies associated with low capacity utilisation had significantly eroded profitability.

“The prolonged market weakness with no immediate signs of a meaningful rebound suggests a substantial erosion of underlying demand for graphic papers. As a result, industry operating rates fell to an unsustainable level.

“In response to the market overcapacity and in line with Sappi’s strategy to reduce exposure to graphic paper markets, we made the difficult decision to close the Stockstadt Mill and initiated a consultation process for the potential closure of the Lanaken Mill shortly after year-end,” he said.

After posting its results for the year to September, Binnie said at that time that the closure of the two mills would eliminate some 800 000 tons of capacity from the market.

He said some 1200 jobs would be impacted and consultations were under way. Demand for graphic papers had experienced a permanent structural decline, due mostly to digitisation.

Meanwhile, in a blow to the firm, last April it announced the planned sale of three European mills to Aurelius, for about R5.4 billion, had fallen through.

Sappi had announced on September 29 that it had reached an agreement with Aurelius Investment Lux One, to divest its Maastricht Mill in the Netherlands, its Stockstadt Mill in Germany and its Kirkniemi Mill in Finland.