Sappi braces for tougher quarter as global turmoil, weak pricing hammer earnings

The dual-listed woodfibre and bioeconomy group reported adjusted EBITDA of $52-million for the quarter ended March 2026, down sharply from $107-million a year earlier. Sappi posted a loss for the period of $413-million, while adjusted earnings per share swung to a loss of eight US cents from a profit of one US cent a year ago. Net debt climbed to almost $2-billion.

The numbers reflect pressure across almost every corner of Sappi’s global business.

Dissolving wood pulp (DWP) prices declined materially year-on-year, paperboard pricing weakened in North America, European markets remained oversupplied and the strengthening rand eroded export earnings from South Africa.

Sappi CEO Steve Binnie said the operational pain was being amplified by a volatile and deeply uncertain global environment.

“Obviously, all the turmoil in the world and geopolitical tensions have created huge uncertainty, and it’s had a major impact on our business,” Binnie told Daily Maverick.

“The selling prices for a lot of our products have dropped, particularly dissolving pulp. More recently, since the Iran war started, that has actually started putting pressure on our costs, mainly fuel and logistics costs.”

The group said the escalating Middle East conflict was now feeding through into higher oil, energy and logistics costs, while also increasing the risk of chemical and raw material inflation.

Still, Binnie argued that many of the losses reflected cyclical rather than structural pressures.

The quarter included a $276-million impairment, largely linked to European graphic paper assets and a North American high-yield pulp asset. The group also booked a negative $101-million forestry fair value adjustment after the stronger rand reduced the rand-denominated value of timber exports.

Addressing the question of the net losses, Binnie explained that many assets were to be sold into the planned joint venture with Finnish forestry and paper giant UPM, and as part of that transaction, there was going to be a write down anyway.

“But obviously the market conditions are very weak. The second thing, which is non-operational, is that we have to fair value our forests. As you know, in SA we own lots of forests, and the way that we value those forests is we look at the selling prices of timber, and we as a benchmark, we use SA’s bigger exporter. And interestingly enough, the selling prices of the wood exports out of SA, which are done in dollars, were unchanged. But unfortunately, because the rand is substantially stronger against the dollar, we had to revalue down,” he said.

Rand strength bites SA

SA remained one of the group’s most difficult regions during the quarter.

Despite stable demand and sales volumes, profitability was heavily affected by the combination of lower US dollar-denominated DWP prices and a stronger rand. Sappi estimates that every 10-cent movement in the rand-dollar exchange rate affects annual group earnings by roughly $4-million.

Binnie acknowledged that the currency environment was compounding existing cost pressures in SA.

“The strong rand doesn’t help, because we effectively sell in dollars and our costs are in rand,” he said. “So, with all those things rising, we’ve got a major focus across the business to look at efficiencies, whether we can use lower-price raw materials to make the same products, and improving the efficiency of our logistics and supply chains.”

The group is also looking at lowering input costs through changes to coal usage and other raw materials.

At the same time, Sappi said containerboard demand in SA remained healthy, particularly from agriculture and the citrus sector, though profitability was pressured by low-priced imports.

Somerset bet remains under pressure

One of the market’s key focus areas remains the massive Somerset Mill PM2 conversion project in North America, which is central to Sappi’s pivot away from declining graphic paper markets toward packaging and speciality papers.

The project has, however, been slower to ramp up than initially expected.

While North American paperboard volumes increased 27% year-on-year, profitability remained under pressure because of materially weaker paperboard prices. Industry benchmark solid bleached sulphate paperboard prices fell by about $100 a tonne in the previous quarter as excess capacity flooded the market.

Binnie nevertheless struck a more optimistic tone on the project’s trajectory.

“Although the ramp-up of volume has been slower than initially expected, we did see a nice acceleration towards the end of the quarter, and I’m feeling much better about the ramp-up of the volume as we go forward,” he said. “We are getting market share. We’re taking on new customers, so that’s going well.”

He added that profitability from the machine should improve meaningfully over the next 18 months.

“I think you’re going to see a ramp-up of profitability on the machine in Q3 and then into our Q4,” Binnie said. “And then, as we get into 2027, it might not be at full profitability, but I do think we’re going to see much stronger results coming out of the US.”

The long-term headache in Europe

Sappi’s European operations continue to wrestle with the structural decline of graphic papers, a problem facing the broader global paper industry as digital consumption steadily displaces traditional printing demand.

The company is attempting to reshape that business through a proposed joint venture with Finland’s UPM.

The European Commission’s merger control process entered Phase II on 28 April 2026, triggering a deeper competition review. Sappi has maintained that it remains confident in the rationale for the deal. But the Phase II process also raises the possibility of delays, stringent conditions or even a rejection.

Asked what Sappi’s fallback plan would be if approval was not granted, Binnie indicated that the group would continue aggressively cutting graphic paper capacity.

“We obviously think we’ve got a strong case to get that approval, but if it was not to be approved, then we would continue to proactively manage our graphic capacity in Europe,” he said. “And that means closing capacity. Then we will have to do that.”

The group said European profitability had nevertheless stabilised somewhat because of fixed-cost savings and disciplined capacity management. Graphic paper profitability in North America also held up better than expected because tighter domestic supply supported pricing.

Debt concerns intensify

The deterioration in earnings has also increased pressure on Sappi’s balance sheet.

Net debt climbed to $1.964-billion and the group’s covenant leverage ratio rose to 6.1 times. Sappi has proactively negotiated a suspension of leverage covenant testing until March 2027, a move unanimously supported by its banking group.

To preserve liquidity, Sappi has slashed capital expenditure and suspended dividend payments. Capital expenditure for FY2026 has been cut again to about $250-million and is now restricted to essential maintenance and regulatory spending.

For now, the market outlook remains grim.

Sappi warned that adjusted EBITDA in the third quarter is likely to come in below the already weak second quarter as geopolitical tensions, input cost inflation and currency volatility continue to buffet the business.

Yet despite the near-term turbulence, Binnie said the company remained committed to its long-term repositioning strategy.

“For stakeholders analysing the Sappi results, it is important to remember that Sappi continues a strategic pivot toward its US operations,” he said in the company’s results commentary, adding that developments in this market would be key to the long-term value proposition of the group. DM