Rand decline ‘lucrative’ for Sappi

Sappi said the rand’s decline against the dollar is boosting the earnings of the pulp and paper maker as its exports gain in value, one of the first South African companies to report a positive impact from the currency’s weakness.

Sappi is the world’s biggest producer of dissolving wood pulp, a cotton substitute used in textiles including lingerie and golf shirts, for export from South African mills. The rand’s depreciation is helping to grow the product’s already-attractive profit margins when compared with the company’s graphic paper, Chief Executive Officer Steve Binnie, 48, said in an interview on Wednesday at Bloomberg’s Johannesburg office.

“There’s products selling for over $800 a ton in China, and we can manufacture it for $500 — it’s really lucrative for us,” he said. “With the rand weakening it’s just strengthening our position.”

The South African rand has slumped 16% against the US currency this year as commodity prices fall and demand weakens in China, a key export market for miners. South Africa is the world’s largest producer of platinum and also exports gold, coal, iron ore and chrome. Sappi’s competitors in countries such as Brazil are also benefiting from a rising value of exports, as emerging-market currencies weaken across the world.

Sappi’s operations in its home country, which include paper and packaging manufacturing as well as pulp, contribute about half of the company’s earnings before interest, taxes, depreciation and amortisation, Binnie said. The Johannesburg- based company also has operations in Europe and North America. A weaker euro has made exports from its European operations to Asia more profitable, the executive said.

Some of the country’s other exporters, particularly the miners, have struggled to benefit from the domestic currency’s weakness as sluggish demand for commodities and manufactured goods in key markets such as China and Europe weigh on pricing and sales.

In South Africa, Sappi’s business producing packaging for fruit exporters has also benefited from the currency’s depreciation, Binnie said. Sappi is the country’s only manufacturer of so-called virgin, or non-recycled, packaging used for fruit.

“With the weaker rand the fruit farmers are doing well,” he said. “We’re seeing strong demand.”

©2015 Bloomberg News