Sappi climbs to 7-year high on weak rand

Dissolving wood pulp prices increased steadily through 2015.
Sappi, a South African pulp and paper maker, rose for a second day on Wednesday to a fresh seven-year high, extending gains to 29% since the company reported a profit increase two months ago and forecast further gains.

Sappi is the world’s biggest producer of dissolving wood pulp, a cotton substitute used in textiles including lingerie and golf shirts. As the company exports the product from South African mills, the company is benefiting from a 29% fall in the rand against the US dollar since the beginning of last year. Dissolving wood pulp prices increased steadily through 2015, Chief Executive Officer Steve Binnie said on a November 12 conference call, and the company’s been working to reduce costs and cut debt.

Sappi shares rose 3.6% to R69.24 as of 4:19 pm in Johannesburg on Wednesday. That extended gains to 45% in the past three months, making it the best performer in the 164-member FTSE/JSE Africa All Shares Index in the period after Harmony Gold Mining Co.

“It’s a case of probably two or three things, firstly obviously rand weakness,” said Wade Napier, a Johannesburg-based analyst at Avior Capital Markets who rates the stock outperform. “Secondly would be increasing dissolving wood pulp prices and then thirdly would be a lower cost base in Europe,” he said by phone on Wednesday.

©2016 Bloomberg News

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