Sappi halted dividend payments after the impact of the US trade war with China triggered a collapse in the price of dissolving wood pulp — the South African company’s main product.
Depressed prices of the substance used in a range of items including lingerie, lipsticks and washing powders eroded profit in the three months through September, with declines extending into the final quarter of the calendar year, Sappi said in a statement on Thursday. The Johannesburg-based company is the world’s biggest producer of the pulp, with about 16% of the global market.
The shares fell as much as 5.4.% to R34.22 as of 10:32am in Johannesburg, and are close to 5 1/2 year lows.
“An initially strong start to the year was unfortunately offset by weak graphic-paper markets and lower dissolving wood pulp prices driven by the ongoing trade wars and slower economic growth in various geographies,” said Chief Executive Officer Steve Binnie.
Sappi has invested heavily in the pulp, which it makes in South Africa and North America, to offset the global need for traditional paper. A weaker Chinese textile market, excess capacity of viscose staple fibre and a weaker renminbi exchange rate all helped drive prices to historic lows.
The company is reducing capital expenditure to help mitigate the market lull, Sappi said, yet remains optimistic for dissolving wood pulp in the longer term.
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