Sappi looking at cogeneration opportunities – South Africa

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Paper and packaging group Sappi was still investigating possible cogeneration projects, with its Ngodwana and Saiccor mills being the best suited for such endeavours in South Africa, CEO Ralph Boëttger said Friday.

He told Engineering News Online in a telephonic interview that the company expanded the capacity at its KwaZulu-Natal-based Saiccor plant and its Ngodwana mill, in Mpumalanga, to produce electricity, but that there were no concrete plans in place yet.

Boëttger said the restructuring of the paper group’s Southern African assets to deal with tough market conditions was on time and within budget. Restructuring included the closures of the pulp mill at the Enstra mill, in Gauteng, the kraft pulp mill at the Tugela mill, in KwaZulu-Natal, a 10 000 t kraft paper machine at the Tugela mill and improving overall operating efficiency at local mills.

“The benefits are starting to flow through, our cost base has reduced, but the full benefits will start coming through this quarter and the third quarter of the next financial year,” he noted.

Despite deteriorating market conditions, brought on by the uncertainty in Europe and a general slowdown in all major markets, Sappi reported stable operating profit for the quarter ended June, which, excluding special items, amounted to $60-million, the same as in the corresponding period of 2011. But the group widened its loss to $106-million, from $68-million a year earlier.

“The third quarter came in at a lower than expected; it is the quarter that is always affected by planned maintenance shuts,” Boëttger noted.

The company’s Southern African chemical cellulose business showed good production and sales during the quarter. The division generated R480-million in earnings before interest, taxes, depreciation and amortisation, and achieved an operating profit, excluding special items, of R255-million. This was down from R409-million in the March quarter.

During the reporting period, the Ngodwana mill underwent an extended planned maintenance shutdown that negatively impacted on its financial performance compared to the prior quarter. The planned yearly maintenance shut at the Saiccor mill was postponed to July.

Boëttger said the $240-million expansion of the Ngodwana mill and the $170-million conversion of the Cloquet mill, in Minnesota, in the US, were also on time and within budget.

“We still expect to start producing pulp at both facilities in the second half of calendar next year or in the third financial quarter next year,” he stated.

The company’s European operations generated operating profit, excluding special items, of €8-million for the quarter, down from €37-million in the March quarter, owing to weaker prices and demand.

Sales volumes in Sappi’s North American business were 2% and 3% higher than in the equivalent quarter last year and the prior quarter, respectively. But lower prices resulted in operating profit, excluding special items, falling to $18-million for the latest quarter, down from $24-million the previous quarter.

The group’s net capital expenditure (capex) for the quarter was $108-million, compared with $60-million in the prior quarter, while capex for the full year was expected to be below $425-million.

Net debt increased during the quarter to $2.21-billion, up from $2.13-billion in the March quarter. However, this was down from $2.48-billion recorded in the 2011 corresponding period.

“Despite the expansion projects, we expect our debt to come down to about R2-billion by the end of the fourth quarter,” Boëttger said.

Meanwhile, Sappi expected market conditions to remain generally tough, with greater uncertainty and lack of visibility. Trading conditions were also anticipated to be weaker than a year ago, with lower volumes for most of the company’s products and pricing, particularly for pulp, expected to remain under pressure.

Despite this, the company said fourth-quarter operating profit would exceed that of the third quarter, as well that of the previous corresponding quarter in 2011.

“The reason for this is that the cycle continues to perform well, because we are reaping the benefits of the major cost reduction we have implemented in Europe and the shutdowns are mainly over,” Boëttger indicated.

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