With 16% share of the DWP market and producing close to 1.4 million tons per annum, our dissolving wood pulp brand Verve is a significant player within this market.
From textiles to pharmaceuticals and food applications, Sappi has the expertise, technology and track record to meet almost any challenge from these DWP market segments.
Coated and uncoated papers designed to get the best results for you and your customers.
Our range of coated and uncoated printing and writing papers cover varying visual and tactile qualities to ensure that whether you’re looking for a high-end product with extra wow factor, a comprehensive solution that caters to all of your campaign’s requirements, or a paper that helps you make a saving on distribution costs, then we have the solutions.
We are your value-creating partner, offering an extensive range of innovative products and services.
We don’t just supply materials, we deliver sustainable and innovative solutions. Whether you are a brand owner, converter, printer or designer, our specialities and packaging papers give you the advantage you need.
Dissolving wood pulp
Sappi continues to invest in dissolving wood pulp (DWP) capacity to ensure our customers can meet the demands for sustainably grown and responsibly processed dissolving wood pulp.
Demand for DWP continues to grow as consumer preference increases for products made from renewable, sustainably sourced and processed woodfibre. Sappi has been a leading world producer of DWP over the past few decades, and today produces close to 1.4 million tons per annum, enjoying a significant 16% share of the DWP market.
Building on our reputation for quality, service and responsibility, Sappi moved to strengthen our leadership in the DWP market with the launch of the Verve brand — sustainable DWP for a thriving a world.
In 2018, 18% of Sappi’s sales were DWP.
DWP is a highly purified form of cellulose extracted from sustainably grown and responsibly managed trees using unique cellulose chemistry technology. The majority of DWP is consumed in the viscose and lyocell industry where DWP is converted to viscose and lyocell staple fibre, from there into yarn and ultimately textiles, providing naturally soft, breathable fabrics which are smooth to the touch, hold colour and drape well. The fibres produced from DWP also act as good blend partners in fabric with cotton and polyester. DWP can also be processed into products that are used in food and beverages, health and hygiene, wrapping and packaging, pharmaceuticals and many more applications that touch our daily lives.
Demand for DWP used in textiles, particularly for viscose and lyocell fibres, is both the largest and fastest growing sector, while end markets and demand growth for other applications, are smaller and have lower growth rates. Based on the growth rate in the overall textile market, driven by factors such as population growth, rising urbanisation, wealth and the shift towards more comfortable, environmentally friendly natural fibres, we expect long-term growth in demand of approximately 6% per annum for DWP. Textile and other fibres produced from DWP also benefit from the growing need for biodegradable products.
Market prices for DWP are influenced by several variables, including the selling prices for viscose staple fibre (VSF) and lyocell fibres, the pricing differential between paper pulp and DWP and currency movements. Prices for competing fibres in the textile industry, cotton and polyester, impact the VSF price, and consequently the DWP price. Cotton prices rose in May and June this year as cotton was subject to international trade tariffs between China and the United States of America. Along with the rise in oil prices since July, polyester prices have risen, prompting textile manufacturers to seek alternative fibres, positively impacting VSF demand and supporting pricing. Lastly, much of the supply and market for DWP is within China, the Renminbi/US Dollar exchange rate also affects the market price for DWP.
Our markets in 2018 and outlook for 2019
The VSF industry continues to add larger, more modern, environmentally friendly machines, particularly in China and India, while the enforcement of stricter environmental standards has forced several smaller, less efficient VSF plants to run intermittently and some others had to cease production. Taken together, these additions and subtractions of capacity have left the VSF industry with a more eco friendly footprint. Viscose production in China rose 3% in the 10 months of our financial year relative to the same period last year. Through 2022, wood based textile fibre capacity is expected to grow at approximately 6% per annum.
2018 was a year of large-scale capital investment in our DWP business. We completed debottlenecking projects at both Southern African mills, adding approximately 50,000 tons of capacity towards the end of the year. Sales volumes for the year were 1% higher than the prior year. We have a further debottlenecking project planned for our Cloquet Mill in 2019 to increase our capacity by 30,000 tons. During 2018, we also announced an expansion plan to increase our capacity at our Saiccor Mill by 110,000 tons to meet strong projected demand growth. The construction work for this project at our Saiccor Mill has started, and the planned startup is in the last quarter of 2020. The project will bring much needed investment and jobs to the KwaZulu-Natal region, as well as further entrench South Africa as a leader in the DWP industry.
DWP prices traded at a high level and relatively narrow band this year, starting the year at approximately US$921/ton and ending at US$925/ton, while the range was between US$918/ton and US$940/ton. The DWP price was supported by high paper pulp prices, but additional VSF capacity led to pressure from weak pricing in the VSF market. We expect prices for DWP to trade at fairly similar levels throughout 2019 as these market forces are expected to continue.
DWP demand is expected to continue to grow, and we strive to serve our customers with unmatched quality, consistency and scale. The long-term market fundamentals for DWP are very attractive. Our competitive and geographic positioning, long-term relationships with key customers, sustainably managed plantations and forests and reputation in the market as a reliable partner provides Sappi with the ideal platform to differentiate and grow the DWP business further.
Specialities and packaging papers
Through this year’s acquisition and conversion projects, we are investing in the sustainable future of our business.
Both legislative changes and consumer preference for more sustainable packaging are driving the growth in demand for our specialities and packaging papers.
The evolution of our focus from printing and writing papers toward specialities and packaging papers is derived from the suitability of many of our printing and writing paper machines for conversion to packaging papers that require some form of coating. Ahead of commissioning the various conversion projects, we carefully analysed our assets, specifically their production capabilities for specialities and packaging papers, and how those capabilities matched their expected cost of production, the cost to serve customers, historical demand growth, forecasts for the future, as well as competitive threats—choosing only those mills/products/projects where we believed we held a significant advantage. Two conversion projects were completed this year and the response from customers has been positive.
Specialities and packaging papers are an exciting growth area in Sappi. They offer customers an opportunity to add value to their products in niche markets where requirements are more specific and tailor-made.
In 2018, 19% of Sappi’s sales were specialities and packaging papers, up from 16% last year.
Sappi offers products and solutions in many different segments including:
Flexible packaging can be coated or uncoated, for food and non-food applications, such as sachets, pouches and wrappers.
Label papers for pressure-sensitive applications as well as for wet glue and wet strength labels.
Functional papers that offer highly efficient paper based solutions with integrated functionality, like paper with barriers against mineral oil residuals, oxygen, water vapour and grease as well as sealing properties.
Containerboard including liner and fluting for corrugated boxes. Sappi’s products are found in applications like consumer packaging, shelf-ready packaging and transport packaging for agricultural and industrial uses.
Paperboard such as solid bleached board and folding boxboard for luxury packaging with more graphic applications. Packaging for cosmetic, perfume, confectionery and premium beverages use our products.
Silicone base papers and glassine papers for self-adhesive applications, such as graphic art applications with outdoor advertisements, adhesive tapes and office materials.
Casting and release papers used by suppliers to the fashion, textiles, automobile and household industries. It is used in the manufacture of synthetic leather and decorative laminate products, creating textures that make designs come to life.
Dye sublimation papers, a coated sublimation paper for digital transfer printing with water based dye sublimation inks. Designed for the transfer of an image onto various polyester materials, such as banners, flags, snowboards, gadgets, (mugs, mouse pads, etc) apparel and home textiles.
Inkjet papers for large format inkjet printing. Posters, for indoor/outdoor applications, and technical printing in the construction industry (CAD/Engineering).
Tissue paper used for toilet tissue, kitchen towels, serviettes and medical and industrial wipes.
Demand for Sappi’s wide range of products continues to grow in the specialities and packaging papers market, reflecting the increasing needs from customers for more sustainable and environmentally friendly packaging solutions. We estimate global growth to be 3% to 6% per year across the spectrum of our products. We manufacture from a suite of machines within Europe, North America and Southern Africa, ensuring scale based efficiencies and security of supply.
Our Southern African operations mainly focus on the local containerboard market. We have traditionally supplied the agricultural sector with cartonboard to protect fresh produce as it is shipped from farms to tables locally and around the world. Our North American operations currently make functional packaging papers, label papers, and more recently with the Somerset Mill conversion, paperboard for folding cartons. Our paperboard is sold to converters who then print, laminate, cut and prefold the paperboard before transporting to packagers. Examples include perfume boxes, toys, and other fast-moving consumer goods. The focus of our European operations in this segment is much more diverse, and niche. Our portfolio has higher levels of specialisation and customisation than most other speciality paper producers. We are capable of engineering specific products for specific customers, particularly those who want more than just a package. We are capable of coating paper to give the paper functionality that was previously unavailable; such as moisture controls, oxygen barriers, grease resistant barriers, vapour barriers, etc. Our European operations are ideally located in a part of the world leading the ‘paper-for-plastic’ packaging movement. In May 2018, the European Union (EU) introduced new rules to reduce marine litter by banning certain single-use plastic items, like cutlery, straws, and drink stirrers, alongside a measure which holds those plastic producers responsible for the cost of cleaning these items from EU beaches. The industry will also be given incentives to develop less polluting alternatives for these products. So with this comprehensive product range on three continents, R&D centres in each region sharing best practices and new findings from new customers, our customers can expect reliability of supply from a broad geographic footprint, and a leader in innovation within the sector.
Our markets in 2018 and outlook for 2019
In 2018, the EBITDA contribution from our specialities and packaging papers to the Sappi group was approximately 18%. Part of our 2020Vision goals are to expand and grow our specialities and packaging papers segment to 25% of group EBITDA. To that end, in 2018, Sappi acquired the Cham Paper Group, (CPG) a Swiss-based speciality paper producer, and completed two conversion projects with the aim of growing into these adjacent markets that exhibit good demand growth and higher average margins.
The acquisition of CPG supports our diversification strategy by adding three new paper grades under the Sappi portfolio which broadens our offering to customers and earning greater share of wallet with valued brand owners. These new products increase our relevance to more customers, enabling us to bundle both volumes and customer service, providing economies of scale and synergies. We plan to take advantage of our larger research and development team to accelerate innovation and new product development in a very competitive European market.
Two conversion projects and a machine upgrade were completed this year with the aim of matching supply and demand in the printing and writing paper markets, as well as in the specialities and packaging papers markets. Before our conversion this year, the paper machine at our Maastricht Mill made approximately 280,000 tons of coated woodfree paper per year. With the project completed, we expect to ramp up over three years to approximately 150,000 tons of folding boxboard at the Maastricht Mill, with the balance of the capacity on the machine dedicated to coated woodfree paper. The machine upgrade at our Ehingen Mill has enabled us to expand our white topliner offering from that mill. The conversion of PM1 at the Somerset Mill was completed in our third quarter, and although the project was delayed and costs overran, we are very satisfied with the quality paperboard grades being produced on that machine. Our plans call for a three-year ramp up in paperboard volumes towards the capacity of 350,000 tons per year. As orders for paperboard grow, we will continue to fill the machine with legacy coated woodfree paper as we match supply to demand in both grades. Taken together, over three years, our plans call for an additional 560,000 tons of paperboard, folding boxboard, white topliner and a number of other speciality papers while we reduce our overall exposure to the coated woodfree market by approximately 350,000 tons.
In 2018, volumes from our specialities and packaging papers segment were 30% higher than last year, much of the increase coming from the inclusion of the newly acquired CPG mills for seven months of the year. EBITDA contribution to the group rose from 15% last year to 18% in 2018. In 2019, with CPG fully integrated, and the conversions ramping up, our goal this year is to grow our volumes and customer base in all regions. These actions provide the basis to progress toward our 2020 targets.
Printing and writing papers
Before customers ever read content or recognise a logo, they’ve come to a conclusion about the brand.
The science of touch, or haptics, tells us that the experiences of holding something, like coated paper, leaves a powerful and lasting impression. In a sense, they’re holding a brand in their hands, triggering a reaction that causes the body to form a deeper connection. In fact, customers remember content read on high-quality coated paper three times better than content they read online. The geographic spread of our operations provides the ability to optimise global knowledge of market developments, operational best practices, and technology.
Our markets in 2018 and outlook for 2019
Demand drivers, such as direct mailings, catalogues, magazines, and commercial printing are all believed to be in fairly consistent decline in most regions of the world. Because part of our strategy is to continuously balance market supply with that of market demand, we undertook and completed several conversion or upgrade projects this year to reduce our exposure to coated woodfree paper, where demand is declining, while expanding our presence in the specialities and packaging papers markets in the USA and Europe, where demand is growing. We completed two such projects in Europe this year, one a conversion project at Maastricht Mill and one a machine upgrade project at Ehingen Mill, in addition to the conversion of PM1 at Somerset Mill in the USA. Over three years, our plans call for an additional 570,000 tons of paperboard, folding boxboard, white-top liner and a number of other speciality paper products, while reviewreducing our overall exposure to the printing and writing papers market by approximately 350,000 tons. We aim to maximise the significant cash flow generation of our existing printing and writing paper assets, continuously improve our cost position, and maximise the utilisation of our best-in-class production assets.
Volumes from the segment were 3% lower this year relative to last due to the aforementioned projects. Sales values, however, were 7% higher as market prices rose throughout the year. Our EBITDA margin was slightly higher this year at 8.8%. Average prices realised per ton were 12% higher than last year, slightly outpacing our realised cost per ton, which rose 11%, mainly due to purchased pulp.
In 2019, we expect to sell lower volumes of printing and writing papers as we ramp up the production of specialities and packaging papers from the converted machines. Displaced coated woodfree orders from the Maastricht and Ehingen Mills are expected to gradually fill capacity at our Lanaken Mill, which currently produces coated mechanical paper, and which will be converted by our third financial quarter to give it the capability to additionally produce coated woodfree paper. At our Somerset Mill, and in line with our strategy, we aim to increase our paperboard volumes on the newly converted PM1 while maximising up-time with orders for coated woodfree paper. Over the next three years, we aim to balance supply and demand in both markets as demand for coated woodfree declines, and demand for paperboard continues to grow. We expect both costs and sales prices to remain elevated.
In 2018, 61% of Sappi’s sales were in four different grades of printing and writing papers discussed below:
Coated woodfree paper
Share of sales: 44%
Printers and publishers use coated woodfree paper for a variety of marketing promotions including brochures, catalogues, calendars, annual reports, direct mail, textbooks and magazines. Coated paper is brighter, smoother and tends to have greater opacity than uncoated grades. We manufacture coated woodfree paper in our North American and European businesses, but sell to customers all over the world. In 2018, 44% of Sappi’s sales were in this segment, typically through large paper merchants.
Demand trends: As demand for coated paper depends largely on advertising, we’ve seen a decline in spend for printed materials. However, we believe there will always be a place for paper within the marketing mix. Globally, demand for coated woodfree paper is forecast to decline 2% for the next several years, from approximately 23 million tons in 2018 to approximately 21 million tons by 2022.
Sales: Sappi’s net revenue from coated woodfree paper was 6% greater than last year as prices in our major markets rose throughout the year. Sales volumes declined approximately 5% in 2018, due to conversion projects we undertook to grow our specialities and packaging papers business. Globally, demand for coated woodfree paper declined by approximately 4%.
Coated mechanical paper
Share of sales: 11%
Coated mechanical paper is primarily used in magazines, catalogues, newspaper inserts and other advertising materials. In 2018, 11% of Sappi’s sales constituted coated mechanical paper, all coming from our European business. Customers for this paper are typically large paper merchants, commercial printers and publishers of weekly and/or monthly magazine titles.
Demand trends: Demand for coated mechanical paper is more closely linked to that of demand for magazines. Readership, subscriptions, circulation, pagination and advertising revenue per page continue to decrease in larger markets as consumers opt for digital formats. Demand for this type of paper is forecast to decline more rapidly than for coated woodfree paper in the years to come.
Sales: Sappi’s net revenue from coated mechanical paper was 14% higher than last year, due to higher volumes and selling prices. Volumes were approximately 5% greater than 2017 due to tight trading conditions in adjacent grades. The global market contracted by approximately 3%.
Uncoated woodfree paper
Share of sales: 5%
Uncoated woodfree paper is used in letterhead, business stationery, photocopy paper, with certain brands sold to converters for books, brochures, envelopes, pamphlets and magazines. Sappi makes and sells uncoated woodfree paper in our European and Southern African businesses. In 2018, 5% of Sappi’s sales were made up of uncoated woodfree paper. Our main customers in this sector are paper merchants and converters.
Demand trends: Demand for uncoated woodfree paper is expected to remain flat over the next several years. Like most printing and writing papers, demand continues to decline in mature markets, with small growth coming from emerging markets.
Sales: Our net revenue from uncoated woodfree paper was 13% higher than last year, as a result of increased volumes and prices in Southern Africa. Globally, demand was relatively stable this financial year, with a modest decline of 0.5%.
Share of sales: 1%
Newsprint, 1% of Sappi’s sales, is manufactured from mechanical and bleached chemical pulp, with uses including advertising inserts and newspapers. We manufacture and sell newsprint from our South African business.
Demand trends: Demand for newsprint principally is derived from newspaper circulation and overall retail advertising. Newspaper readership is declining around the world. Publishers are consolidating, while some titles have closed. Pockets of growth exist in ad-financed daily newspapers typically found in large metropolitan cities.
Sales: Though demand for newsprint continues to decline at a global level, our newsprint volumes were 5% higher in 2018 relative to last year, due to a machine closure by a competitor in the South African market last year.