Sappi FY profit evaporates, sees better 2010

By Agnieszka Flak

JOHANNESBURG (Reuters) - Sappi, the world's largest maker of fine paper used in glossy magazines such as Vogue, predicted returning demand and firmer prices would boost its 2010 performance, even as 2009 profits collapsed.

Chief Executive Ralph Boettger said on Monday he expected demand for Sappi's major products to improve in most markets in the 2010 financial year and said he saw the possibility of price increases at the start of next year in North America and Europe.

"We believe that conditions for prices to firm are improving and we hope that we would start seeing conditions being favourable for price increases from January onwards," he told journalists in a conference call, but added that he expects South Africa to remain under pressure due to the strong rand.

South African rival Mondi last month proposed price increases in most of its paper grades, aiming to boost earnings next year as volumes pick up from lows reached during the economic slowdown.

The global paper industry has struggled for nearly a decade to climb out of a slump caused by overcapacity, soft demand, low prices and weak earnings.

The drop has been exacerbated by the recession, which has further eroded demand for basic materials, including paper, as print advertising has dropped steeply.

Sappi reported on Monday a 90 percent drop in full-year underlying operating profit for the year to end-September to $33 million from $366 million the previous year, mainly on weaker sales and prices and a stronger rand.

Sales were down 8 percent, hit by a sharp fall in demand and lower prices for pulp, and a stronger rand in its South African business, which eroded gains earned in foreign currencies.