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Sappi announces price increase in Europe for coated woodfree grades

Thursday, September 14, 2006

Press release from the issuing company

Sappi today set out its new prices for coated woodfree grades for both sheets and reels in the European market. These price increases follow on the €45 per ton increase announced for the United Kingdom on the 1st of September. Prices will rise in most European markets by approximately €40 per ton varying per market from the 2nd of October, but will be delayed in Austria, Germany and the Scandinavian countries of Denmark, Sweden, Norway and Finland until the 1st of November. In a letter to customers explaining the motivation behind the price increases, Sappi said “We have often discussed the margins squeeze that has occurred in the coated paper business over the last couple of years. Costs have risen sharply and prices have actually declined to a point where all coated paper producers, not only no longer earn their cost of capital, but are running at more or less a break-even or worse situation. If this were to continue it threatens the supply chain of coated paper in the long term. “To give you an extent of the cost increases, we want to mention just a few. Energy has risen by more than 50% since the beginning of 2004, chemical prices used in coated paper production have risen by 40%, pulp wood (the raw material for pulp manufacture) by 25% and pulp, which represents half the volume of raw material used in coated paper, has had a price increase of US$110 per ton (more than 20% just in the last twelve months). “At Sappi we have been exposed to these cost increases just like all our peers. We have been successful in controlling our cost position and have undertaken tough and successful efforts to bring down input costs and improved productivity. We have invested in cogeneration facilities, used our global presence for better sourcing and improved our efficiencies so that by 2007 our European workforce will be nearly 10% lower than it was in 2004. Overall we have managed to reduce the cost per ton produced, excluding chemicals and energy, by 5% over this time. “It is however clearly not enough and the time has come for us to increase the selling prices to restore modest margins and to begin the climb-back to earning our cost of capital which we have not done for a number of years. “You will be aware that almost all other segments of the European paper industry have increased prices in the past year. Producers of woodfree uncoated products have achieved two price increases this year and a third increase is planned for October. Newsprint prices, which are not subject to the vast increase in cost of chemicals, improved by about €45 per ton. Kraft linerboard prices have risen by €90 per ton and Testliner by more than €100 in the last 12 months. Only coated woodfree prices have not gone up and in some countries even continued the downward trend during the summer months. “With this background we trust you will understand that it is now inevitable for prices across Europe to rise. We expect the prices to rise by an average of about €40 per ton. The price increases will vary in different countries according to local conditions.” Commenting on the price increases Wolfgang Pfarl, the Chief Executive Officer of Sappi Fine Paper Europe said “We have carefully evaluated all possible implications of this price increase. We believe the time is right for us and for our merchant distribution partners to start to restore margins. Working with the entire distribution team will ensure that we achieve this price increase.” “Sappi is determined to maintain its ability to reinvest in its assets to assure the growth of the company for its shareholders and growth for all its stakeholders, in particular its distributors and their customers. To do that we have to remain profitable.” He concluded.




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