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Sappi to Spend Almost $200 Million on Chemical Cellulose

Sappi Ltd. plans almost $200 million in capital spending in its fourth quarter, mostly on chemical cellulose expansion as the world’s largest maker of glossy paper seeks faster-growing markets.

The conversion of the Cloquet, Minnesota-based kraft pulp mill to produce chemical cellulose, used in textiles, and expansion of the Ngodwana Mill in South Africa’s Mpumalanga province is “going well,” and both will be “up and running” in the third quarter of 2013, Chief Executive Officer Ralph Boettger said in Johannesburg today. Sappi plans total capital expenditure this year of $425 million.

The company’s primary focus has been on expanding its higher-margin chemical cellulose operations as paper sales have slowed. Last year Sappi announced plans to shut mills in South Africa and Switzerland, eliminating about 800 jobs. Rising costs and weaker paper sales have also led Helsinki-based competitors Stora Enso Oyj and UPM Kymmene Oyj to close mills.

Sappi today reported a basic loss per share of $0.20 for the fiscal third quarter through June, compared with a $0.13 loss a year earlier and $0.11 profit in the three months through March.

Sappi fell 0.9 percent to 24.19 rand at the close in Johannesburg. That pared the stock’s gain this year to 1.6 percent, valuing the company at 13.1 billion rand ($1.6 billion).

While volumes sold and prices “were worse than expected in the quarter as a result of the uncertainty in Europe and a general slowdown in all major markets,” the company doesn’t expect “further deteriorating in the fourth quarter,” Boettger said. Operating profit in the fiscal fourth quarter is expected to be higher than in the year-earlier period, he said.

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