Despite on-going corrective actions and interventions to address increased energy, labour and raw materials costs, the Tugela Mill has not delivered acceptable financial returns over the past number of years. In recent times the competitiveness of the mill has further been challenged by overcapacity in the local paper market, an influx of imported products, weak demand for certain papers and depressed selling prices.
Initial actions taken during 2011 and 2012 to return Tugela Mill to profitability, included closing one paper machine (PM3), closing down the KCD (Kraft Continuous Digester) pulp circuit, right-sizing the mill to service the remaining assets and ceasing the production on PM4 of Sackkraft products, many of which will be moved to Sappi's Enstra Mill. PM 4 is currently manufacturing lightweight containerboard products which have been very well received by the market, however the current cost structure and market conditions do not allow PM4 to operate profitably.
This decision will enable Tugela Mill to reposition its cost structure and ensure the sustainability of its other paper machine (PM2) which produces a range of fluting and liner products.
Sappi is confident, given current market conditions, that sufficient capacity exists to meet all local containerboard requirements. No disruptions in supply to customers are anticipated as a result of this decision. Sappi believes that when market conditions improve it will be in a position to restart PM4.