South African paper maker Sappi may push for further prices increases later this year as cost pressures threaten a recovery in growth, its chief executive said on Friday.
Ralph Boettger also told Reuters in an interview that further consolidation would be needed to help reduce the industry's chronic oversupply
Sappi, the world's largest maker of fine paper used in glossy magazines, recently announced price increases for three of its paper types: coated woodfree, uncoated woodfree and coated mechanical.
Depending on what happens to input costs there might be further price increases later in the year. For coated mechanical paper ... we are of the opinion that a further price increase come June is essential, Boettger said in a telephone interview.
Rising commodity prices have threatened Sappi's growth outlook and raised its sensitivity to costs.
The paper industry has struggled to emerge from a decade-long slump caused by soft demand and overcapacity that was exacerbated by the 2009 recession.
Paper prices tumbled to a record low last year, since when producers have regained some pricing power after top magazine paper maker UPM-Kymmene agreed to buy rival Myllykoski in December, promising to close capacity once the deal is done.
We think that in order to solidify the position and to ensure that there is a healthy balance between demand and supply further certain capacity reductions would be required, Boettger said. And if that could also include consolidation, it would be even better.
Sappi posted a return to first-quarter profit on Wednesday, lifted by stronger demand.
Boettger said the company would start investing in new capacity, mainly in its chemical cellulose and forests businesses, which would see its capital expenditure increasing meaningfully next year.
The company has said its 2011 capital expenditure would be a modest increase on the $188 million spent last year.
Sappi shares, which have gained 9 percent so far this year, were up 2.2 percent at 37.40 rand as of 1231 GMT, outperforming a 1.1 percent rise in Johannesburg's All-share Index.