Helsinki - Sappi, the world's biggest maker of glossy magazine paper, was seeking to expand in coated fine paper and add lightweight grades used for weekly magazines, chief executive Jonathan Leslie said this week.
The South African company is trying to boost earnings after saying on Monday it might post a loss this quarter because of higher raw material prices and costs to repair a mill.
The three biggest paper companies all reported higher profit last month and said they planned to raise prices because of a pick-up in demand. Shares in Sappi have lost 14 percent this year, compared with a gain of 4.2 percent for Stora Enso of Finland and a drop of 5.9 percent for International Paper of the US, the first- and second-largest paper makers.
Leslie didn't say how much Sappi planned to spend or give any indication of potential partners. "We are explicitly going to take a look at the coated spectrum," he said, adding Sappi would seek partners rather than build plants. "One of the industry's problems is it has many times shot itself in the foot by adding new capacity."
Leslie said Sappi wanted to increase market share in coated fine paper to 30 percent in Europe and North America, from 20 percent and 25 percent, respectively, and to capture 15 percent of the Chinese market.
Sappi also planned to add capacity in lightweight coated paper. The company derives two-thirds of its $4.7 billion (R29.2 billion) in annual sales from coated fine paper.
Sappi bought a stake in Jiangxi Chenming Paper for $60 million last month as its first step to add production in China. Coated paper consumption may climb more than 10 percent annually in the next four years in that country, where Sappi faces competition from UPM-Kymmene, the third-biggest paper maker.
Shares in Finland's UPM have risen 3.2 percent this year. UPM is spending 450 million euros (R3.6 billion) to more than double its production capacity in China, with expansion of its Changshu plant near Shanghai to be expected to be completed by mid 2005.
Almost a fifth of the annual global paper consumption of 142 million metric tons is coated fine paper, according to Sappi. More than half of the paper's end use is in brochures, catalogues and other advertising material.
Paper prices are little changed this year in Europe after a slump in advertising caused them to slide by a quarter since 2000. In North America, coated paper prices have gained more than 10 percent this year after similar declines to those in Europe.
Leslie said more stable paper prices would benefit producers and customers, and it was worth trying to find a new mechanism.
"It may well be longer-term contracts with reference points and indexes that are referenced but make it slower both ways," he said. "Lots of publishers don't like these big changes, so it's worth looking at."
Sappi was founded in 1936 and expanded into Europe and North America in the early 1990s through acquisitions. Tanzanian-born Leslie took over in April 2003 after heading a business at Rio Tinto.