Mondi: More capacity cuts expected

Mar 17, 2009. /Lesprom Network/. South African paper and packaging producer Mondi, with one paper mill in Sweden and one in Finland, expects the paper industry to cut more capacity in all paper grades, as price and volume pressures persist, the chief executive said. Mondi's CEO, David Hathorn, told news agency Reuters in an interview in Johannesburg that further capacity closures and consolidation are likely given that many players are operating on a cash negative basis, some companies are predicting a bigger loss in the 1Q than in the previous one, and banks are not able to help. "We are just going into the recession, not about to come out of it. There will be a lot more rationalisation, asset closures, forced upon the industry," Hathorn said. Mondi, which is the biggest producer of fine paper in Europe, has cut 600 thousand tons of high cost capacity, or 10% of its global output, and Hathorn said that nearly all the remaining assets are operating at low cost. While Mondi is not planning to close any more operations for now, Hathorn said its peers may have no other option. "Fundamentally, that's good news," he said. "We need to flush out the overcapacity, and that's what the recession will do." He said the current environment could also spur consolidation among the various players. David Hathorn is confident that Mondi has taken the necessary steps to be able to weather the current environment. "We've closed what could not survive, what we have will survive, and we remain cash positive," he said. Although Hathorn expects volumes for its products to fall between five and ten percent this year compared to 2008, the group has seen some modest pick-up in the 1Q. "The first two weeks of January were difficult, very soft; things improved in the second half of January, and we have seen some further improvement into February and March," he said. Hathorn expects demand for corrugated packaging paper to be more recession-resistant, while volumes for bags used in industry could drop by more than ten percent. Recently Mondi Dynäs mill in Sweden, which produces sack paper, decided to curtail production - on of the mill's two machines will be stopped for a period.