JOHANNESBURG, July 30 (Reuters) - South African pulp and paper group Sappi on Monday reported a 25 percent drop in third quarter earnings, hit by the economic slowdown in the United States and weak prices. Headline earnings per share, which strip out exceptional items and their tax effects, were down at $0.24 in the three months to June 30, 2001 from $0.32 in the March quarter. This was compared to market expectations of headline EPS of between $0.19 and $0.29. ``Trading conditions remained difficult during the quarter with reduced apparent demand and shipments of coated woodfree paper as well as downward pressure on prices of pulp and coated paper in USA and export markets,'' the company said in a statement. The group's net debt fell to $1,250 million from $1,227 million. Sappi said although there was no improvement in its markets, industry inventories were at low levels and any improvement in the global economic outlook could result in a turnaround in pulp and paper markets. ``Given current market and currency conditions we expect earnings before exceptional items for the fourth quarter to be similar to the third quarter's,'' it said.