Dec 10, 2008. /Lesprom.com/. Sappi Ltd., the world’s largest producer of glossy paper, will cut production of coated fine paper at its European mills by 20% this month to bolster prices, Bloomberg reported. “It could be as much as 40,000 tons depending on market conditions,” CEO Ralph Boettger said. “We are not going to produce more than we need to.” Sappi, whose stock rose the most in more than ten years after Boettger’s comments, is buying four mills from Espoo-based M-real for Euro 750 million. The South African company says the deal will give it enough critical mass in the European graphic paper market to restore margins to double digits. As part of the transaction M-real will also shut down 600,000 tons of fine paper capacity. “It’s a very sensible thing to do,” said Anwaar Wagner, an analyst with fund manager Omigsa, which oversees about 429 billion rand ($42.2 billion). The industry is “looking to Sappi now for leadership. One mistake the industry has made is overestimating demand and letting inventories get out of hand.” Demand has fallen amid a worsening economic situation, Boettger said. Sappi will be monitoring demand “month to month” and had not ruled out further cuts. “We will have to see what our order intake for January will be, to see how much merchants are de-stocking.” It would not be a surprise if there were larger orders in January as Boettger thought there had been a degree of de-stocking of inventories. Sappi’s earnings outside Europe “will surprise a lot of people on the upside” if January price increases stick, Wagner said. Prices for coated fine paper were raised by 7% to 10% in December, Boettger said. Increases in January “are in line with that”. Prices are “firm and sticking,” Boettger said of the January increases. Based on this year’s forecast for consumption, Sappi estimates it will have about a 30% share of the European market for coated fine paper after M-Real transaction is completed at the end of the year.