Sappi | Uncertainty grinds on

Slowing global economic activity is affecting the Paper and Packaging sector. Data
points were largely underwhelming during August 2019.

• Graphic paper demand erosion accelerated in Europe and North America.

• Fastmarkets RISI cited CEPI reports whereby unbleached kraftliner
consumption declined by 8% YTD in Europe. Mondi (MNP) reported that its
order book is stable and that its July containerboard price increase failed to
materialise. Although containerboard prices have stabilised, RISI believes
further price downside is probable by year-end. We reduced our realised
containerboard price forecast by EUR15/t for in H2 ‘19f.

• Global pulp inventory drawdowns were negligible, declining from 53-days in
Jun ‘19 to 52-days in Jul ‘19. Despite intensions for pulp producers to take
downtime in H2 ‘19f, we believe the sector is likely to achieve normalised
inventory days of c.35-days on hand from mid-2020f.

• Weak paper and packaging demand coupled with high pulp inventories has
caused pulp price erosion of broadly USD30-50/t across most grades in August
2019. Pulp prices have declined ahead of our expectations. We expect high
inventories to keep pulp prices depressed. Accordingly, we defer our expected
recovery in prices by three months from Jan ‘20f to Apr ‘20f.