The South African-based paper manufacturer made the claim in its first-quarter results for the 2009/10 financial year.

Sappi reported a pre-tax loss of US$72m (£45m) for the three months to 27 December 2009 – down from a $36m profit a year earlier. Sales for the quarter increased by 36% to $1.6bn from the previous year, following Sappi's acquisition of M-Real's graphic papers business, which closed on 31 December 2008.

Sappi chief executive Ralph Boëttger said there was a general improvement in demand for fine paper and pulp: "Conditions in our major markets are expected to gradually improve in 2010, resulting in rising demand for our products.

"Although we expect demand and our capacity use rates to improve compared with 2009, we do not expect demand to return to 2008 levels."

He explained that the company would therefore continue to manage output to meet customer demand.

"Current indications are that recovery of coated mechanical paper is lagging behind coated woodfree paper, which will impact our European business," he added.

"Increased pulp prices are expected to result in rising costs for our European business, which purchases more than half of its pulp requirements."

Sappi has undertaken acquisitions, cost reduction initiatives and mill closures over the past year, which are expected to help it offset rising input costs.