Sappi has said its European business is “unsustainable at current price levels” and is set to raise prices to combat a long period of low prices, tight margins and the high cost of wood pulp.
Like other non-integrated suppliers, who do not produce their own pulp, Sappi Europe has been suffering from the weak euro, as it has to buy wood pulp on the open market in US dollars.
The Belgian-headquartered operation said in a statement released on Friday: “Continuously rising input costs and consequently declining profit margins make corrective pricing measures inevitable as Sappi Europe’s business is unsustainable at current price levels.
“Our customers will be personally informed by our sales managers who will provide them with any information they may require.”
It adds that a price rise for coated fine paper sheets will be announced separately.
Iwan Le Moine of paper industry analysts EMGE & Co said: “Every so often the paper mills try and push up the prices and they get nowhere. But they struggle due to overcapacity. Market pulp prices have been really high for over a year now.
“I think you will probably see other suppliers following suit in the coming days. The suppliers are in quite a good place because the industry has closed a lot of capacity in recent times. There have been quite a lot of outages in supply in the past 12-18 months.
“They will try it and they need to get something, although it won't be at all welcome to customers. They have got their backs to the walls as well.”
Some printers have pointed out that the currency markets also benefit Sappi, which is paid in pounds for stock bought here. The pound saw a strong jump against the euro following the Conservative election victory on Friday.
Others can rely on setting prices over the life of a contract.
One publisher said: "They haven't got much chance at putting their prices up by that much in this market. It's fairly quiet."
Andrew Moss of AM:PM print management added: "Over my 30 years in printing, paper has gone up and down and you keep getting these letters through and you tend to ignore them. The question is will it stick. They are saying they will put it up by 8% but maybe they will get 4%. In the past nine years I have never had to go back to my customers and say prices have to go up because of paper."
Sappi Europe, a division of the South African-headquartered global business Sappi Limited, produces Magno, Quatro, Vantage, Royal, Galeri, GaleriArt and Jaz in its graphic paper brands and Algro, Fusion, Leine and Parade are aimed at speciality labeling, topliner, packaging papers and boards.
Europe accounted for 51% of worldwide sales of $6.06bn (£3.93bn) in Sappi's results for 2014. In the group's "seasonally slower" first quarter, to 31 December 2014, its European business made an operating profit of $12m on sales of $547m (2013: operating profit $3m, sales $581m).
At the time, Sappi said the division's performance had improved thanks to higher average prices for coated woodfree paper and lower fixed costs, although it warned coated mechanical prices and volumes remained "under pressure".
Its financial year runs from the beginning of October to the end of September. It will announce its Q2 results on 14 May.
A drop in demand for its papers, low margins, the high cost of pulp and the strong pound were all reasons given for the recent collapse of Tullis Russell Papermakers in Fife, which called in administrator KPMG on 27 April.
