Sappi Limited (SPP) announced that it will permanently cease operations at its coated fine paper mill in Muskegon, Michigan. The company had suspended the operations at the mill in March 2009. The mill had an annual production capacity of 170,000 metric tons.

Permanent Closure of the Muskegon mill was in response to the weak demand for coated fine paper in the global markets. The company is focusing on improving profitability and returns in all its businesses.

The company said that the closure of the Muskegon Mill will not affect the product lines offered by Sappi Fine Paper North America. Products previously made at Muskegon will continue to be manufactured at the company’s other paper mills in Skowhegan, Maine and Cloquet, Minnesota.

To match its production to current demand levels and reduce inventories, Sappi has implemented various capacity reduction measures across its plants in North America and Europe, including the mills acquired from M-real. The company is also implementing additional cost cutting initiatives in response to the current economic conditions.

We expect the coated paper and pulp demand to remain weak in the near term.

Given the current market conditions, we do not expect any increase in the selling prices. With the market conditions remaining weak and no expectation of pricing gains, we estimate a double digit revenue decline for fiscal 2009. However, we believe that the cost cutting measures implemented by the company, along with the decline in input costs and acquisition synergies will offset some of this negative impact on margins.

Zacks Investment Research
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