2006 20-F - Sappi

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Documents on Display
The documents concerning Sappi Limited referred to in this Annual Report may be inspected at the
registered office of Sappi Limited at 48 Ameshoff Street, Braamfontein, Johannesburg, Republic of
South Africa.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risks (that is, the risk of loss arising from adverse changes in market rates and
prices) to which Sappi is exposed are:
• interest rates on interest bearing debt;
• foreign exchange rates, generating translation and transaction gains and losses;
• fair value fluctuations on financial instruments;
• fair value fluctuations on plantations,
• credit risk;
• commodity prices, affecting the cost of products, and.
• discount rates for post employment benefits.
For a detailed description of these risks, see notes 1, 2, 11, 28, 29 and 31 to our Group annual financial
statements included elsewhere in this Annual Report.
Commodity Price Risk
The selling prices of the majority of products manufactured and purchase prices of many raw
materials used generally fluctuate in line with commodity cycles. Prices of chemical cellulose generally
follow those of paper pulp, although the cycle is generally less volatile. As a result, the sale of chemical
cellulose also tends to act as a natural hedge for paper pulp. Our total pulp production capacity is over
100% of our total pulp requirements. However, there are differences between the types of pulp required in
our paper making operations and the grades of pulp we produce, as well as regional differences. We are
therefore a buyer as well as a seller of paper pulp. Other than maintaining a high level of pulp integration,
no hedging techniques are applied. For a description of our level of pulp integration, see “Item 4—
Information on the Company—The Pulp and Paper Industry—Pulp”, “ Item 4—Information on the
Company—Sappi Fine Paper”, “Item 4—Information on the Company—Supply Requirements” and
“Item 5—Operating and Financial Review and Prospects—Markets”. Despite our present relatively high
level of pulp integration on a Group-wide basis, in the event of significant increases in the prices of pulp on
a Group-wide basis, our non-integrated and partially integrated operations could be adversely affected if
they are unable to raise paper prices by amounts sufficient to maintain margins.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
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