2006 20-F - Sappi

In recent years the industry has experienced significant strategic changes. The high costs associated
with building new paper mills and establishing and growing market share has led to companies focusing on
acquisition, rather than construction, of new capacity. In China, however, rapid economic growth and
government incentives spurred massive investment in the pulp and paper industry. Over the last 5 years,
paper and board capacity increased 73%. This development has led to a reduction in events of significant
dislocations in the supply/demand balance typically associated with the entry of new production capacity
into established markets. With increased capacity in 2006 China is no longer a net importer of coated fine
paper. Another result of this trend has been a greater concentration of production capacity among fewer
producers. Many leading industry producers now focus on fewer core grades and have divested non-core
assets that are not part of the industry or which have been considered not consistent with long-term
strategies. The regional and global market shares of leading producers have increased significantly over the
past decade.
The following table shows a breakdown and description of the major product categories Sappi
participates in, the products in these categories and the typical uses for such products. We have produced
and sold each of these products in each of our last three fiscal years.
Major Product Categories
Fine Paper:
Description and Typical Uses
Coated paper Higher level of smoothness than uncoated paper achieved
by applying a coating (typically clay based) on the surface of
the paper. As a result, higher reprographic quality and
printability is achieved. Uses include brochures, catalogues,
corporate communications materials, direct mail
promotions, educational textbooks, luxury advertising,
magazine covers and upscale magazines.
Uncoated paper Uses include business forms, business stationery, general
printing paper, tissue and photocopy paper.
Speciality paper
Packaging products:
Can be either coated or uncoated. Uses include bags, labels,
packaging and release paper for casting textured finishes
(e.g., artificial leather).
Packaging paper
Groundwood products:
Heavy and lightweight grades of paper and board primarily
used for primary and secondary packaging of fast moving
consumer goods, agricultural and industrial products.
Products include containerboard (corrugated shipping
containers), sack kraft (multi-walled shipping sacks) and
machine glazed kraft (grocers bags). Can be coated to
enhance barrier and aesthetics properties.
Newsprint Manufactured from groundwood and bleached chemical
pulp. Uses include advertising inserts and newspapers.
Demand is highly dependent on newspaper circulation and
retail advertising.
Coated groundwood paper A coated groundwood fibre based paper, primarily used for
magazines, catalogues and advertising material.
Manufactured from mechanical pulp.
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