SAPPI LIMITED

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal quantitative and qualitative disclosures about market risks (that are, the risk of loss
arising from adverse changes in market rates and prices) to which Sappi is exposed are:
Market Risk
Interest rate risk. We are exposed to interest rate risk as we borrow funds at both fixed and floating
interest rates.
Currency risk. We are exposed to economic, transaction and translation currency risks.
Commodity price risk. We are exposed to commodity price risk from price volatility and threats to
security of our raw material supply and other inputs to the production process.
See note 29 to our Group Annual Financial Statements included elsewhere in this Annual Report.
Credit Risk
Credit risk. We are exposed to credit risk in relation to trade receivables, cash deposits and
financial investments.
See note 29 to our Group Annual Financial Statements included elsewhere in this Annual Report.
Liquidity Risk
Liquidity risk. We are exposed to liquidity risk in that we may be unable to meet our current and
future financial obligations as they fall due.
See note 29 to our Group Annual Financial Statements included elsewhere in this Annual Report.
Other Risks
Plantation risk. We are exposed to fair value fluctuations on plantations, as well as to fire,
hazardous weather, disease and other damages to our plantations. See ‘‘Item 5—Operating and
Financial Review and Prospects—Critical Accounting Policies and Estimates’’.
Discount rates. We are exposed to the discount rate fluctuations in the calculation of post
employment benefit liabilities. See ‘‘Item 5—Operating and Financial Review and Prospects—
Critical Accounting Policies and Estimates’’.
For additional descriptions of these risks, see notes 2, 10, 16, 20, 27 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
approximately 95% 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. For a description of our level of
pulp integration, see ‘‘Item 4—Information on the Company—Business Overview’’, ‘‘Item 4—Information
on the Company—Sappi Fine Paper North America, Sappi Fine Paper Europe and Sappi Southern
Africa’’. 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
156