Paper manufacturer Sappi has said that conditions for the sector will gradually improve in 2010, but warned that pulp price increases are also likely.

The South Africa-based business made the comment in its first-quarter results, where it also announced a pre-tax loss of $72m for the fiscal quarter ended 27 December 2009.

This was down from a $36m profit in Q1 of the preceding year. Turnover rose by 36% year-on-year to $1.6bn as a result of Sappi's acquisition of M-Real's graphic papers business.

Sappi chief executive Ralph Bottger said there had been a general increase in the level of demand for fine paper and pulp.

He added: "Conditions in our major markets are expected to gradually improve during 2010, resulting in rising demand.

"Although we expect demand and our capacity-
use rates to improve compared with 2009, we do not expect demand to return to 2008 levels."

He went on to say that the company will therefore continue to manage its manufacturing output to meet customer demand.

"Current indications are that recovery of coated mechanical paper is lagging behind coated woodfree paper, which will impact our European business."

However, as markets improve, Bottger said prices for raw materials and energy were also likely to rise.

He said: "Increased pulp prices are expected to result in rising costs for our European business, which purchases more than half of its pulp requirements."

Sappi has undertaken acquisitions, cost-reduction initiatives and mill closures over the past year, which are expected to help it offset rising input costs.

In May 2009, Sappi Fine Paper Europe expanded its portfolio to include uncoated grades Tauro and Cento following its acquisition of four former M-real mills.