UPDATE 2-Mondi pushes for price hikes as volumes pick up
* Says volumes picking up, prices bottomed out
* S.Africa division continues to struggle with strong rand (Recasts, adds details from conference call, updates shares)
JOHANNESBURG, Oct 27 (Reuters) - South African paper maker Mondi Ltd (MNDJ.J)(MNDI.L) has proposed price increases in most of its paper grades, aiming to boost earnings next year as volumes pick up from lows reached during the economic slowdown.
Chief Executive David Hathorn said on Tuesday that while the proposed increases would not bring prices to levels seen last year, they should help stabilise the business and support earnings.
He said prices had bottomed out during the third quarter, leading to a modest drop in underlying operating profit compared with the previous three months.
"(We see) a stable improvement in underlying volumes ... we are seeking to get prices back to some sort of equilibrium as the first step and then build from there," Hathorn told journalists.
"It's early days, but we are sensing that prices have bottomed out."
The global paper industry has struggled for nearly a decade to climb out of a slump caused by overcapacity, soft demand, low prices and weak earnings.
The drop has been exacerbated by the recession, which has further eroded demand for basic materials, including paper, as print advertising has dropped steeply.
Mondi has proposed price rises of 12 percent for sack kraft paper, 25 percent for kraftliner and 50 percent for recycled containerboard. Negotiations with individual customers will determine the actual figures.
Hathorn said Mondi, with 80 percent of its assets in emerging markets, had taken out 12 percent of its global capacity to match supply with demand, but further closures were needed in the industry to ease pressure on prices.
"We are seeing a steady run rate of closures ... because a number of smaller producers, despite the price increases, remain cash negative and are forced to close," he said.
Hathorn said around 1.5 million tonnes of annual capacity still needed to be eliminated in the corrugated packaging sector, used for food, beverages and non-food consumables.
He said the sack kraft segment was well balanced and supply in uncoated fine paper, one of Mondi's key grades, was close to getting the balance right.
"In uncoated fine (paper) we are a machine or two away from the right spot," he said.
Mondi's South African unit struggled during the quarter due to softer volumes, higher costs and weak export prices owing to a stronger rand, which rose more than 20 percent against the U.S. dollar since January.
The group said it remains on track to achieve its cost savings target of 180 million euros ($270.7 million) and said net debt at the end of September stood at 1.6 billion euros.
Shares in Mondi were trading 1 percent lower at 42.05 rand by 1021 GMT, compared with a 1.5 percent weaker JSE All-Share Index . (Editing by David Holmes) ($1=.6650 Euro)
