High power prices caned as another mill mulls possible sale

Wednesday, 17 March 2021

The Tasman newsprint mill at Kawerau is one of the country's biggest electricity users after Tiwai and NZ Steel.

A second central North Island paper mill on the market has criticised the country's high electricity prices.

Eighty-year-old Whakatāne Mill confirmed on Tuesday that it would close after losing its key customer and failing to find a buyer, resulting in 210 job losses.

In nearby Kawerau, Norske Skog's Tasman pulp and paper plant is also under strategic review and sources say a buyer may be in the wings.

The company confirmed that sale was one of the options it was considering and a number of parties were doing due diligence.

* Whakatane Mill workers distraught as fight continues for its salvation

* Wood industry 'needs discussion' as Whakatāne mill flags closure

More than 600 people work for the pulp and paper industry in Tokoroa and Kawerau, 160 of them for Norske Skog.

* Changes at Kawerau's Norske Skog paper mill amid ongoing review

Closed borders had also made viewing the mill difficult.

‘’Overseas interest in something like this is understandably high due to the nature of the assets. Covid-19 restrictions have certainly affected interested international parties who would want to see things first hand.’'

Carrying out a reel change at the Tasman paper mill in 1995, when demand for newsprint was strong (file picture).

While declining newsprint demand is one of Tasman’s biggest issues, the mill has joined others in the industry in speaking out about high energy costs.

Whakatāne’s general manager Juha Verajankorva has been highly critical of New Zealand power prices, saying they are '’a definite handicap’’ compared to other countries it is up against.

Major Electricity Users Group's chairman John Harbord said he expected other mills to follow Whakatāne.

'’High electricity prices are not the sole reason but they were certainly a contributing factor and they will be a significant contributing factor in additional closures that I think are almost inevitable,'' he said.

While Kawerau's other mills, Oji Tasman and Asaleo's tissue plant, are thought to be in a stable condition, Norske Skog’s finances appear to be under pressure.

Company Office records show that in 2019 the mill made a deficit of $13.2 million, down from a profit of $9.12m in 2018 and a loss of $15m the year before.

Norske Skog’s pulp and newsprint operations are part of a massive factory built in the 1950s to process logs from the nearby Kāingaroa forest.

Norske Skog Tasman's general manager Steve Brine was unavailable to comment but a spokesman said industry concern about electricity prices was high.

Production has been curbed by 25 to 30 per cent, as the mill limits its exposure to high spot prices.

''Obviously, the current situation is not good for the mill and other power users as most facilities need to operate at full capacity in order to be competitive,'' the spokesman said.

'’As a general comment, the cost of manufacturing in New Zealand is already too high to be internationally competitive, and this is further compounded by the instability and variability in the electricity market, where prices can vary for almost nothing to hundreds of dollars within the space of a few hours.''

MEUG blamed the prices on a lack of competition among the energy generators and said they were '’unsustainable'’ but likely to remain for at least six months.

In 2018 spot electricity prices were $80 a megawatt hour but at the moment, the spot price was averaging $130 MW/h, peaking at times to $320 MW/h.

''For a lot of industrial users, electricity is one of the top three costs, along with labour and raw materials,'' Harbord said.

''The survival of some consumers is on the line right now – they may not be around in 2023 to 2025 to see lower spot prices.'’

Some hope is also being placed on an industry transformation plan which government and industry officials are working on to provide direction for wood processors over the next 20 years.

Part of the work includes a series of business case studies on biofuels under the Wood Fibre Futures umbrella, which is due out towards the end of the year.

Forestry and Economic Development Minister Stuart Nash declined an interview with Stuff last month, but said in a statement that he believed there was ''definitely a future for greater use of wood products and natural fibre products in our packaging industries''.

However, Raymond Wheeler, a spokesman for the E tu union, said the industry transformation plan needed to be sped up if mills were to remain competitive.

The age of the Whakatane mill's plant had hindered its sale, and its owner had pulled out because it could get product cheaper from Europe.

''It's the competitiveness. The energy costs in the sector of the wood processing and timber industry, it’s quite considerable, considering we have the natural product – the trees – plus we have a natural energy resource.’’

While exporting has given the pulp and paper industry some respite recently, growth in the sector has been on the decline, falling 0.4 per cent between 2015 and 2020, according to IbisWorld.

In Norske Skog's case, newsprint demand is dwindling but its ‘’pulp on a reel’’ is currently enjoying good export demand, the company said.

So far, government help has tended to be in the form of research and assistance, such as officials who helped to try and find a buyer for Whakatāne mill.

The public sector has also been encouraged to use more wood, with procurement guidelines put in place for the public sector. But this is expected to be of more help to the building products industry than the packaging industry.

Another option for the industry might be environmentally friendly packaging. The Government recently announced a $50m fund to research alternatives to single-use plastics.

A request to interview Te Uru Rākau/the Forestry Service about the industry transformation plan was declined.

Key facts:

* New Zealand's paper and paperboard industry is currently worth about $490m a year. Australia and China are its main export markets for packaging products, tissues and toilet paper.

* Paper exports are expected to fall slightly this year to $460m, reflecting reduced demand for newsprint as media organisations increasingly move online.