New Zealand’s pulp and paper industry is now being crunched under the weight of its own skyrocketing energy prices, with power prices climbing more than 600% in just three years.
It comes as Wood Central reported that a gang of six Japanese-owned forest companies (generating NZ $2.7 billion in revenue) joined Osawa Makoto – Japan’s ambassador to New Zealand – to implore the NZ government to give “instant relief” to companies over “terminal” prices.
“It was only six weeks ago that I was on a trade mission with the prime minister to Japan, talking about both growing wood processing capability, but more broadly, seeking to enhance foreign direct investment in New Zealand from Japanese companies,” Tony Clifford, Pan Pac managing director told reporters after meeting with key ministers last month.
But what are the drivers of this price hike, and why is New Zealand’s pulp and paper industry vulnerable? “There is no easy answer to this question,” said Tim Woods, Managing Director of IndustryEdge, an expert in the Pulp & Paper industry.
“But it’s enough to say it’s a complex mix of too much reliance on a single source of electricity (hydro), insufficient gas to supply domestic industry, and a zealous approach to creating electricity markets that, in their design, appear to have been short on what should have been the real objective: supply sufficient electricity to meet the nation’s needs!”
According to Mr Woods, the price hikes leave the country’s “mechanical pulp and paper” mills vulnerable: “This is the case for the WPI mill (which closed last month), which uses energy to produce a ‘mechanical’ pulp and has limited thermal and even less electrical energy outputs. The situation is even more severe for Oji’s Penrose recycling mill, which has little to no capacity to recover or create energy.”
“These facilities are essentially stand-alone energy sinks and are far more vulnerable to energy price rises than other pulp and paper mills. Couple that with the vulnerabilities created from selling into global commodity markets where ‘the price is the price’, and we can easily see there is also no opportunity to recover higher energy costs.”
In IndustryEdge’s latest Wood Market Edge and Pulp & Paper Edge, Mr Woods said that New Zealand’s challenge is to reduce its reliance on one form of renewable energy over others, adding that the country’s “balance of renewables has altered little for over half a century.”
“Stellar growth in wind-powered electricity is important and can continue. However, as the March quarter chart for 2024 shows, it is still only 8.7% of New Zealand’s total national electricity supply,” it said, adding that whilst incremental gains in the use of biogas, waste heat, and energy, and biomass can assist, “the main game is likely to be in under-represented renewables, like solar.”
“Solar is just 1.4% of New Zealand’s electricity mix, and as three leading independent energy market analysts wrote in The Conversation in recent days, the better option for New Zealand…would be to prioritise the expansion of rooftop solar throughout New Zealand. This could add significantly to the overall electricity supply and help bring down prices.”
- To learn more about the NZ energy crisis and its impact on investment in the New Zealand forest and wood products industry, click on Wood Central’s special feature. To read Tim Woods’s full analysis, visit IndustryEdge’s latest Wood Market Edge and Pulp & Paper Edge.
