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The closure of Southland's Bright Wood timber mill is likely to be followed by other major mills as exporters crumple in the face of the unsustainably high level of the New Zealand dollar.
The Wood Processors Association believes up to four major timber mills are on the brink. Other export industries were experiencing similar pain.
"We have been profoundly hit by the very high New Zealand dollar for a very long period," association chairman Dave Anderson told Radio New Zealand.
Bright Wood, at Otautau about 40km northwest of Invercargill, said yesterday it was closing the mill with 99 jobs going.
Owned by Bright Wood US, all the timber processed at the mill is exported to the United States.
Bright Wood president Kevin Stovall said the strong New Zealand dollar and "aggressive" tactics by the Reserve Bank to curb consumer spending were hurting the export sector.
The Reserve Bank refused to comment on Mr Stovall's comments.
Rapidly rising electricity costs and increased operating costs resulting from the introduction of a fourth week of compulsory leave this year were also cited as reasons for the demise of the mill.
Mr Anderson said the high currency was a continuing problem for an industry that primarily traded in US dollars.
While the kiwi dollar fell to US60c in June, against economists' forecasts, it rebounded to as high as US70c in the second half of 2006. Although the Reserve Bank did not lift interest rates last year, it repeatedly threatened to as it attempted to bring inflation back within the 1-3 per cent band it is mandated to maintain.
New Zealand has the highest interest rates in the developed world and most economists expect Reserve Bank Governor Alan Bollard to hike rates again in March despite inflation dropping to 2.6 per cent at the end of last year. That is likely to give fresh impetus to the kiwi dollar.
High interest rates push up the currency as punters from low yielding places such as Japan seek higher returns.
Mr Anderson said it was simplistic to say New Zealand would get a benefit because the trees were not being cut and there would be a carbon benefit.
"People aren't going to plant trees unless they can find some viable business at the end of the 30-year cycle to sell those trees."
He said the forestry sector was integrated, so without a viable processing sector it was "about as much use as a bike without a chain".
Although there was talk a buyer was in the wings for Bright Wood, any buyer would be gambling on a weaker NZ dollar, he said.
Mr Anderson said the Government was sympathetic and Agriculture and Forestry Minister Jim Anderton had been made a number of initiatives.
"The key initiative that the industry needs to have addressed is to have a more stable currency.
"This overvalued situation we are in at the moment is just unsustainable for ourselves and for many sectors in the New Zealand economy that are exporting. This is not just a forestry problem."
Possibly as a result of the financial stress being experienced by many mills, there are also concerns of agglomeration within the industry as weaker mills are picked off.
Rotorua's Daily Post reported yesterday that the future of Lakesawn Lumber, one of Taupo's biggest employers, is hanging in the balance with timber giant Carter Holt Harvey set to buy it.
If that happens, it is suspected it will be closed down and 80 employees will lose their jobs, the paper reported.
Engineering, Printing and Manufacturing Union timber industry organiser Red Middlemiss said if Carter Holt, owned by New Zealand's richest man, Graeme Hart, gets regulatory approval for a takeover, it would spell doomsday for the mill.
"I think we would be looking at a closedown date at the end of February," he said.
Mr Middlemiss said by buying out Lakesawn Lumber, Carter Holt would be on the verge of gaining a monopoly on New Zealand's timber market.
It already owns sawmills at Whangarei, Kawerau, Putaruru, Kopu, Rotorua (Rainbow) and Nelson.
Neither Carter Holt, nor Lakesawn Lumber owner Paul Pedersen would comment.
- NZPA
