Kinleith shuts to hold prices

By PAULA OLIVER

Carter Holt Harvey's revamped Kinleith pulp and paper mill will shut on Thursday, as the company fights to hold prices steady in sinking international markets.

The Tokoroa mill, which has just come through a $300 million revamp to increase its capacity, is to close for six days.

Pulp and Paper chief executive Kent Blumberg said demand for the mill's products was falling internationally, but most severely in Asia. He could not remember another time that the entire mill had taken market-related downtime.

Carter Holt has taken the option to close because worldwide stocks of both pulp and linerboard are high, and prices would be adversely affected if producers continued at their normal rate.

"We won't put ourselves in the position of making product for which we don't have orders," Mr Blumberg said. "We are not alone in doing this, but we can't hold out any longer to be frank."

Mr Blumberg would not be drawn on how much the shutdown would cost Carter Holt, but did say it was far less than the cost of continuing production.

On any given day, Kinleith produces 850 tonnes of linerboard and other products which can be used in corrugated boxes, and 800 tonnes of market pulp.

It had also been making products it would not normally produce in an attempt to keep the mill running, but that avenue has now been exhausted.

The mill employs 750 staff, and exports most of its market pulp to Asia. Its linerboard products are sold within New Zealand and Australia, and some are shipped to Asia.

Demand for linerboard in Asia had been decreasing for months, Mr Blumberg said, while pulp demand was weak globally.

It was impossible to say when the markets might pick up, but the situation could change extremely quickly, he said. Should the US economy slow, a further negative effect would be felt here. But China could pick up following the New Year celebration.

Credit Suisse First Boston forestry analyst Andrew Mortimer said the shutdown was to be expected, and it was a good move.

"You're seeing a decline in demand for both linerboard and pulp, and they are just following the North American practice where everyone's taking 3 to 5 per cent downtime," he said. "It's a good sign - we are seeing some rational play within the industry, which has been a long time coming."

Traditionally, Mr Blumberg said, the pulp and paper industry had earned a reputation of running all the time regardless of demand. Consequently prices had swung dramatically as supply and demand shifted, and that was part of the reason that share prices in the industry were so undervalued.

But globally that trend is changing. Norwegian paper giant Norske Skog, which owns the Tasman Pulp and Paper mill in Kawerau, has reduced its international pulp production in recent weeks. Carter Holt's parent company International Paper has done the same.

Kinleith staff have objected to the shutdown, because they are being asked to take the week as annual leave. Engineering, Printing and Manufacturing Union national secretary Andrew Little said legal action had been planned seeking an injunction against the mill's closure, but that was now unlikely before Thursday.

Mr Blumberg said pulp businesses worldwide focused on an index known as the Norscan - a North American and Scandinavian measure of how much pulp is sitting in warehouses. That number now sits at about 1.8 million tonnes - well above the balance point of 1.5 million tonnes.

"Inventories of linerboard are high in our mill, and we don't have any orders for the last week of this month," he said. "We've simply got no place to put anything."

Carter Holt is due to release its third-quarter result tomorrow and analysts are picking a fall in profit after a surging first half.

Mr Blumberg would not rule out further downtime at Kinleith if markets did not pick up.