Mill kept alive by cosmetic market

By PAM GRAHAM

Carter Holt Harvey will spend $58 million over two years to equip its Whakatane cartonboard mill for an assault on the Asian cosmetics packaging market.

The investment, which was held up during the electricity supply crisis, preserves 250 jobs, said Carter Holt pulp and paper chief operating officer Rhys Jones. Staff were told yesterday.

The path decided on was an alternative to either closing the mill, which has 30-year-old machinery, or building a new one with a price tag of $200 million.

Instead, Carter Holt is copying an upgrade of a Polish mill by parent International Paper in a bid for Asian packaging markets now being served by imports from Europe and North America.

The market the mill serves has three segments: grey board for products like Weetbix, mid-range folding cartonboard, and white solid bleached sulfate, or SBS, board used to encase such things as designer cosmetics.

As much as half the mill's future production will be of high-quality folding box board aimed at customers looking for an alternative to the more expensive SBS board.

The upgrade will increase production by 23 per cent to 106,000 tonnes a year and is due to be completed by the middle of next year. A new "wet end" will be installed to the paper machine.

"Every tonne we make will be of higher quality than it was before," said Jones.

Most Asian cartonboard mills use recycled fibre whereas Whakatane uses virgin wood fibre capable of producing whiter cardboard.

Jones said there was good market acceptance of the higher-quality product IP produced from an upgraded Polish mill.

"Rather than being a commodity supplier, the product has unique characteristics. We are not going head to head with other products."

Carter Holt, which is half-owned by IP, has high hurdles to new investment and its pulp and paper businesses generally return less on the capital invested than other units.

"People tend to stereotype pulp and paper as one industry. This product per tonne is 50 per cent more valuable than pulp," said Jones.

He said Whakatane was profitable but not earning its cost of capital. It would earn in excess of the cost of capital after the upgrade even at current exchange rates. Carter Holt's cost of capital is between 10 per cent and 11 per cent.

"We think we have managed to get a really competitive position without spending too much. We have not over-invested."

Carter Holt had "great staff, a committed and able workforce" at Whakatane, Jones said.

The company's shares rose 2c to $1.64 yesterday.