Away from the headlines, New Zealand is getting on with the business of making pulp and paper
January 2008
By Robert Ryan
New Zealand is not the first country that comes to mind for pulp and paper industry experts and managers around the world. They are more likely to be interested in technology advances made in Europe, world-class mills in Brazil and the vast markets of China and India.
Nevertheless New Zealand is making an important contribution to the worldwide pulp and paper industry. Firstly, New Zealand has a substantial virgin fiber resource made up of 1.8 million hectares of plantation forests – most of which is radiata pine. Secondly, the nation has a strong papermaking history, and efficiently run mills that produce 1.7 million tonnes/yr of pulp plus 1 million tonnes/yr of paper and board. And thirdly, "God's little acre", as locals like to call this isolated corner of the southern hemisphere, is playing a key role in serving the fiber-hungry nations of North Asia.
And last but not least, a prominent New Zealand entrepreneur has demonstrated that Carter Holt Harvey (CHH) – the large forest products company divested by the world's leading papermaker on the basis of its failure to meet the required 9% return on investment hurdle – is not only viable, but that it has a bright future as well.
Top papermaker
Carter Holt Harvey is New Zealand's largest papermaker, and one of the nation's largest companies. For many years, this century-old firm had interests in forestry, panels, pulp and papermaking.
In August 2005, in one of the largest deals in New Zealand corporate history, the ownership of CHH changed hands when International Paper sold its 50.5% stake to Rank Holdings, an investment vehicle owned by the entrepreneur Graeme Hart, New Zealand's richest man (the deal followed IP's May 2004 sell-off of CHH's tissue-making assets in Australia and New Zealand to SCA).
The $NZ1.65 billion ($1.14 billion) CHH deal caused a sensation in New Zealand, as it saw the world's leading papermaker sell off its majority stake in a top forest products producer to a wealthy entrepreneur with no background in the industry. After buying IP's stake, Hart later went on to gradually buy up the rest of Carter Holt Harvey, for a total outlay of $NZ3.3 billion, and then de-listed the company from the stock exchange.
At the time that Rank bought into Carter Holt Harvey, it was New Zealand's largest plantation forest company, with 330,000 ha of forests. Soon after the takeover, Graeme Hart began to gradually sell off forestry assets. He has reaped at least $NZ1.5 billion from the sale of most of these forestry assets. More recently, Hart has offered CHH's Australia and New Zealand-based wood products business for sale. This transaction is expected to be complete soon, and generate at least $NZ2 billion for Rank.
These large deals will clearly allow Hart to recoup the $NZ3.3 billion that he outlaid for the purchase of CHH, while leaving the company's papermaking assets in his hands. So an outside observer could conclude that Hart is merely a corporate raider who buys up ailing companies to be carved up and sold off.
But Hart does not fit the corporate raider profile, because Rank Group has been expanding its packaging empire. In the middle of this year, it acquired a majority stake in Swiss packaging group SIG for $2 billion. This followed his December 2006 acquisition of the struggling beverage packaging business, Evergreen Packaging, from International Paper for $413 million. These moves indicate that Hart is following a global, diversified, vertically- integrated strategy for the company. "He is taking Carter Holt Harvey in a value-added direction," says one New Zealand pulp and paper industry insider. "He is pursuing a diversification strategy," says another New Zealand industry watcher.
Innovative Kinleith
Kinleith, Carter Holt Harvey's flagship mill located in Tokoroa in the North Island, is a major producer of kraftliner and softwood kraft pulp. The mill has 327,000 tonnes/yr of kraftliner capacity on a single 6.3 m wide machine, plus 270,000 tonnes/yr of softwood kraft pulp. The mill is a major export player – it exports 70% of its kraftliner and softwood kraft pulp output. The mill could play a role in Hart's global strategy as softwood kraft pulp supplier to the downstream beverage packaging business.
The Kinleith mill is also pioneer in maintenance management. In 2002, following a review of its maintenance options, the management of CHH Kinleith decided to outsource responsibilities for this task, and it chose ABB Maintenance Services as its partner.
CHH has also taken this successful maintenance partnership model to the Tasman mill, which is also located in the North Island, in the town of Kawerau. Carter Holt Harvey operates a 270,000-tonne/yr bleached pulp line at Tasman. Unusually, the Tasman mill site is shared with newsprint producer Norske Skog Australasia.
Apart from the Tasman and Kinleith mills, CHH has two other mills in the North Island: a 70,000-tonne/yr wastepaper-based medium mill at Penrose in Auckland, and a 90,000-tonne/yr cartonboard mill at Whakatane.
Vikings down under
There is only one newsprint producer operating in New Zealand and Australia: Norske Skog Australasia (NSA). The Norwegian newsprint giant came onto the scene in July 2000, when it bought three Australasian newsprint mills from Fletcher Challenge. The NOK 21 billion ($2.4 billion) deal gave the global newsprint company 900,000 tonnes/yr of newsprint capacity at three mills – the Tasman mill in New Zealand, plus the Boyer and Albury mills in Australia. The move also gave Norske Skog access to the wood resources of New Zealand's fiber-rich North Island – and, for good measure, the role of dominant market player in a substantial region of the globe.
The July 2000 takeover was dubbed by one industry insider as a "Viking invasion". But this comment was made in jest, and the presence of a top global producer with a commitment to the local industry has been widely welcomed. This commitment was reaffirmed by Norske Skog's investment in a substantial upgrade of its newsprint operations.
The NOK 750 million upgrade investment was carried out in 2005 and 2006. A large share of this project cost was spent on a paper machine rebuild at the Albury mill in Australia. The work boosted the capacity of Albury PM 1 by 55,000 tonnes to 270,000 tonnes/yr.
In New Zealand, NSA upgraded PM 2 and PM 3. The work boosted the combined capacity of the two machines by 50,000 tonnes, says Chris Marjoribanks, the external relations manager for NSA Tasman. PM 2 and PM 3 are running at 1,150 m/min following the upgrade, he says (up from 1,020 and 1,100 m/min respectively prior to the work).
Meanwhile, Marjoribanks confirms that NSA retired PM 1 at Tasman following completion of the upgrade. The 50 year-old machine, which had 120,000 tonnes/yr of newsprint capacity, was scrapped in August 2006, he says. Therefore there was a net loss of capacity at Tasman, but overall only a minor drop in newsprint capacity across Australia and New Zealand (given the previously mentioned Albury upgrade), plus the added benefits of reduced operating costs by the closure of PM 1.
Trans-Tasman ties
As noted above, one producer owns and operates all of the newsprint capacity in Australia and New Zealand. But the close links between NSA New Zealand operations and Australia do not end there. NSA Tasman is dependent on its neighbor across the Tasman Sea as a market. A large share of the newsprint output from the NSA Tasman mill is sold to Australian publishers on long-term contracts.
This dependence on neighboring Australia as a market is not surprising, given that the market for newsprint is New Zealand is a relatively small and mature one. There is only so much newsprint that can be consumed in New Zealand, given that its population numbers only 4 million. Meanwhile the 21 million strong population of nearby Australia offers a much more promising market, even though it too is only a modest size by international standards.
NSA is not an unusual case. There are close trans-Tasman Sea ties between markets and producers throughout the paper industries in Australia and New Zealand. According to Appita – the paper industry association that incidentally serves both nations – Australia is New Zealand's largest customer for forest products. About 28% (by value) of New Zealand's exports of forest products (sawn timber, panel products, pulp, paper and board) are destined for its larger neighbor.
New Zealand is also a convenient market for Australian papermakers. For example, premium Reflex brand copy paper made at the PaperlinX Maryvale mill in Australia can be found on the shelves of retail outlets across New Zealand. The fact that New Zealand lacks any printing & writing paper capacity of its own is part explanation for the strong Australian-made share of this neighboring market. And leading Australian paperboard packaging producers Amcor and Visy have a strong market presence on the other side of the Tasman Sea as well.
And there are even more connections. SCA Hygiene Australasia has tissue mills in both countries – at Kawerau in New Zealand's North Island, and in the Melbourne suburb of Box Hill, Australia. Carter Holt Harvey used to own these tissue operations on both sides of the Tasman Sea before it sold them to Svenska Cellulosa Aktiebolaget (SCA) in 2004.
It is hard to imagine two national paper industries that are more closely integrated than the New Zealand and Australian ones. It is perhaps fitting that David Kirk, a former New Zealand All Black rugby player (and captain of their 1987 World Cup-winning team), previously held the post of NSA boss – and the office from which he managed this trans-Tasman newsprint empire was located in Sydney, Australia.
Fiber for North Asia
As mentioned in the introduction to this article, this "slice of heaven" in the southern hemisphere (as some New Zealanders call their country, and as immortalized by the 1980s song of the same name) is also home to pulp suppliers that feed fiber-hungry North Asia.
Pan-Pacific Forest Products (Pan Pac) is a leading New Zealand pulp producer that fulfills this role. The company, which is owned by Oji Paper (87%) and Nippon Paper Industries (13%), produces 260,000 tonnes/yr of thermomechanical pulp (TMP) for the two Japanese papermakers. Pan Pac also supplies these two leading Japanese producers with 550,000 tonnes/yr of softwood chips for use in chemical pulping. And Pan Pac has ventured into the market pulp business – it is exporting tonnages of TMP to China.
Other New Zealand producers are also very active in supplying North Asia with pulp, paper and paperboard. These include Winstone Pulp, which produces 145,000 tonnes/yr of bleached and unbleached chemithermomechanical pulp (CTMP); and Carter Holt Harvey, which exports much of its kraft linerboard output to Asia.
The statistics speak for themselves, and tell a story of New Zealand emerging as an important fiber supplier for North Asia. As noted, Australia is New Zealand's largest market for forest products (28% by value of this export category). But Asian nations are close behind. Japan, China and South Korea take 19%, 10% and 9% respectively of New Zealand's forest product exports, according to the NZ Ministry of Forestry and Agriculture. Meanwhile the USA remains a key forest products market for New Zealand (14% of exports). In other words, Japan, China and South Korea now make up three of New Zealand's top four forest product export markets.
China has emerged as one of New Zealand's key pulp export markets. In 2005, New Zealand exported 242,000 tonnes of wood pulp to China, making it the second largest market for New Zealand pulp behind Japan (252,000 tonnes). The two North Asian nations made up well over half of New Zealand's total pulp export market. More recently, in 2006, China imported 185,000 tonnes of chemical wood pulp from New Zealand, making it the largest export market for this category of NZ exports.
Much to contribute
This isolated nation of New Zealand is probably off the radar screen for many paper industry people around the world. But New Zealand has much to contribute as a medium-sized player on the world papermaking stage, which makes the nation a quiet achiever under southern skies.
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