Last month, WPI became locked in a war of words with electricity generator Mercury NZ over its claims high power prices were to blame for the potential closure of WPI’s Tangiwai Sawmill and Karioi Pulpmill.
Wholesale power prices are volatile, but last month they peaked at over $800 per megawatt hour (MWh) due to very low lake levels and constrained gas supply.
Recent heavy rain and an agreement to buy gas off Methanex have since taken the pressure off the spot market, so prices have fallen back sharply.
On Saturday, the wholesale price averaged just $7.38/MWh, having traded from zero to $8.08/MWh over the course of that day.
“Even though current spot pricing has fallen significantly from the August highs, current electricity futures pricing indicates that nothing is going to materially change in the medium term regarding wholesale market electricity pricing,” Ryan said.
WPI said it would help staff into jobs with other industry players and was working with the Ministry of Social Development and IRD, and ensuring employees can access wellbeing providers and independent financial advisers.
All WPI’s employees have been on full pay during the operational “pause and consultation” period.
“They will receive their redundancy entitlements in full, including working through their notice period,” WPI said.
Since announcing the operational pause last month, Ryan said the company had worked hard to consider all available options.
That included seeking long-term price certainty for electricity at levels that would enable the company to be internationally competitive.
“The nature of our operations means we need competitive pricing to be sustained over a long period. We cannot work around short-term price dips in the market.”
WPI was founded 45 years ago to use affordable hydroelectricity to add value to locally sourced low-grade logs and forest residuals.
“The current New Zealand cost base means that we are no longer internationally competitive,” Ryan said.
“This is a problem that WPI shares with many other companies that form New Zealand’s industrial base.”
Ryan said last month WPI is a direct participant in the wholesale electricity spot market, which is settled via the clearing house.
It does not buy directly from Mercury today, nor any other generator.
The company hedges its exposure generally via contracts for difference (CFDs) with generators or other energy users.
“WPI has historically maintained high levels of hedging as part of our normal risk management processes.
“As those long-term hedges have come up for renewal, the cost of renewing them has become internationally uncompetitive,” he said then.
The issue was not unique to WPI.
“Mercury cannot avoid the fact that, while it enjoys record profits, New Zealand’s manufacturing and export businesses are under extreme pressure.”
E tū union national secretary Rachel Mackintosh said the closure demonstrated a failure of the Government to “step up”.
“We need to protect local manufacturing. By leaving the industry so vulnerable to the fluctuations of the energy market, there’s a clear risk that we lose opportunities for well-paid work, and damage Aotearoa’s wider productive economy,” she said.
“Mega-profits from the partially privatised gentailers, and the lack of an effective strategy for a clean and secure energy future, are huge factors in the closures today. It’s simply not good enough for the Government to let our local industries fail like this - it’s an abdication of responsibility.”
Winstone is owned by Oregon Group - an investment holding company of the Tiong family of Malaysia led by Tan Sri Sir Tiong Hiew King.
Other assets in the group include forestry company Ernslaw One, Neil Group, New Zealand King Salmon, Lumberbank, Talus Industries, Innova Products and Oregon Nurseries.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
