Nip Impressions logo
Mon, Jul 22, 2024 15:21
Click here for Pulp & Paper Radio International
Subscription Central
Must reads for pulp and paper industry professionals
My Profile
Management Side

A week is a long time in politics

It is said that a week is a long time in politics, and the weeks since my last column have comprehensively demonstrated just that. The interval also demonstrated that economists are not much better at identifying the future than the rest of us.

In my last column, I discussed the paradox between successive interest rate reductions and a stubbornly high exchange rate of the Australian Dollar against the US Dollar. The main culprit appeared to be the “quantitative easing” policies of the US Federal Reserve (and in other countries). It seems that all that was needed to address that stubbornness was a hint from Ben Bernanke, US Federal Reserve Chairman, that eventually the US would stop printing so much money. Not only did this comment create some instability in the stock market, it was the catalyst to send the Australian Dollar into a significant reversal. In the space of a month, the Australian Dollar has depreciated about 12% against the US Dollar.

This should have activated significant gains on the stock market for US Dollar exposed companies. That is yet to happen and is probably a reflection of the shell-shocked state of Australians over an internal coup that has seen Australia’s Prime Minister, Julia Gillard, deposed and replaced by Kevin Rudd, the person that she did the same to about three years ago. I mention this only by way of explanation of the likelihood that all policy settings are up for review and the date of our federal election now uncertain. So matters such as the Carbon Tax, manufacturing support policy and Resources Rent Tax are now likely to see changes, irrespective of which party wins government.

Working on the “trend is your friend” theory, economists are predicting a continuing fall of the Australian Dollar against the US Dollar. However, I report that prediction advisedly since a semi-annual survey of 27 of Australia’s leading economists just published, shows some economists are daring to be different. On average, these economists suggest the exchange rate by the end of 2014 will be 89 cents against the USA Dollar – not significantly below the current level. However, with a forecast range of 70 cents to $1.10, there is hardly a consensus. More concerning, the average stock market index is forecast to be relatively flat over the same period, reflecting subdued demand for minerals from China and a gradual deterioration of employment (although at a forecast of 5.9% unemployment rate at the end of 2014, most countries would be celebrating). Interpretations of comments from our equivalent of Ben Bernanke that interest rates will fall further and with a generally improving outlook for the USA, suggests that the Australian Dollar will be under significant pressure.

All this should be good news for dollar exposed industries like paper manufacturing, but the damage to infrastructure may be irreversible. As one glimmer of positive response, two years after it closed, one of the woodchip mills owned by the now defunct Gunns’ company has reopened, having secured contracts to supply 500,000 tons of woodchips to Japan. The mill is being operated by the receivers of Gunns.

Of course, the business of Government does go on and Senator Kim Carr (who was very involved in the Pulp & Paper Industry Strategy Group that I have reported on previously) has returned, as his reward for supporting the change in Government leadership, to head up the Government department that oversees manufacturing policy and is likely to try to introduce more positive policy for manufacturing industry.

In the meantime, iconic Australian companies with involvement in global supply chains have joined to launch Australia’s first industry-led Australian Advanced Manufacturing Council under the auspices of The Australian Industry Group, a peak industry association which represents the interests of more than 60,000 businesses in a range of sectors including: manufacturing; engineering; construction; automotive; food; transport; information technology; telecommunication; printing; defence; mining equipment and supplies and airlines.
The Council’s objective is to drive national priority and policy change to foster Australia’s comparative advantages in advanced manufacturing. What is interesting about this Council is who is involved. Founding members include Global CEO of The Dow Chemical Company, (Australian) Andrew Liveris, Pacific Brands CEO, and the CEO of Cochlear. Other companies represented include Boeing, Siemens, Agilent and ResMed. Liveris was co-Chair of President Obama's Advanced Manufacturing Partnership, and was recently appointed Chairman of the US Business Council. There is just a chance that what Governments can’t do; this Council might do and reinvigorate manufacturing in Australia.

It is too early to say what all these changes mean for the paper industry. The Government reshuffle appears to be positive for their election prospects, but most pundits are still forecasting a change in Government. The current opposition is seen as hard-nosed economic rationalists and less inclined to throw money at industries that are unlikely to survive without significant Government support. A case in point is that Ford has announced that they will cease the manufacture of automobiles in Australia in 2016 after 90 years of manufacturing in this country, despite significant levels of ongoing Government cash support, which would reduce under a new Government.

The paper industry does receive some Government support as noted in my last column (at Norske Skog’s Boyer Mill and Nippon’s Australian Paper Mill at Maryvale), but it remains to be seen if the fundamentals justify further support.

The annual Appita Conference has just been held in Melbourne and the decline in traditional supplier support for the Conference exhibition was noticeable. The content has changed a lot also with invited papers and master class presentations significantly replacing the traditional technical paper contributions from mills and research institutes. However, there did seem to be better attendance from mill personnel and the general feedback was positive.  Further changes to the annual format seem inevitable as the epicenter of the industry is now clearly in Asia and this is where the dwindling contingent of supplier companies is focusing their promotion. The recently announced demerger of Metso’s Pulp and Paper business might be evidence that despite continuing growth of the industry internationally, that the future could see a much tougher scenario, even in Asia.

The Asian epicenter was at the crux of a recent announcement by Anthony Pratt, Chair of Visy Industries, who has grown its US business, Pratt Industries, to be the fifth largest box manufacturer in the USA (according to Visy). In a recent interview, Mr Pratt said that they were going to try to build a manufacturing business in Asia “like we built in America.” Mr Pratt said they planned to create manufacturing facilities in four South-East Asian countries. Visy already has established warehouse facilities near Shanghai and Beijing, as well as a trading office in Shenzhen.

Meanwhile, musical chairs continue elsewhere in the Australian industry. PaperlinX has a new Chairman of the company, while its stock price languishes at junk levels and is going backwards despite the expected bounce from the Dollar depreciation. Of course, PaperlinX no longer manufactures anything and most of its business is done in Europe where business conditions remain fragile. PaperlinX also confirmed the acting CEO for nearly a year into the permanent role. Outsiders can read into that announcement what they will!

In Tasmania, the Forestry Tasmania CEO reached an agreement with the Board to step down in July. Press reports say this announcement came days after telling a Senate inquiry Forestry Tasmania had "stuffed up internally" its handling of a $45 million government compensation program for contractors exiting the industry. The Tasmanian Forests Agreement was legislated in April after three years of negotiations between green groups and the industry. The objective was to end 30 years of conflict by protecting around 500,000 hectares of forest. As a trade off, the federal government is to provide hundreds of millions of dollars to restructure the industry in an attempt to make it sustainable.

As a further indication of a fundamental inevitability of change in the industry, Metso will assume the management of maintenance at Australian Paper’s Maryvale Mill. Whilst other Australian mills had transitioned to outsourced maintenance management over recent years, such an arrangement had seemed out of reach at Maryvale. Exactly what is proposed at Maryvale is not clear from the press release - “Metso will assist Australian Paper with greater development for our Maintenance staff and employees as well as improved planning and productivity resulting from the Alliance implementation.” Maryvale is a significant mill, manufacturing more than 500,000 metric tons of paper annually, but it is complex – three pulp mills and five paper machines.

Individually, company restructuring and new industry organizations do not address the fundamental competitive position of the small domestic market, but together with a more favorable exchange rate environment, there does seem to be a small window of opportunity to consolidate some of these initiatives to provide some prospect for a more sustainable future.


 Related Articles:


Powered by Bondware
News Publishing Software

The browser you are using is outdated!

You may not be getting all you can out of your browsing experience
and may be open to security risks!

Consider upgrading to the latest version of your browser or choose on below: