Kinleith Mill’s troubles highlight industry’s ‘long slow burn’

Kinleith Mill’s plan to halt paper production next year, with the potential loss of 230 jobs, highlights the pressures facing big manufacturers in New Zealand with no competitive advantage.
On Wednesday Oji Fibre Solutions announced a proposal to stop producing paper at the Tokoroa mill from the middle of next year, and import it instead. The mill would focus on producing pulp.
“Paper production at Kinleith Mill has suffered significant losses for several years, and we see no prospect of the situation improving,” said Oji chief executive, Dr Jon Ryder.
It follows Oji’s decision in September to close its unprofitable recycling plant in Penrose, Auckland, with the loss of an estimated 75 jobs, and Winstone Pulp International’s decision the same month to close sawmill and pulp mills in the central North Island with the loss of 230 jobs.
“A lot of that is just simply cost pressures and that it can be done cheaper overseas,” said Alan McDonald, head of advocacy at the Employers and Manufacturers Association.
“That’s reflective of us being at the end of a very long supply chain, and we used to have competitive advantages in electricity in particular, which we no longer have. That big margin has slowly eroded away over time.”
He also cited shipping, transport and manufacturing costs.
The decline in the paper and packaging industry had been “a long slow burn”, McDonald said.
Norske Skog closed its ailing Kawerau newsprint mill in 2021 with the loss of 160 jobs. A similar fate faced the Swiss-owned Whakatāne packaging mill that year but it was rescued by the Power Paperboard consortium which switched its focus to folding box board. 
Forsyth Barr investment strategist Zoe Wallis noted the manufacturing sector had been in contraction since the end of 2022.
“It feels like people have been hanging in there, hanging in there, hoping for a bit of relief in terms of interest rates, hoping for demand to pick up, and then we just kind of keep seeing the sector being hit by various headwinds,” she said.
“You’ve had things like the minimum wage increase, you’ve had interest rates remain elevated for longer, you’ve had inflation continuing to hit businesses, particularly from the input cost side, and then we had the energy price spikes through the middle of this year, which have had quite a tough impact on several firms.”
Wallis noted manufacturing had been shifting from developed economies to cheaper countries overseas for decades.
“Manufacturing in New Zealand peaked in the late 70s, early 80s, in terms of its contribution to our economy, and since then it’s been on a reasonably steady decline,” she said. “We were a lot more self-reliant back then, a lot less reliant on global trade for a lot of our goods and services.”
High-energy intensive sectors with hefty capital expenditure requirements to replace machinery may find it tougher in the future to stack up the economics for remaining in New Zealand, she said.
Still, McDonald of the Employers and Manufacturers Association said manufacturing in New Zealand was not a sunset industry.
“When you see these large-scale plants starting to wind down or be wound up, that’s that de-industrialisation process,” he said. “Our strengths have always been in some of those niche manufacturing areas that we’re really good at.”
He cited breathing device manufacturer Fisher & Paykel Healthcare, electric fence pioneer Gallagher Group, as well as specialist carbon fibre manufacturers and the multitude of companies that supported Rocket Lab.
McDonald noted companies such as the Tiwai Point aluminium smelter had repositioned themselves as producers of “the world’s purest aluminium” to create a point of difference.
“That’s where the future of our manufacturing industry lies,” he said.
“The factors that are causing pressure now will cause us to be a bit smarter about what we do and just look for areas that we’re good at and focus on those.
“But that’s a tough message to swallow when you’re losing 230 jobs in Tokoroa.”