Manufacturing Matters- Tuesday Top-Up 4

Recent key developments in MAKE│NZ

• Our History – Part 2: For the period between 1879 and up until the 1960s, we don’t have that much information about the activities of the organisation, other than membership records. It operated as the Industrial Association of Canterbury [IAC] until 1926. In November 1926, the IAC came together with similar organisations from Auckland, Wellington and Dunedin at a conference in Christchurch to form the New Zealand Manufacturers’ Federation, and the IAC became the Canterbury Manufacturers’ Association [CMA]
• This is the CMA Presidents’ Board in our office …

… and to show that it’s ‘the genuine article’, here’s a photo from 1945:

• We’ve been pretty busy with our advocacy work as part of the NZ Manufacturing Alliance [Alliance] in the past week. The Minister for Tertiary Education, the Hon. Penny Symmonds has (after some delays) published her proposed plan for the reform (roll-back?) of Vocational Education and Training for consultation. We’ll share our initial response in next week’s newsletter
• In the meantime, the cost of electricity, and gas prices and supply, remain as a major concern – see also our section about New Zealand Manufacturing below. This is what the Alliance sent to the Minister for Energy, the Hon. Simeon Brown (cc. Minister Andrew Bayly) last week:

Availability and Wholesale Prices of Electricity and Gas – ‘Energy Crisis’

* The cost of electricity and gas has become a significant threat to the global competitiveness of New Zealand manufacturers, in particular those with higher energy demand (process heat). That is true for exporters, and those competing with imports in the domestic market

* Local energy prices for manufacturers are significantly higher than in countries where our major competitors reside. For example, electricity futures for Q3/24 in New Zealand are at $421 (Benmore) / 425 (Otahuhu), in Australia they range between AUD 94 (QLD) and AUD 132 (SA)

* As far as natural gas goes, there are serious concerns around depth of supply. Gas production has been on a steady decline since 2019 and unable to meet demand. Unlike for electricity, where supply fluctuations occur in both directions, the decline in gas supply is steady and consistent, and there is no reason to expect a change in direction. The exploration industry has invested $2bn over the past few years without finding any significant additional sources of supply and there is no evident of a renewed interest in investing in new exploration activities even after your government has announced it policy changes in this area

Source: https://www.mbie.govt.nz/assets/new-zealand-energy-quarterly-march-2024-summary.pdf

* Electricity generators have made decisions to invest in some new energy outputs to enable them to exit higher cost generation with no additional generation capability being added, the result being a tight demand/supply balance that will keep prices at elevated levels

* The National Party published its own Electrify NZ policy document in March 2024. We cannot find reference to any specific proposed measures / actions in that document to address the current / near-term issues raised above. Moreover, we are not aware of this National Party policy proposal having resulted in a Government position on the issues raised, and measures proposed in that document

* The challenge we put to the Government is for the urgent development of a short-term solution to provide some industry relief, while a longer-term market fix is being developed.

We will appreciate an opportunity to discuss the matters raised above with the Minister for Energy, The Hon. Simeon Brown, and the Minister for Small Business and Manufacturing, the Hon. Andrew Bayly.

Recent key developments in New Zealand

• At risk of sounding like a broken record, we need to talk about the cost of electricity again. Wholesale prices remain extremely high at around $750/MWH for the past week, up from around $500 the week before, and peaking at >$1,500/MWH this morning. For anyone not on a hedge contract, these prices are clearly unsustainable if you are using electricity to generate process heat, and we’re now starting to see the first temporary pulp mill shutdowns (WPI and PanPac). PanPac’s GM Doug Ducker said that “the electricity pricing mechanism was open to extreme price-gouging and was inappropriate for the reality of the export pulp industry.”

• There are also reports that the current gas shortage is impacting Methanex’s operations and may lead to difficulties for some electricity generators down the track

Recent key developments in the World

• There continues to be talk about the end of globalisation. Maybe not quite yet? China’s monthly trade surplus rose to USD 99bn in June, up from USD 70bn for the same month in 2023. The imbalance is highest for trade with the US, totalling USD105bn for the first five months of 2024, with the EU not that far behind

China’s trade surplus with the world – last five years to June 2024

• High energy costs drive concerns about de-industrialisation not only in New Zealand:

Share of companies in Germany responding, or planning to respond, to consistently high costs of electricity by cutting back on production and/or relocating abroad

• And, finally, a story about a timber mill – Pyramid Mountain Lumber Inc. in Seeley Lake, Missoula County, Montana (USA): https://youtu.be/xz3M2zt8dtc
Missoula County, in the middle of a heavily-forested area, used to have seven sawmills. Now the last one, Pyramid Mountain Lumber, is shutting its doors after 75 years of operation. It’s a fairly high-tech operation, and with its annual payroll of USD6m a major contributor to the economy of Seeley Lake, a community of 1,600 people. There are several contributing reasons to the decision to shut down operations, but a key one is a shortage of affordable housing that means the company couldn’t attract the workers it needed keep running, and grow. There’s an interesting background to the housing shortage, but the same couldn’t happen here – or could it?