Norske Skog’s Albury to close: Visy acquires assets

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Australasia’s largest newsprint mill, the 265,000 tonne per annum Albury Mill (NSW) will close by the end of 2019. All of the mill’s approximately 185 employees will be made redundant.

Announcing the closure, Norske Skog advised that it had sold the Albury assets to Visy, Australia’s largest paperboard manufacturer. After remediation, the assets will be transferred to Visy, which reportedly plans to undertake feasibility studies into options for their use on the Albury site.

The sale price of the assets was reported as AUD85 million.

The company itself has not over-played this, but IndustryEdge is aware that the leadership of the regional company (Norske Skog Australasia) examined all of the available options to continue operating the thirty-eight year old mill.

Eventually, it came down to just two options: a closure with no potential for future employment and regional economic activity, or a sale with opportunities for a different future.

Declining demand takes out region’s biggest Newsprint mill

There is a steely logic to the closure of the largest newsprint machine in a falling market. Had the conditions come about such that capacity had to be reduced earlier, then a lower capacity machine a Norske Skog machine at Boyer (Tasmania) or New Zealand (Tasman) would have been closed.

However, once production was over-weight to the market by anything more than about 150,000 tonnes per annum, the closure of any other machine would not suffice.

From Australia and New Zealand combined, Norske Skog exported almost half its newsprint consumption in 2018-19. Export returns were so indifferent in the first half of 2019 that Norske Skog curtailed newsprint production at all three mills in the region. 

Our assessment is that with a market in constant decline, consumption across the region about to fall below the capacity of the Albury Mill and exports no longer viable, Albury’s future was always limited.

The chart below shows Australian newsprint consumption over the decade. It ticked up slightly in 2018-19 but has declined an average 11.0% per annum since 2009.  The future of Newsprint consumption has no place for the Albury mill.

Australian Newsprint Apparent Consumption: 2009 – 19 (kt)

Source: ABS, company reports and IndustryEdge – 2019 Pulp & Paper Strategic Review

The second chart shows New Zealand’s apparent consumption of newsprint.

It is observable that the trend line of consumption decline is less aggressive than in Australia. Consumption has fallen 8.4% per annum since 2009, but far faster over the medium and short term.

For Norske Skog, the longer-term issue in New Zealand is that its production is currently more than double the total market size in New Zealand. As consumption declines, that gap will only increase.

New Zealand Newsprint Apparent Consumption: 2009 – 19 (kt)

Source: NZ Statistics, company reports and IndustryEdge – 2019 Pulp & Paper Strategic Review

Future of Norske Skog’s other mills in the region

Norske Skog’s corporate announcement indicates production of publication papers will continue at the Tasman and Boyer mills. However, the sale of Albury is part of a company strategy to ‘optimise’ its portfolio and ‘seek value enhancing transactions’.

On that basis, IndustryEdge observes that the Tasman mill in New Zealand will continue to make Newsprint – for the time being. 

More specifically, In Tasmania, the Boyer mill will continue to be something of a mouse that roars. Its role as a ‘publication paper hub’ provides it some protection. What it lacks in scale, it makes up for in versatility. It can manufacture newsprint, other uncoated mechanical grades and especially, the light-weight coated mechanical papers used in catalogues. The market for the latter is stable, if not strong. 

Albury’s assets for a different future

The rise of business-to-consumer e-commerce shipments took the fibre packaging sector by storm from 2016. That only slowed when global economic growth began to falter toward the end of 2018.

In response to sharply higher demand for corrugated packaging, the global sector responded with machine conversions. Most (not all) were conversions from newsprint to packaging grades. Some were linked to chemical pulp mills and could produce virgin Kraftliner. But most of the converted machines produce recycled grades: Testliner and Corrugating Medium.

Norske Skog advised that on completion of the asset sale, Visy’s feasibility studies will include examining the production of packaging grade papers at Albury. The potential future for the Albury mill is written in that statement.

Location, location, location

If there is an asset to which value is difficult to avoid and near impossible to accurately assess, it is location. The Albury mill is arguably the best located mill in Australia. It is, at the same time:

  • Equidistant between Albury and Melbourne (and alongside the major highway)
  • Resting on the shores of the Murray River, with other water assets in its portfolio
  • Able to access an estimated 400,000 tonnes of wood each year for virgin fibre pulp production
  • Operating recycled fibre operations, when reprocessing capacity is of national importance
  • Custodian of a range of relatively high-value energy assets

Taken collectively, the opportunities for the Albury mill – for something other than newsprint – become clearer and may be very significant.

Weighed down by more than a decade of plunging demand for newspapers and therefore newsprint, the cessation of newsprint manufacture at Albury was, on reflection, only a matter of time. That it comes when the mill is still relatively young is testament to the speed and depths to which demand has plunged, and to the fact the well-presented mill still has plenty of productive life left in it.

Our thoughts are with those who work at the Albury Mill, and anyone else who will be impacted by the closure.

IndustryEdge will address the closure in greater detail, in the October 2019 edition of Pulp & Paper Edge.

Financials of the transactions and its implications can be found on the Norske Skog website.

Further details on Newsprint markets is available in the 2019 edition of the Pulp & Paper Strategic Review.

* This is an extract of the briefing supplied to subscribers to Pulp & Paper Edge

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