Costs, high dollar claim wood pellet maker

Plantation Energy will mothball its energy wood pellet plant in Albany at the end of the month after price rises in locally sourced timber, the high Australian dollar and a weakening European economy combined to make the business unviable.

The company’s US-based investors had been considering mothballing the plant for the past six months and decided to pull out earlier this month.

Staff were told of the closure two weeks ago. About 20 employees, including the plant manager, have already left the business, with the remaining employees, understood to be close to 20, due to finish up this week.

“It is an unprofitable business and we have done things to improve and make it profitable but the fact is that the fibre and plantation industry in the south has changed quite fundamentally,” acting chief executive Kevin Heydt told WA Business News.

“That has meant the cost of the raw material is a lot more expensive and the Australian dollar means our offshore contracts for the wood pellets are worth less so, overall, it has become an uneconomic business activity to take waste wood material, convert that into wood pellets and sell those into Europe.

“The financial crisis and the impending debt crisis in Europe means their euro is significantly weaker than it was and it makes life very difficult for us and, unfortunately, we have had to make the decision to mothball the plant.”

Mr Heydt said the plant could be reopened in time, if economic conditions in Europe, the value of the Australian dollar or supply in the region changed.

“It is only mothballed, not dismantled, just put into a state which could start up again should the situation arise where that is appropriate,” he said.

In 2009 the company picked up two three-year contracts worth $130 million in quick succession to supply two European-based clients who planned to use the pellets in coal-fired power generation. 

The upcoming expiry of those contracts has added to the strain on the company.

The forestry industry has undergone some major reshuffling in recent years, with the collapse of timber giants Timbercorp and Great Southern in 2009, the closure of Laminex’s Welshpool-based fibreboard plant in 2009 and the near-closure and subsequent sale of timber giant Gunns’ Manjimup Jarrah milling operations last year.

Agribusiness investment company and managed investment scheme operator (MIS) Timbercorp had 32,000 hectares in plantations and projects in Western Australia when it went into voluntary administration in 2009. 

It was eventually bought by US company Global Forrest Partners.

Another MIS operator, Great Southern, collapsed in 2009 and the bulk of its forestry estate was sold to Canadian company Alberta Investment Management Corporation about a year ago for $415 million.

Forest Industries Federation (WA) executive director Bob Pearce said bluegum plantations as an industry segment had suffered badly during the global financial crisis. It has also been affected by the shrinking of its major market for woodchips, Japan, after last year’s tsunami.

Mr Pearce was confident the industry would pick up again.

“The Japanese market is recovering to some extent and people are able to diversify and China is now paying more … I think it is a segment that is going reasonably well, volumes are reasonably high and building,” he said.

Last year a total of 1.4 million metric tonnes of woodchip were shipped out of the Albany port compared to 1.6mmt in 2009 while 1.5mmt were exported from the Bunbury port compared to 1.1mmt in 2009.