Australia’s largest wool processor dodges closure with last-minute gas deal

Terry Sim, December 5, 2016
VWP general manager David Ritchie.

VWP general manager David Ritchie.

AUSTRALIA’S biggest wool processor has dodged potential closure after securing a last-minute deal on natural gas supply for 2017, but at double 2016 rates.

Victoria Wool Processors at Laverton North in Victoria had been concerned it would be forced to consider closure after being unable to secure gas supply for the coming year, putting jobs at risk.

The wool scourer and carboniser is one of only three early stage wool processors in Australia, all of which use natural gas to clean and process mainly carding wools for domestic and export customers. VWP’s current contract with Energy Australia expires at the end of this month. Click here to get Sheep Central story links sent to your email inbox.

VWP general manager David Ritchie said late Friday afternoon the company was able to secure a supply of gas through Origin Energy.

“Despite a 100 percent increase in the price of gas, we will still be able to operate next year, on the basis that 2018 gas prices are lower than 2017.

“We will operate at a loss in 2017, and by 2018 it will hopefully recover itself,” he said.

“If we weren’t able to secure gas, the whole place would have closed.

“We went for a period of about three weeks when there were no gas offers on the table – we could not get a supply.”

Mr Ritchie said media reports indicated the price of gas in Asia has collapsed, almost heading towards record lows, while in Australia it is heading for record highs.

“We would like some clarity on this; can someone clarify effectively that these prices are export parity prices.

“If they are export parity prices, then if the export prices collapse, then domestic prices have to follow it down,” he said.

“I would say it has got to be (Josh) Frydenberg (Minister for Environment and Energy) or one of the energy ministers.”

Mr Ritchie said he would like to lift the throughput of the VWP plant to lower unit costs, but this was difficult with current low carding wool supplies.

“It is all very well to say that, but where do you get the wool?

“We had a record year last year, in terms of throughput, but it looks as though demand is softening,” he said.

“The market is starting to respond to these high (wool) prices, especially for the carding wools.”

VWP is Australia’s largest domestic wool processor, running a state-of-the-art carbonising and scouring plant 24 hours a day 7 days per week. It processes its own wool and offers a commission processing service for local and international traders, and to top makers. The VWP plant uses about 110,000 gigajoules of gas to process about 12,000 tonnes of greasy wool annually.

It would be difficult to adapt and remain viable with the doubling in gas price, Mr Ritchie said.

“That’s my challenge, that’s the owner’s Christmas present to me.

“There were 20 plants (in Australia) and we’re now down to three, a lot of the cost-savings we had to do to stay in as one of those three have happened; there is not that much fat to be cut.”

Robinsons also looking at gas contract renegotiation

Owner of the EP Robinson wool scour at Geelong Jim Robinson said the company’s current gas contract would need to be re-negotiated next year.

“The increased gas prices are due to LNG export and to the use of gas for power generation, since the coal-powered power stations in South Australia closed down.

“When the sun ain’t shining and the wind ain’t blowing they need to fire up these gas generators and import power from Victoria,” he said.

Mr Robinson expected the closure of the Hazelwood Power Station in Victoria’s La Trobe Valley next year would also impact natural gas prices and supply.

“It will just increase our costs; I’m not saying it is going to put us out of business.

“We will just have to try to pass it on if we can,” he said.

“It is a shock going from $5 a gigajoule to $10 a gigajoule…it has gone up just in the last six months – that’s the price to large industrial users.

“It may be that when we have to get new prices, that’s what we will be paying,” Mr Robinson said.

“It seems to not be a very transparent market.”

South Australian processor Michell expecting gas price increase

Michell Wool chief executive officer Steven Read said energy costs have doubled for everybody, both for domestic and industrial customers.

“It just comes down to when you negotiations roll over.

“Supply is no problem, it is just world parity pricing.”

Mr Read said the South Australian-based company’s next renegotiation on gas prices for its wool processing business would occur “in the near future.”

“We’re expecting gas prices to almost double, but it is not just a wool thing; it’s for anybody that is using gas for anything and what’s happening on the east coast is exactly the same as what is happening here.”

Mr Read an increase in gas price would “add to the mix”.

“We’ve got high volatility in wool prices, we’ve got high volatility in exchange rates and energy costs going up, so it will certainly have to be passed onto the customers ultimately.

“If you can’t pass on these sorts of things, ultimately you are not viable,” he said.

“It is certainly not the end of our viability.”

Mr Read said energy prices in China were also going up, which would need to be passed on down the supply chain.


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