The Energy Crisis Is About to Hit the Paper News Is Printed On
Britain’s biggest producer of newsprint is considering cutting output this winter following the surge in energy prices, according to people with knowledge of the matter.
Palm Paper Ltd., a subsidiary of Germany’s Papierfabrik Palm GmbH, did not sufficiently hedge its gas purchases this year as the risk of Covid-19 lockdowns clouded production forecasts, the people said, asking not to be identified discussing private information. It might need to curb output at some plants or temporarily take others offline, they said.
Britain is in the midst of an energy crisis, with costs now so high that they’re forcing multiple industries to curtail production and sending some companies toward financial ruin. Large energy users are in talks with Business Secretary Kwasi Kwarteng about ways the government can help them weather the supply crunch as the onset of winter threatens to drive up fuel costs further.
Natural gas, which has almost quadrupled in price this year, represents just under a third of the manufacturer’s input costs, the people said. Palm is a supplier to major national and regional newspapers in Britain, with a factory in eastern England as well as several across Germany.
Chief Executive Officer Wolfgang Palm declined to comment.
The threat of virus lockdowns earlier this year created a planning headache for manufacturers such as Palm. Hedging positions are typically set many months in advance of actual production, and companies weren’t sure whether European economies would still be shut down, meaning many ended up poorly prepared.
In 2018, Palm started up its own U.K. gas-fired plant, generating electricity to run the world’s largest newsprint machine, which can produce 400,000 tons of the paper every year.
“Energy and recovered fiber are the two main costs impacting on newsprint production,” CEO Palm said in the company’s most recent accounts. “These two commodity costs are subject to worldwide supply and demand, which makes pricing particularly volatile and unpredictable.”
Paper is among a slew of industries feeling the pain of the crisis. Last month, major fertilizer maker CF Industries Holding Inc. halted operations at two U.K. plants, citing high gas prices. Chemical companies including Austria’s Borealis AG and Norway’s Yara International ASA have also reduced output.
Even for firms that are hedged, higher expenses are still inevitable. Companies usually buy energy about a year in advance, so when those contracts end, they’ll also be faced with much higher costs.
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