Severe gas crisis sees O-I halt NZ production

By Ben Bouckley

- Last updated on GMT

Related tags New zealand Supply and demand

Severe gas crisis sees O-I halt NZ production
Owens Illinois (O-I) has been forced to suspend operations in New Zealand, after a crack was found in a major gas pipeline that led to its shutdown and hit thousands of businesses.

O-I Asia Pacific spokesman Dieter Lehmann told this morning (at around 3am CEST) that production was at a standstill at the Penrose plant, which produces glass bottles and food jars.

This followed the discovery of a crack in the vital Taranaki pipeline on Monday that led to pipeline operator Vector cutting main gas supplies all commercial and industrial concerns on the North Island.

O-I’s plant produces products for the domestic market in New Zealand, but also for export to countries in the region such as Fiji and other South Pacific Islands.

Quizzed as to when production might restart, Lehmann said: “This cannot occur until regulators fix the main the pipeline and full gas supply is restored to our plant. The timeline is as yet unclear.”

Keeping customers informed

Asked whether the problem was affecting deliveries to O-I customers, Lehmann said: “It’s too early to tell, but our New Zealand team is constantly in touch with them monitoring their needs.”

Lehmann said that O-I first stopped using its gas at the plant on Tuesday afternoon, and that the company’s focus was on keeping customers informed and the site’s furnaces warm.

The Penrose facility employs around 250 staff and is in continuous operation under normal circumstances, but Lehmann added that rosters were being reassessed in light of the shutdown.

The New Zealand crisis struck as O-I released its third quarter (Q3) results yesterday, where the firm revealed that it is restructuring its nearby Australian operations, due to falling year-on-year sales and production levels.

“To address market challenges, a furnace in Australia was permanently closed at the end of Q3. An additional furnace closure is planned in Australia by mid-2012,”​ the company said.

Assessing Asia Pacific business

O-I said that further restructuring activities would “depend on 2012 supply and demand trends as well as the outcome of contract negotiations”​, but that it was assessing its Asia Pacific market outlook and business plan.

O-I’s Q3 sales net sales were $1.862bn (€1.328bn) in 2011, up from $1.689bn (€1.2bn) during Q3 of 2010, with adjusted net earnings of $139m (€99.1m) as against $136m (€96.9m) in Q3.

But excluding a positive charge for restructuring and asset impairment, earnings fell year-on-year to $119m (€84.8m) in Q3, compared with $127m (€90.5m) in Q3 2010.

Within the US, O-I’s performance improved following a “challenging”​ second quarter, with previously idle capacity restarted “to satisfy higher demand and ease logistical pressures”​.

O-I chairman and CEO, Al Stroucken said: “Earnings were in line with the prior year and improved significantly from Q2 due to better operating performance, especially in the US and Asia Pacific.”

But Stroucken said he expected O-I’s global product shipments in Q4 to be “flat or slightly up compared with prior year levels – but we expect continued cost inflation”.

Stroucken added that cost inflation in 2011, due to higher raw material labour and energy prices had hit O-I’s margins, with the firm refocusing on its “value over volume” ​strategy to repair margins in 2012.

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