Paper industry warns on energy crisis

A jumbo paper reel at UPM Caledonian Paper in Scotland
A jumbo paper reel at UPM Caledonian Paper in Scotland

UK paper mills could be forced to shut down if the gas price crisis impacting energy-intensive industries isn’t resolved soon, an industry expert has warned.

Andrew Large, director general of the Confederation of Paper Industries, spoke to BBC Radio 4’s PM programme about the unfolding crisis on Friday evening. 

He was among the representatives of industries including steel, chemicals and ceramics that met with business secretary Kwasi Kwarteng earlier in the day to demand urgent action, with gas prices ballooning by 250% since January.

Asked about what would be the “nightmare scenario”, Large said that it would involve factory stoppages.

“When we talked with the secretary of state, it was very, very clear across all of the sectors that there are serious risks of effectively factory stoppages as a result of the costs of gas being too high to bear,” he said. 

“In those circumstances there will be a gradual knock-on effect on supply chains, right the way across manufacturing, consumer, retail and other products.

“The risks are very, very real.”

Kwarteng also found himself the subject of unwelcome headlines over the weekend regarding his handling of the matter, and whether the Treasury had been consulted, or not.

Today (11 October) Downing Street confirmed that Treasury officials are now in talks with BEIS about the situation.

Large said that the industry representatives made three proposals last week.

“The first is a winter cost containment measure that covers gas, electricity and carbon prices to provide some breathing space over this winter, to ensure that those who are exposed to the costs can continue to operate. 

“The second is to look at energy-intensive industry network costs and to work with Ofgem to replicate the network discounts that are offered in EU countries. 

“And the third is to actually look at the gas emergency measures so that more businesses are covered in the priority site provisions – so we don’t get peremptory disconnections of business that can be extremely damaging to their plant and equipment, and create enormous costs for restart afterwards.”

Large also pointed out that firms had only been able to hedge up to a point. 

“Most companies do hedge, and they have hedged. The difficulty is that you can only hedge on the basis of your expectations of demand. And over the last 18 months demand has been incredibly volatile, because of the Covid restrictions and because of the challenges that economies have faced on that basis.”

CPI’s members cover graphical papers such as newsprint and magazine papers, packaging and corrugated boards, and other paper products such as tissue and toilet rolls.

There are 47 paper mills in the UK, employing around 62,000 people overall and with a £12bn turnover. 

Annual paper and board production is some 3.9m tonnes, plus 5.3m thousand square metres (ksm) of corrugated board.

Last week German mill Feldmuehle said it would have to implement a temporary energy surcharge because of the issue