$60m deal to keep Golden Bay Cement going after costs threaten import-only shift

The Government is pouring $60 million into propping up New Zealand's Fletcher Building owned domestic cement suppler, due to concern of being left exposed to global supply chain shocks.

Growth Minister Nicola Willis announced on Monday Cabinet had signed off on allocating Fletcher's Golden Bay Cement (GBC) up to $60m in exchange for continuing to manufacture cement in Whangarei, keep clinker manufacturing capability and to agree to invest at least $150m "to support cost-effective domestic cement production through to at least 2040". 

Clinker is the intermediate product in cement manufacturing.

“Ministers were advised that due to rising costs Fletcher Building Limited was considering closure of the GBC clinker facility in Whangarei, in favour of switching to a cheaper import-only model," Willis said.

Willis said not having domestic production would leave the country exposed in times of global supply shocks.

“Cement has no practical substitutes. It is needed for the building of homes, hospitals, schools, roads, and other nationally significant infrastructure. Any reductions in its availability could bring essential construction and infrastructure development, and the economic activity they support, to a standstill."

“The Golden Bay factory is New Zealand’s only fully integrated cement manufacturing plant and plays a vital role in our economic supply-chain."

"Ultimately, we concluded that this is an exceptional case, which meets the very high bar needed to justify taxpayer support."

During the time Cabinet was deciding on the GBC grant, a financial assessment of GBC concluded there were "binding constraints on the financial viability of domestic cement production, primarily due to emissions costs."

“While we considered alternative forms of regulatory relief, we were concerned to take a lowest-cost approach that did not undermine the effective operation of the Emissions Trading Scheme. The agreed approach strikes the right balance, preserving a strategically significant domestic capability without creating a precedent for wider support, or undermining the integrity of the ETS," Willis said. 

If GBC does not meet the terms of the deal, the Government will be able to claw back funds.

GBC employs about 150 full time workers and 120 contractors.

Fletcher announced on the NZX that the assessment confirmed "that without support, rising costs, including carbon costs, would force closure and a shift to an import-only model from 2030."

"Golden Bay Cement has invested heavily in modernisation upgrades and alternative fuels to remove fossil fuels from its process, meaning the domestic supply this agreement secures is materially lower-carbon than the imported cement it would otherwise be displaced by."

Fletcher Building CEO Andrew Reding said without Government support, "increasing costs, including carbon emission costs that our competitors importing cement from overseas do not currently incur at the same level, would likely have required us to close the plant and move to an import-only model from 2030."

"This agreement removes that risk, providing the certainty to keep investing in domestic manufacturing, operational resilience and lower-carbon production. It’s a strong example of business and Government working together in the national interest."