Limpopo lumber mill implements 90-day layoff because of load shedding

Stevens Lumber Mills (SLM) in Limpopo, which was established more than 60 years ago, has implemented a 90-day temporary layoff period because it is unable to operate sustainably due to Eskom’s load shedding and the short supply of logs.

Sawmilling South Africa executive director Roy Southey confirmed on Friday he is aware of SLM’s temporary layoff, stressing that it is not unexpected that some mills are suffering because of the load shedding schedule and resource constraints.

Southey said the saw milling industry employs about 350 000 people and confirmed that “lots of saw millers right now” are experiencing cash flow problems, adding that it would not be right for him to name these saw mills.

ALSO READ: Load shedding: How businesses are attempting to adapt to an abnormal way of life

“But all saw mills right now are battling tremendously in terms of profitability, cash flow and financial constraints.

“They are all finding it very difficult if you consider that the power shedding is one of the major constraints and then you have resource availability issues for some mills, the cost of diesel that has accelerated incredibly over the last period, and the wage demands,” he said.

“All of these things are placing huge pressure on the forests sector in general but more specifically on saw milling,” add Southey.

Wages, outages, alternative energy

South Africa’s new National Minimum Wage (NMW), including forestry, farm and domestic workers, increased by 9.62% effective from 1 March following a 6.9% increase in 2022.

Southey said there is talk of load shedding schedules being pushed up to Stage 8 in the coming winter, which will result in even longer and more sustained power outages.

“If saw mills have to stand for longer periods, they obviously lose more money. If they are to mitigate that, they have to install generating capacity, which is hugely expensive.

ALSO READ: Load shedding: Time to clarify bounce-back loan scheme for small businesses

“They have to find the capital to do that immediately and that is very difficult,” he said.

Breathing space

A letter written by SLM CEO Monika Smith dated 24 February that was sent to the company’s major customers said the temporary layoff period would commence effective from 1 March.

“During this layoff, we intend to fulfill as many of our orders as possible with our finished stock, as well as produce additional stock from available material as per new order requirements,” she said.

“With the income generated, we hope to resolve SLM’s cash flow situation.

“The layoff will also give us time to explore, discuss and negotiate the best way forward for the continued operation of the mill. There is full commitment to this end.”

Smith said on Saturday that Eskom’s load shedding schedule had caused the company to stop production.

“We do have generators, and we run them when necessary, but the cost is too high. It’s three times more than my Eskom bill, so it’s not workable at all.

“The business is a high volume business and the margins are very tight because of the costs, so when you lose six hours or more per double shift, you cannot make it work,” she said.

ALSO READ: Load shedding driving small businesses to bankruptcy

Smith said the company has applied to the Unemployment Insurance Fund (UIF) to cover the salaries of SLM’s employees for the three-month period and while it seeks an investor to come into the business.

She said a lot of investment and time needs to be put into creating an independent energy source for the business.

Smith added that there is insufficient supply of logs in the area because of a shift away from pine cultivation to agricultural products, such as avocados and Kiwifruit.

Impact

Southey said SLM’s customers will be disappointed and adversely affected by the temporary layoff but in the context of the total South Africa saw milling industry it is not significant.

SLM is mainly involved in the growing of pine for processing into lumber for the construction market in South Africa.

According to SLM’s webpage, it owns and leases 2 000 planted hectares of mainly softwood plantations and manages another 3 000 hectares on behalf of other private growers.

Southey said Eskom’s current load shedding schedule leaves the industry without power for long periods to time and two options – to either close for the time the electricity is off or take steps to mitigate that by introducing diesel or solar power generation capacity.

But Southey said solar power generating capacity “has its own issues” and also involves a hugely expensive capital outlay.

“The current schedule that is being implemented is very frustrating because you don’t know day to day when the power will be off and for how long it will be off because it varies all the time.

“Under those circumstances, it makes it difficult to plan for production and to implement production schedules,” he said.

ALSO READ: Small business owners consider closing up shop due to blackouts

Southey added that using diesel generators pushes up production costs incredibly and very little of this additional cost can be recouped from the market “because we are in pretty dire economic straits in general in South Africa”.

“So the ability for saw mills to hike prices to compensate for the added input costs is very difficult,” he said.

“The idea of Stevens Lumber taking a sort of a self-imposed break is one of the options that could be facing a number of players in the South African market because it’s very tough times right now.”

This article originally appeared on Moneyweb and was republished with permission. Read the original article here.