Alcoa's Australia Smelter Gets Reprieve With Government Bailout
06/28/2012| 11:45pm US/Eastern
-- Alcoa will operate its Australian smelter until at least mid-2014
-- Federal government invests A$40 million, Victoria state an undisclosed amount
-- Alcoa to cut 10% of plant workforce, improve productivity
(Recasts the first paragraph, adds detail from Alcoa in second, fourth-sixth paragraphs, government comment in seventh-ninth paragraphs.)
By Robb M. Stewart
MELBOURNE--Aluminum giant Alcoa Inc.'s (>> Alcoa Inc.) Point Henry smelter near Melbourne has secured a two-year reprieve after the company said it would cut costs and accept a government bailout in an effort to minimize long-running losses at the struggling plant.
The Australian arm of Pittsburgh-based Alcoa said Friday it plans to continue operating the smelter until at least mid-2014 after the federal government offered a 40 million Australian dollar (US$ million) grant for capital investments, maintenance, energy efficiency and other measures and the state of Victoria gave it an undisclosed amount. The smelter will cut about 10% of its workforce and will seek to improve productivity, it added.
Port Henry is the second Australian aluminum smelter to receive a lifeline this month as the industry struggles against low metal prices, rising costs and a strong local currency that has made imports relatively cheap and exports more expensive. Norsk Hydro ASA (NHY.OS), however, in June confirmed it was closing an aluminum plant.
Alan Cransberg, managing director at Alcoa of Australia, at a media conference at the smelter in Geelong said the funding and cuts will help reduce losses that over the last three years had steadily become unsustainable. He said the company has invested roughly A$300 million in the unprofitable plant over three years.
"We will continue to sustain and maintain this plant to make sure that when we get to 2014 we are in a position with a very healthy plant and very healthy workforce to look toward the future," Mr. Cransberg said.
Mr. Cransberg said the company is unable to control the price of aluminum, which in Australian dollar terms is at a 20-year low, or the exchange rate. "Those two factors have to move in our favor if we are going to be successful longer term."
Greg Combet, federal minister for industry and a former union official, said the smelter is extremely important for the people it employs, the state and the country.
"The government is very conscious of the pressures that are facing the aluminum industry generally. The fallout from the global financial crisis has increased global supply, it has depressed international prices for aluminum and of course with the strength of the Australian economy, we have also got the high dollar," he told reporters.
Mr. Combet said the commercial difficulties facing the plant have nothing to do with the tax on carbon emissions the federal government will impose from July, although Victoria state Premier Ted Baillieu disputed that point and said he expected the tax to have an impact on industry in the country.
In a bid to shore up prices and profits, Alcoa earlier this year said it would remove 390,000 metric tons of refining capacity. The Port Henry smelter currently employs 600 people and produces about 190,000 tons of aluminum a year.
Rio Tinto PLC (RIO) earlier this week said it will keep open its Bell Bay smelter on the island of Tasmania, one of several aluminum businesses it has earmarked for sale, after it negotiated a new power supply agreement with Hydro Tasmania. The smelter, which has been under review since March, will cut roughly 30 jobs from its workforce of about 500, the mining company said.
Norsk Hydro is closing its Kurri Kurri plant near Newcastle in New South Wales state, which employs 344 people and produced about 120,000 tons of aluminum a year. The Norwegian company had already shut one of the three production lines at the operation in January, leading to the loss of 150 jobs.
Write to Robb M. Stewart at firstname.lastname@example.org