Alumina isn’t Port’s business, say analysts

The Port of Corpus Christi had recently announced that it made a bid to buy the Sherwin Alumina plant, which is in bankruptcy. The Port said it offered $33 million for the plant and offered to spend $13 million in capital, deferred maintenance and environmental improvements if Sherwin Alumina or another company continues to operate the plant.

However, industry experts are of the opinion that it would be difficult for the Port to carry on with the alumina business. The aluminium processing business is like oil refining. Most of its maintenance and operating cost is fixed costs including capital, labour and energy cost in the form of natural gas and electricity. When the plant has to operate at reduced capacity due to economic recession and low demand, it's impossible to reduce the fixed cost as capacity declines. Those plants have to operate at full capacity to be efficient and profitable.

At reduced capacity, they have huge losses. Companies in those businesses have to have a very deep pocket to survive losses during recessions and hope to make it back in booms, the analysts opine.

In addition, China is a major producer of alumina and aluminium. During recessions and low alumina demand, China subsidizes its alumina plants with tax money and it dumps alumina in the U.S. and elsewhere at prices below cost to protect Chinese worker jobs in its alumina plants. In this context, analysts believe, the Sherwin Alumina plant can never compete with China's tax subsidies and the U.S. government won't use tariffs to protect the U.S. plants.

The port is a governmental entity. Its only revenue is from fees it charges to its shippers and vessel operators. So, according to the people aware of alumina refining busiess and the Port's financial position, the latter should never engage in a highly competitive business like alumina which is dominated by the Chinese government that is willing to spend any amount of tax money to protect its people's jobs.