Point Henry smelter's fate hangs on the Australian dollar price

ALCOA'S partner in the troubled Point Henry smelter in Geelong, Alumina, has pinpointed the future direction of the Australian dollar as the key factor in determining the fate of the 49-year-old operation once Alcoa completes its review of the smelter's long-term viability next month. More than 600 jobs are at stake.

Alumina, a 40 per cent partner in the Alcoa-managed AWAC joint venture that owns the smelter, says the smelter was a loss-maker in the December and March quarters, and continues to lose money with aluminium priced at US93.5c a pound and an exchange rate of $US1.03.

The dollar has weakened from $US1.08 since Alcoa announced the review on February 8 but the relief on that front has been largely offset by a retreat in the metal price from more than US95c a pound.

Alumina chief executive John Bevan said yesterday that while Point Henry was well run, it "suffers from the issue of the high Australian dollar -- which is a key issue for a lot of Australian manufacturing -- and low aluminium prices".

He said that while the aluminium price would go up and down, there was a need in the review to "form a view on where we think the Australian dollar will go" and the impact that would have on the local cost structure.

Mr Bevan said forming a view on the dollar in the long term was difficult but would have to be done.

According to most analysts, there is not much hope for Point Henry on that score. The dollar is generally forecast to hold at more than parity until 2013-14. Beyond that, a retreat below parity is expected in response to a cohesive global economic recovery and a concomitant retreat to long-term average prices for the bulk commodities of iron and coal because of a flood of new capacity.

Mr Bevan said he did not want to pre-empt the results of the Alcoa review. "This is one where we are taking a very long-term and serious view. I don't want to give expectations one way or another until the review is finished," he said.

"Current conditions led to it (Point Henry) making losses and we need to assess whether in the long term it will be able to return to profitability and be able to generate enough profitability to continue to reinvest and make it successful."

Mr Bevan was speaking after Alumina's annual meeting in Melbourne. At the meeting Alumina chairman John Pizzey pointedly sandwiched his comments on the Point Henry review between the competitive energy and infrastructure support AWAC had received in Saudi Arabia at a new "value-adding" alumina refinery, and the impact of the Gillard government's carbon tax.

"In this global marketplace, any carbon price mechanism which increases the costs of producing alumina and aluminium in Australia but not in other countries will shift production and emissions from Australia offshore," Mr Pizzey said.

He said it was "highly likely that replacement production will be substantially coal based, and in China".

On a brighter note, Mr Bevan said the potential threat to Indonesian supplies of bauxite to Chinese alumina-aluminium producers could open up opportunities for AWAC, the world's biggest bauxite producer.

AWAC mines bauxite to meet its own alumina needs.

But there is a big seaborne market for bauxite into China ($US60 a tonne landed), mainly from Indonesia, and Indonesia is looking to force further in-country processing into alumina ($US320 a tonne) through tariffs and taxation.

"It is unclear what their final position is going to be on that," Mr Bevan said. "And until that is clear we don't know their final position.

"But it is hard to see, if Indonesia restricts its bauxite exports, where Chinese (alumina) refiners will actually find bauxite to meet their needs.

"That may open up an opportunity for people like us. But it may also open up an opportunity for further alumina imports into China," Mr Bevan said.