Short-term aid won't save plant: Alumina

ALCOA'S partner in the troubled Point Henry aluminium smelter at Geelong, Melbourne-based Alumina, has warned that short-term government support alone will not save the operation and its 600 jobs.

The warning highlights the structural pressures of a strong dollar and the rise of a low-cost competing industry in China.

Speaking for the first time since Alcoa's February 8 announcement that the ageing smelter's future was under review, Alumina chief executive John Bevan said yesterday it "has got to stand on its own two feet and it has got to be economically viable" in the long term.

He denied the review was aimed at extracting government support as the smelter battles the strong dollar, a slump in metal prices, rising material costs and the looming carbon tax.

"I don't think the review has anything to do with the seeking of short-term support from the government. The review is more about the longer-term viability of it," Mr Bevan said.
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Alumina owns 40 per cent of Point Henry, with Alcoa owning the rest. The latter is the manager through the companies' global AWAC joint venture.

"Point Henry is not making any money at the moment and really fell in towards being unprofitable in the back half of last year. That is one of the triggers for the review that is happening now," Mr Bevan said.

"It's a 50-year-old facility and it is not as efficient as Portland. We need to make some decisions about its longer-term viability if the higher Australian dollar is going to persist and higher input costs also persist." Aluminium prices have recovered from the lows of the last quarter of last year but, due mainly to the surge in the dollar, the metal's price is now 13 per cent below last year's average in Australian dollar terms.

Mr Bevan was speaking after Alumina announced a profit for last year in line with market expectations at $US127 million ($119m), up from $US35m in 2010, due mainly to stronger alumina and aluminium prices in the first half of last year.

The final dividend is a fully franked US3c a share, payable on March 15.

Mr Bevan said Alumina was cautious about this year's outlook. "Pricing volatility of both aluminium and alumina, and a high Australian dollar, against a backdrop of macro-economic uncertainty, means that 2012 will be a challenging year," he said.

He also raised concerns about the ability of the West Australian alumina industry to grow in the face of the strong dollar, high construction costs and other cost pressures. AWAC has stalled a decision on a $3 billion expansion of the Wagerup refinery in WA's southeast by securing a five-year extension to the environmental licence for the expansion.

Alcoa has cited uncertainties about the carbon tax as a factor in this, but Mr Bevan said Alumina's concern was the cost of building in the mining boom state.

"The speculation that we are not going ahead with that because of the carbon tax is probably not the case -- the issue is really about the capital cost of building in Western Australia at the moment. It is extremely high," he said.

"We simply would not get an adequate return unless prices were considerably higher than where they are today."