Over down under? Australia's aluminum dilemma

Apr 30, 2012 | 07:00 PM | Michael Komesaroff

Tags  Australian aluminum industry, alumina market, Rio Tinto,

Something is happening in Australia. Once one of the most competitive locations for producing aluminum, Australia grew to become the world’s fourth-largest producer of the metal. But all that has changed as Rio Tinto puts its Australian smelters up for sale and competitors Alcoa Inc. and Norsk Hydro ASA are reviewing their loss-making smelters. While some of the operations will survive, others will be shuttered, and Australia’s reputation as a haven for aluminum production will be gone.

Opportunistic politicians claim that the demise of the local smelting industry is a direct consequence of a carbon tax scheduled to go into effect July 1 that will penalize energy-intensive industries, especially aluminum smelting. While the carbon tax won’t help, the loss of competitiveness is independent of the tax, and most industry spokesmen have consistently acknowledged that, arguing that their businesses are suffering from a combination of a sustained period of low metal prices, aging facilities, rising energy costs and a strong local currency.

Over the past decade, prices for most metals have risen to record levels—aluminum being a notable exception. Of all the metals traded on the London Metal Exchange, aluminum has been the worst performer: Since 2002, aluminum prices have grown 60 percent, while copper prices have skyrocketed by an amazing 540 percent. Lead, nickel, tin and zinc also have performed far better than aluminum.

Alumina, which accounts for a third of the cost of producing aluminum, has doubled in price, and the cost of other inputs, primarily power and labor, also have shot up, eroding smelter margins to critical levels. ....