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Kuri Kuri shutdown and the threatened Australian aluminium industry

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The Norway-based aluminum producer Norsk Hydro has announced the complete closure of its aluminium smelter in Kurri Kurri, Australia; axing the jobs of around 350 workers. According to the reports by Norsk Hydro, it is the low metal prices and an uncertain market outlook combined with a strong Australian dollar that has brought the shutter down on the plant. The company has analyzed that there is no chance of its profitability in the short term with the prevailing global aluminium price, while the future is also pretty uncertain as there are a number of factors like rising energy costs and the carbon tax which might have a negative effect on profit.
It is not the single example of the troubled scenario in Australian aluminium industry. A high dollar, low metal prices and Asian competition are threatening the Australian aluminium industry and a number of old plants in New South Wales and Victoria are on the verge of partial or complete closure. Norsk Hydro representatives emphasized that Kurri Kurri was running a loss of $6 million to $7 million monthly and that there was hardly any chance of sustainability under a tough market condition. The low LME price and the record high Australian dollar could also be putting many companies under a tough situation. Even Alcoa’s Port Henry smelter near Geelong is under review and might close if the conditions do not improve in future. The record global over-supply of aluminium is also contributing towards putting the Australian aluminium industry in a danger zone. The prevailing stocks need to be cleared before the price rebounds which might take a number of years.

One main factor that is held responsible for the crisis of aluminium industry anywhere in the world is the high energy consumption associated with aluminium production. It is true that a lot more energy is required to make Aluminium than to make steel. The overall energy picture looks much healthier if your energy source is not coal but hydroelectricity. A number of aluminium producers are seeking out places with emissions-free hydro-electricity to set up aluminum smelters anticipating the difficult future of an industry dependent on coal-fired power. It is difficult to maintain because of high energy cost and environment hazards. One more reason why Kurri Kurri is finding it hard to cope with the energy cost is that they can no more avail the subsidised electricity rate from the government as the contracts have come to an end. Hydro’s own smelter in Qatar is producing about 585,000 tonnes a year, more than three times Kurri Kurri‘s top production capacity and there is no reason in continuing with a loss making plant.
Australia has a rich source of bauxite which makes aluminium production all the more convenient, but instead it is exporting to China and other nations. The Australian economy is also affected by Chinese producers, which have been accused of oversupplying the world market with subsidized aluminium. Good profits are expected from high selling prices and low production costs. For Australian aluminium industry, China has somehow damaged the equation. China’s continued demand for Australian raw material is pushing up the dollar and with it the local production cost is increasing. There is no doubt that Chinese production is heavily subsidised and the hugely expanding Chinese production is keeping the global aluminum price in check.

The closure of Kurri Kurri smelter is compelling the industry experts to look for a solution. The Australian Workers’ Union suggests the Federal Government to provide assistance to the jobless workers and rescue the aluminium industry as a whole. The AWU is meeting with the Federal Government with five point strategy for the future of the Australian aluminium industry. NORSK Hydro‘s decision to close the Kurri Kurri smelter was more or less expected. Two of the Hunter Valley’s smelters had already cut down on their operations in recent month. The Tomago Aluminium smelter will receive its share of assistance, but it will also get affected by the carbon tax effect. A number of research and other projects are working towards lowering the energy associated with aluminium production and finding a solution to revive the industry. The current economic scenario gives a very negative picture. But, it is during crisis that innovative ideas get explored to find a way out of it. Since, Australia has a rich natural deposit in terms of raw materials; there are still chances of revival in future.

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1 comment

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