King of aluminum foil? It's not all wrapped up yet
Move over, Oregon. Australia hopes to rival America's Pacific Northwest is aluminum production. This is an Aussie dream about to become reality. The aluminum industry in Australia is entering an expansion phase which should result in a lot of aluminum from Australia making its way around the world.
On the surface, aluminum production seems like a natural industry for Australia. The country is the world's largest exporter of bauxite, the raw material used in making alumina, which is further refined into aluminum.
Australia also has abundant coal reserves and a large natural gas supply, both of which can be used to power smelters. And the country has large deep-water ports from which to ship aluminum ingots or fabricated materials. All it lacks is a market for the aluminum. Even with its current modest production, it still exports more aluminum than it uses.
However, as Sir Arvi Parbo, chairman of Alcoa Australia points out from his Melbourne suite, the rising price of oil has made producing aluminum in many parts of the world uneconomic.
"The Japanese industry is now quite uneconomic," he explains, "and the United States and Europe both have high smelting costs too." In Japan, aluminum production in metric tons has already declined from 1.6 million a year to 900, 000 as the Japanese government has allowed the industry to consolidate.
Only Australia and Brazil, Sir Arvi reasons, have cheap enough electrical costs to expand aluminum production. And Brazil, he says, is counting on hydroelectric power, a source of electricity that takes more time to develop. "In Australia, we can build the power plants in the next four to five years."
If all the power plants are built, says one official in Canberra, the industry should be able to produce 1.2 million tons of aluminum by 1986, compared with current production of 300,000 tons. By 1986, according to a recent study by Merrill Lynch, Pierce, Fenner & Smith, world primary smelter capacity is likely to be over 16.5 million tons. Thus, Australia could represent 7.3 percent of world capacity, compared with a current 2.1 percent.
However, before Australians start calculating how many rolls of aluminum foil they can sell in Japan, there are a number of obstacles they must surmount.
First, there is a world surplus of aluminum on the markets because of the economic slowdown in Europe and the US. Mr. Parbo says, "I don't expect this downturn to be severe or long," and he cites the low level of world stocks. However, Merrill Lynch, in an analysis earlier this year, disagreed, pointing to the modernization of old smelters, the great increase in scrap recovery, and the addition of new smelters in other parts of the world. Merrill Lynch concluded the longer-term outlook for aluminum was not so shiny.
Second, the continued strength of the Australian dollar makes aluminum made by the Aussies less competitive on the world markets. "If there is any appreciation of the currency," concedes Sir Arvi, "it will be felt."
Finally, there is local opposition to selling power to the companies too cheaply. Sir Arvi brands such opposition "political," but Phillis Rosendale, a professor at Melbourne University's Institute for Applied Economic Research, says, "This is a sore point, but I think the local governments are probably selling power too cheaply." But, she adds, "It's hard to know what to charge." This is likely to be a sticky political question in the future.
In part because of the slump in world demand and the strength of the Australian dollar, some smelter plans are being rethought. Alcan, for instance, has deferred its plans to build Australia's largest smelter costing $1.067 billion ($930 million Australian) at Bundaberg in Queensland. Alumax, a US group, has pulled out of a project at Lochinvar in New South Wales. Despite these withdrawals, Australia should still see the following new potlines (the electrolytic process of aluminum production):
* Western Australia. A consortium of Shell, CSR (Colonial Sugar Refining Company), and Reynolds Metals will build Western Australia's first smelter at a cost of $1.032 billion ($900 million Australian). The project, producing 220, 000 tons of aluminum, is supposed to come on stream in 1985. A second smelter could be built by 1990.
* Queensland. Comalco, a partnership of CRA and Kaiser Aluminum & Chemical Company, in conjunction with Kaiser aluminum and some Japanese companies, plan to build a $688 million ($600 million Australian) smelter at Gladstone with an annual capacity of 206,000 tons. The first potline of 103,000 tons is scheduled to come on stream in 1982.
* New South Wales. The French aluminum company, Pechiney Ugine Kuhlmann, with CSR, AMP, the giant Australian insurance company, and a group of Australian banks and insurance companies, plan to build a $688 million smelter in the Hunter Valley region. Initial capacity: 110,000 tons.
Alcan, the large Canadian aluminum company, plans to expand its potlines at Kurri Kurri by 45,400 tons. BHP (Broken Hill Proprietary) maintains it is still moving ahead with plans for a smelter at Lochinvar despite the withdrawal of Alumax.
* Victoria. Alcoa is expanding its potline at Port Henry, near Geelong, by 100,000 tons and plans to build a new smelter at Portland, western Victoria. If all this new smelting capacity comes on stream, the Aussies might also be tempted to expand their alumina production.
K. W. Peterson, managing director of Queensland Alumina Ltd. (QAL), the world's largest alumina producer, says one small addition of 300,000 tons is in the works. But whether the plant expands further, he says, "will depend on economics and what other sources of alumina develop."
Moreover, as Mr. Peterson knows, it's not getting any cheaper; the first 2, 032,000 tons of capacity cost only $355 million (Australian). The 300,000-ton expansion cost $300 million, with the difference being inflation.
QAL's decision whether to expand could be an important one. Currently, 90 percent of its output is exported to New Zealand, the US, or Canada. In the future a large portion of it will stay in the co untry, feeding new Aussie potlines.