"From greener buildings and lightweight buses to strong aeroplanes and the iconic aluminium can, Alcoa continues to lead the way. What makes it all possible? Aluminium — the most versatile, sustainable and infinitely recyclable material in the world — and the people who perfected it."
While flashing around a fist-sized lump of bauxite ore during an exclamation-point heavy address to the American Chamber of Commerce just over a year ago, Alan Cransberg, the managing director of Alcoa in Australia, assured his audience that Australia had a strong future in producing aluminum, "our miracle metal".
Today Cransberg is in talks with employees from the Port Henry smelter, whose jobs are at risk under a pending "review" of the Geelong site, which has become unprofitable due to "a combination of factors, including metal prices, input costs and exchange rates," according to the company. He was unable to give comment to New Matilda as a result, but Alcoa’s global figures tell the story for him.
Alcoa’s media release tells a gloomy tale of global cutbacks in aluminium production because of market conditions, but their finances say otherwise. The company made a profit of $25 billion in 2011, up 19 per cent from 2010. Its operations generated $614 million in income, more than double the previous year’s take.
Significantly, $221 million of that was productivity gains — squeezing more work for the same pay — something the Australian Workers’ Union Victorian Secretary Cesar Melhem acknowledged in his response to the Alcoa announcement.
"The Alcoa workforce has consistently responded to requests made across the company internationally to reduce costs. They have proved themselves to be highly skilled and committed workers, just as successive Victorian Governments have supported the operation."
Here’s the clincher though: the fourth quarter loss recorded on Alcoa’s balance sheet was $193 million, $159 million of which was "restructuring". Chief Financial Officer Chuch McClane said in a 9 January conference call that those restructuring costs were predominantly caused by "decisive action to close or curtail 531,000 metric tons of smelting capacity. These closures and curtailments represent $141 million of the total restructuring charges."
The lion’s share of the company’s fourth quarter losses were caused by shutting down plants, not the other way around.
Some more stats from Alcoa: global aluminium demand is tipped to grow by 7 per cent this year. That increase means a "global deficit in primary aluminium supply", according to CEO Klaus Kleinfeld. He predicts that "growing demand for aluminum, combined with market-related production cutbacks, will result in a global aluminum industry deficit of 600,000 metric tons in 2012."
The third-largest aluminium company in the world predicts there will be a shortage of 600,000 metric tons, after culling 531,000 metric tons of its own production.
Explanations for the "review" have focused primarily on costs: the high dollar, high electricity costs (which comprise about 30 per cent of smelting costs and in Australia are heavily subsidised) and so on. But a Reuters report on Alcoa’s fourth quarter loss from January explains why the production deficit is so important:
"On Monday, Alcoa reported a fourth-quarter loss, citing slumping aluminum prices and announced smelting capacity cuts that it believes will prompt a global deficit and push up metal prices. It also forecast 7 per cent growth in global aluminum demand this year, especially in the aerospace and automotive markets."
The company’s share price, which tanked in 2008, is tied directly to the price of aluminium, which has been rising slowly since the crash.
Alcoa share price |
Aluminum price |
The company is understandably impatient to see the price rise, and was the beneficiary of a scam run by Goldman Sachs that saw huge quantities of aluminum stockpiled in London Metals Exchange-sanctioned warehouses in order to artificially restrict supply and drive up prices.
In its fourth quarter report the company recorded a huge spike in inventoried stock in LME facilities, which earned it an estimated $100 million in extra profit. "Major aluminum producers make out like bandits under the Goldman warehouse regime," Daily Finance reported at the time.
Port Henry may be under review, but globally it’s nothing new.
Alcoa smelters in Italy, Spain, Tennessee and Texas with a total of 531,000 metric tons of capacity have also been mothballed in favour of more amenable conditions at facilities like the 2008 Fjarðaál smelter in Iceland. Directly fed by a hydro-electric plant, the Iceland outfit produces 350,000 tons off the back of Polish immigrant labour and cheap electricity. Only about 20-25 per cent of workers were Icelandic, the rest were temporary FIFO workers — sound familiar?
None of this changes the truth of the economic costs of manufacturing in Australia, but let’s be upfront. The company’s aims and shareholder obligations mean that despite AWU protests things probably won’t work out well for Alcoa workers down at Port Henry.
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