THE main problem that has confronted Kurri Kurri’s elderly aluminium smelter for the past year or two has been depressed global demand for the metal it produces.
Soft demand means lower prices, and that exposes the world’s least efficient smelters to intense pressure.
Multinational aluminium producers have made no secret of the fact that they have been reviewing all their smelters to identify candidates for closure. Reducing supply will help maintain prices and profits, and it is obvious that the smelters most vulnerable to closure are those with the highest costs.
Aluminium is referred to as ‘‘congealed electricity’’ because of the enormous quantities of power required to make it. For decades, the Hunter’s aluminium smelters (like many others around the world) have enjoyed extremely low power prices, granted by state governments eager to support jobs and investment.
For Kurri Kurri, that uninterrupted run hit a speed bump in 2010 when the NSW Labor government, in its last months, intervened to prevent the smelter concluding contract negotiations with Delta Electricity. The government was trying to sell Delta and apparently feared a cheap power deal with the aluminium smelter might affect the sale price.
Also in 2010, the Grattan Institute predicted that unwinding power price subsidies would make Kurri Kurri a ‘‘very high cost producer’’ in world terms.
Another factor driving costs is the high Australian dollar. The government’s decision not to dampen the resources boom by imposing a ‘‘super profits tax’’ on mining has led to a ‘‘two-speed economy’’ in which industries such as manufacturing and tourism are suffering from a disadvantageous exchange rate.
The opposition has been quick to seize on a comment by the smelter’s Norwegian owners that the impending carbon tax has also been a factor in their thinking.
According to the Grattan Institute, most Australian smelters emit substantially more greenhouse gases than the global average. In the absence of compensation, that means a carbon tax must have an appreciable impact on the balance sheet.
Kurri Kurri people will be wondering how the closure will affect their town. The loss of hundreds of jobs in a relatively small community will hit hard, with the flow-on effects likely to be felt by many businesses that had long benefited from the smelter’s paypackets.
Not so many years ago hopes were high that the much-touted Hunter Economic Zone on the town’s outskirts might by now have become a thriving hub supporting thousands of jobs in its own right. Had that been the case, this loss might not have seemed so acute.
Unfortunately, however, the Hunter Economic Zone has failed to live up to its high expectations.
Still, on the positive side, the Hunter Expressway is well under way and, when completed, is likely to provide a substantial impetus by bringing the Lower Hunter much closer to Sydney.