Low prices, strong dollar to blame says Hydro

NORWEGIAN company Norsk Hydro is blaming low aluminium prices and the strong Australian dollar for a decision to shut its 43-year-old Kurri Kurri smelter.

Mothballing the loss-making smelter will cost the jobs of 344 Hydro employees and an estimated 50 contractors, along with downstream effects that are likely to take a heavy toll on surrounding engineering businesses and Kurri's retail strip.

Hydro executive Olaf Wigstol, who flew from Oslo for the announcement, said it would take at least three months to shut down the plant.

The Kurri closure follows the shutting of the BHP Newcastle steelworks in 1999 and the Pasminco lead smelter at Boolaroo in 2001, leaving Tomago Aluminium and OneSteel's Waratah electric steelmaking furnace as the Hunter Valley's remaining metal refineries.

Hydro gave no official warning for a decision that was announced to the workforce at 7am yesterday, sparking a furious debate in both state and federal parliaments.

The debate in Macquarie Street centred on Hydro's inability to secure a long-term power contract with its existing supplier, Delta Electricity, or one of its competitors.

In Canberra, Paterson MP Bob Baldwin was ejected for an hour after clashing with Climate Change Minister Greg Combet and Hunter MP Joel Fitzgibbon over the role the carbon tax played in Hydro's decision.

Mr Combet said Hydro had told him the closure was "driven by current financial losses that are unrelated to the carbon price".

But Hydro did name the carbon tax as a factor in its decision, naming it along with rising costs of power and raw materials as factors that would prevent a return to profitability.

The main union at Kurri, the Australian Workers Union, has called on both levels of government to take urgent action to avert a worsening crisis across the Australian aluminium industry.

The AWU's full-time Kurri delegate, Paul O'Brien, said Hydro had already cut 200 workers since December by voluntary redundancy and the remaining 344 "wanted a future here and that's what we've been fighting for".

One of those workers, potroom operator Trevor Shakespeare, said he and his wife Lindy had seven of their eight children at home at Heddon Greta and both were worried about his ability to get a new job after 26 years at the smelter.

The owner of Weston Machine Shop, Brett Davies, said he had lost a big slice of business when Hydro shut one of the smelter's three potlines in January.

He was down to "four tradesmen, an office worker, a casual and myself" and was worried about the future of a business that had been in his family for 20 years.

Mr Wigstol said the Kurri smelter was losing $6 million to $7 million a month even after an exhaustive program of cost-cutting.

He said 50 workers had been made redundant in December and another 150 after the closure of one potline in January.

Mr Wigstol said Hydro had looked to sell the plant but there were no obvious takers.

After talks with state and federal politicians it became clear that nothing in the way of government subsidy was going to lessen the impact of a bad short-term situation that Hydro believed was unlikely to improve in the long term.

"I want to acknowledge an outstanding effort by the Kurri Kurri workforce to reduce operating costs but regrettably, external factors will lead to continued cash losses," Mr Wigstol said.

He said Kurri had lost money over the past two years and would have stayed in the red had the company kept it open.

The main indicator of the world aluminium market, the London Metals Exchange (LME) price had weakened and remained low.

The Australian dollar was "unlikely to weaken sufficiently" for Kurri to become profitable at such prices and Hydro believed the currency was likely to retain parity with the US dollar for the next few years at least.

Mr Wigstol said Kurri was not the first smelter Hydro had been forced to take action over.

He said Hydro's Rheinwerk smelter in Germany had its production cut from 230,000 tonnes a year to 50,000 tonnes in February 2009. Elsewhere, Hydro confirmed the German smelter was losing €350,000 a day or almost $14 million a month before the company took action.

Hydro has a 12 per cent stake in Tomago Aluminium but Mr Wigstol declined to comment on that business, which cut 100 jobs in January, citing the high Australian dollar and a 30 per cent fall in aluminium prices for a difficult market.

Tomago Aluminium's 51 per cent shareholder is Rio chief executive John Lemberg. He said his company was working with its workforce to adapt to "difficult global market conditions".

Mr Wigstol said Hydro would hold formal consultations with the AWU and the Electrical Trades Union in the coming days.

He said the smelter would be "mothballed", enabling it to be restarted if market conditions improved, but Hydro did not expect any improvement for at least five years.

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