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China at the heart of Alcoa's woes: expert claims

By: Professor Geoff Brooks
17 February, 2012

Writing in The Conversation, Swinburne Professor of Engineering Mathematics Geoff Brooks claims the metallurgical industry is under real threat, not from angry environmentalists, but from the recent growth and investment in mining in Australia, and the extraordinary industrial expansion of China.

The sight of molten metal pouring from a furnace has long been an iconic symbol of industrial might and wealth.

In Australia, the metallurgical industries have provided long term jobs and wealth to many communities. In some cases, this wealth generation has also been associated with unacceptable environmental damage, however, those problems are now largely historical, as furnace technology and practices have advanced greatly since the 1960s.

However, the industry is now under real threat in this country, not from angry environmentalists, but from the recent growth and investment in mining in Australia, which largely reflects the extraordinary industrial expansion of China.

These two combined forces are now placing tremendous pressure on Australia's metallurgical industry, as the demand for ore drives up the dollar, making it very difficult for our aluminium, steel and other base metal producers to compete in the global economy.

This dilemma is especially apparent in Geelong, where recent announcements from Alcoa are casting doubt about the future of the Point Henry aluminium smelter. This plant is particularly vulnerable because of its age, scale and product mix.

The Point Henry works started operating in 1963, and though it has improved energy efficiency and productivity with time, its electrolytic cells are comparatively small and have higher energy usage compared to new, larger smelters in the Middle East and China.

Over 50 per cent of the plant's 190,000 tonne per annum capacity is directed towards export and historically Alcoa's two Victorian smelters have been the state's largest exporter earners.

The potential closure of the Point Henry works would not only be a major financial setback to Geelong, but to Victoria as a whole. The Point Henry plant also has significant advantages over other aluminium plants in the world, such as good infrastructure, a well trained workforce, stable electricity supply, good environmental standards and direct connection to local industries.

Worldwide, Alcoa has recently closed plants in Italy, Spain and the United States, as it tries to rationalise its operation around the world and compete more effectively. In this context, a "review" is good news and an opportunity for government bodies in Australia to take stock and work with Alcoa to find a better future.

On the other side of the ledger, the two smelters also consume approximately 20 per cent of the state's electricity supply and so they also represent large contributions to the State's greenhouse gas generation. Industry experts are somewhat divided on how important the carbon tax is to Alcoa's thinking.

Certainly, in the short term, the high Australian dollar and strong competition from Asia and the Middle East in the export market are the greatest threats, whereas the structure of the new tax, and its rebates for energy intensive industries like aluminium, means that its effects will be delayed. The Australian Aluminium Council has argued that the carbon will adversely affect medium to long term investment strategies of companies.

I believe that as a nation we should be more proactively engaging with this industry. Australia has great natural resources for aluminium production, good infrastructure and world class scientific know-how to improve the situation in our favour. It is clear to many researchers in this field that using lots of energy to make relatively low grade products is not a winning strategy.

The long-term route to wealth for a country like Australia is to develop metallurgical industries where the products are quite distinguishable in terms of quality and value from what is being produced in Asia. In this scenario, lowering the energy use and overall greenhouse gas generation will only work to make the industry more sustainable.

Ironically, the knowledge to make these changes is right in Point Henry's backyard, as there is top class research into aluminium production, products and properties at Deakin, Swinburne and Monash Universities, as well as the CSIRO laboratories in Melbourne.

For example, new materials for limiting energy losses from the aluminium process are under development at Swinburne. New alloys and composite materials are being researched at Monash and Deakin. Dr Akbar Rhamdhani at Swinburne is working with Dr Mark Easton at Monash to find ways to make very high purity aluminium. I personally head up a national consortium of Australasian Universities working with CSIRO on breakthrough technology for Aluminium production.

Greater engagement from government and industry with such research bodies is required, if a more positive scenario is to be followed.

In the short term, I suspect that ‘survival' will be the strategy pursued by government and the metallurgical industry in this country. In the medium to long term, I suggest that innovation coupled with sustainability, is where we need to be.

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john canning | Thursday, February 23, 2012, 9:52 AM
Obviously, an industrial base is critical to a country even if it operates directly at a loss. The intangible benefits more than make up for this and therefore Australia must consider bringing back protectionism to ensure a fair global playing field for key industries and circumvent factors out of our control. This folly that globalisation means lower salaries and free reign of shares for everyone or go bust is nonsense and driven by greedy business and individuals and corrupt institutions. We need to protect our industries if we choose to maintain a first world quality of life and to maintain security.
Lloyd Joseph | Friday, February 24, 2012, 9:43 AM
Perhaps we should be looking at an 'Export Tax' with a sliding scale? Raw materials have maximum tax and finished goods have zero export tax. Or maybe we should call it an 'Environmental Tax'? It would be more environmentally friendly for the world if we exported steel (or cars even!) than exporting trees, coal and iron ore. Where are you Bob Brown? Support local 'value added' manufacturing!
john canning | Tuesday, February 28, 2012, 9:24 PM
Thats an interesting idea - it could be seen as a variant of Kevin Rudd's mining tax that may be more palatable than the current messy one that the miners seem to have gotten in and work their way around!
Guy La China | Friday, March 9, 2012, 10:48 AM
If we all believed in the free market and sharing the benefits of it, Llyod Joseph's approach would be the the solution that met the interests of all Australians. The only thing that would undo this sound approach is a Labour/Greens Government because they would tax the exports into oblivion for spedn on wasteful non-productive projects.