Scope for enormous expansion

Press, 8 May 1980, Page 25

Scope for enormous expansion

Several factors which place Australia and New Zealand in a good position for the future development of the aluminium industry include the closing of several Japanese oil-fired smelters because fuel price increases had’ made their operation uneconomic. Japan has recently shut down more than 30 per cent of its primary aluminium producing capacity. Also related is the I relative decline in North [America's aluminium production importance. ! Therefore, there was [“scope for expansion unprecedented in scale," Mr M. [Rayner, the managing direction of Comalco. Ltd, told the [conference of the Australian ■ Institute of Mining and [Metallurgy in Queenstown. I By 1985 the western world [would need about seven million tonnes more aluminium[ than now, and there was al-l ready a major shortfall in alumina production, he said. “Another one billion dollars could be spent in New Zealand through the 1980 s on smelting and downstream processing. It is my own view that the benefits of the proposed expansion will greatly exceed the costs.” By early 1733 there would be a significant world shortage of alumina and with Australian expansion that country would be producing nine million tonnes a year by 1985. If total proposed expansion eventuated in New Zealand by the mid-1980s this country would be producing 3.5 per cent of the world’s aluminium, and Aus-

tralia and New Zealand com-1 bined about 14 per cent. ; International economics: meant that the Australian aluminium industry would have to compete in a toughter trading environment in the future. ; The industry would also! have to face tougher and[ closer public and Govern-■ ment scrutiny in terms of; social and economic goals, j Mr Rayner said. Power prices still to be; [negotiated for the Tiwai; ! Point aluminium smelter, were only part of the in-j dustry’s over-all profitably tty, Mr M. Rayner, said. ! “Electricity contributes toi about one third of a smel-! ter’s operating cost and the; price set must be based on al firm and predetermined seti of ground rules before Com-! alco can go ahead with anyj i further development,” he[ [said. [ Comalco is negotiating with the Government for a share in the South Island surplus hydro-electric power generating capacity. Costs structures for power were related to local factors. Looking to the future of the industry, Mr Rayner said that he was confident about the continued economic and political stability of New Zealand and a continuing supply of raw materials for the industry — the other factors aside from power which were important for the industry.

The best use of power resource was not necessarily assured by the Government getting the highest price it could, but more from getting

the maximum value from its' use in industry, including; downstream processing. Cost-plus pricing did not; imply that large users were! being subsidised by small users. The future really depended! on the industry being ablej to continue to offset local! disadvantages of high freight: costs for the raw’ processed; materials, high labour costs,! compounded by additional! costs such as housing, plant; and infra-structure costs.; [which were high, and capital! ■ cost boundaries. I The economies of scale.; [meant that to be inter-! ■nationally viable developments'had to be made by [international consortiums. [This spread the capital risk; 'and helped secure markets. i An important community i concern was whether one inidustry should take so much [power. i A New Zealand Institute of Economic Research study commissioned by the cornpany and the Government showed that the Tiwai smelter already made a net contribution to the economy of $lOO million a year with two potlines. The foreign exchange implications of a third potline were another $5O million a year.

This was in keeping with the Government's professed aim of reconstructing the economic base of New Zealand.

Local spin-off benefits to the economy also had to be considered.

In "an interview afterwards, Mr Rayner said that! the final price negotiated!

with the Government by[ [Comalco for the South Is-j ■land surplus power would! have to be lower than 1.9 c a : unit. “It would not be ridiculously lower, and . certainly! well above cost,” he said. 1 A substantial element of! profit for the Government! would still be built into the final negotiated price. “We know a price at ■which smelting is economic-! ally viable and the Governiment knows that price as [well,” he said. ! Mr Rayner is havine fur--1 ther discussions with the [Minister of Trade and Industry (Mr Adams-Schnei-■der) and the Minister of [Energy. (Mr Birch). I Expansion to a third pot[line at the Tiwai Point smel-’ iter was bv no means final-’ [ised, Mr Rayner said. However. a third potline would [support the initial stages of [Comalco proposals for j downstream foundry development. What else it supported, would depend on • long-tern: contracts. Answering a question on other companies interested in establishing downstream industries,- Mr Rayner said that Comalco was talking to different groups about the possibilities every week, but it would hardly be fair to mention who they were. Asked how he viewed the proposed development of a smelter at Aramoana com-[ pared with Comalco’s own Tiwai proposals • for fourth and fifth potlines, Mr Rayner said his company had [performed credibly in New, I Zealand in the past. j

■[ 'We’ve got a score on the ’board,” he said. Comalco [hr 5 the experience and knowledge of what was needed to succeed locally.