Aluminium feeling the pinch

Press, 12 November 1981, Page 13

Aluminium feeling the pinch

By jane McLoughlin. of the "Observer’’ Once upon a time, not so very long ago, either, the hopes of all the industrial world centred on a wonder metal, aluminium. It seemed that nearly anything that moved would move more cheaply if made in aluminium because its combination of strength and lightness cut down on energy costs. Steel wmuld not exactly be redundant, but for the age of the high-speed train, the jumbo jet and the supersonic fighter, for the foil freeze-and-cook pack, and canned drinks, aluminium would be the answer. But today, although rumours of serious financial problems at one of Britain’s top producers, British Aluminium, may be dismissed as “poppycock squared” by British Aluminium’s chairman, Ronald Utiger, and by Sir Brian Kellett, chairman of the parent company. Tube Investments, there is trouble at the smelter throughout the British aluminium industry. Not just in Britain, either. This summer, the United States, which had already reduced output by 700,000 tonnes a year below capacity, cut back by a further 400,000 .tonnes. The Japanese, who slashed production to 600,000 tonnes below capacity this year, have almost given up the struggle to maintain a domestic industry, and have turned to importing what they need. In Britain, the labour force has been slimmed from over 50,000 to 43,000. British Aluminium may make losses of some £2O million this year, and, when pressed, some executives admit there will be further redundancies, though not, they insist hopefully, the closing or mothballing of its primary production smelter at Invergordon. Ross and Cromarty.

The industry has slumped before, in 1975, only to recover dramatically in 1976. The timing of the cycle illustrates the irony of aluminium: while it is expected' to cut energy costs by reducing the weight of planes and boats and trains and cars, it is a high energy-using product to make, and increased fuel prices have hit its potential as tne answer to transporters’ prayers. This accounts for the increasing threat to established European. American and Japanese producers from developing countries with cheap electricity. It explains why Australia is rethinking plans to become the world's number two producer after the United States. The United Arab Emirates, on the other hand, has entered the . field in spite of the 2.5 million tonnes of stocks unsold around the world. Developing countries are still investing in new production to add to the overcapacity, even, as the United States and Japan close plant and world demand falls from its present level of 13 million tonnes a year. At a time of high interest rates, stocks are expensive to finance. But most producers have stockpiled rather than cut capacity. This in spite of the drastic drop in demand since 1979, which has led to discounts on world market prices just to sell stocks. The British manufacturers have possibly been hit even harder than international competitors by the recession. First, .they suffered from the high rate of the pound, which knocked exports — and hit engineering customers who also relied heavily on exports. At the same time, the United Kingdom aluminium producers lost out to cheaper imported metal, and imports now account tor about 40 per cent of the British market.

But now that the pound has dropped — thankfully too, against the Deutschmark. which was making British aluminium uncompetitive in Europe — the high rate of the dollar is increasing the cost of bauxite, the raw material for aluminium. Worst of all for British producers is the state of the rest of United Kingdom industry. A breakdown of consumption illustrates that the main aluminium users are the hardest hit by recession. Transport and defence' account for 26 per cent; packaging foil and sheet 17 per cent; building 15 per cent: electrical engineering 9 per cent; and high interest rates making loans expensive have inhibited one possible growth area — double glazing. The total British market has dropped 27 per cent in the past year. For British Aluminium alone, borrowings are up from £l9 million to £29.3 million this year to finance the rebuilding of its Lochaber smelter, which has had help from the E.E.C. British Aluminium has warned, too. that if it loses a court case involving power charges when the Hunterston B'power station was out of service from October, 1977. to early 1980. and has to pay the North of Scotland HydroElectric Board the £3O million or so in question, it could become internationally uncompetitive. . But given the time involved — with inevitable appeals — this may be something of a red herring. More important to survival is future policy. British Aluminium is the only British company currently investing in new primary production. Alcan Metal Centres has invested £0.5 million in nonstandard sheet metal: J. V. Murcott is installing new capacity to make aluminium parts for micro-processors,

and a Sheffield company. Daniel Doncaster, is investing £200,000 in aluminium forging. The great white hope for aluminium in the United Kingdom and the rest of Europe is aerospace, and Alcan and British Aluminium have both invested in new facilities specially for this market. But so far the aircraft makers are holding fire, and with a glut of aluminium around the world, are carrying smaller than normal stocks. In Britain, Alcoa (no relation to Alcan — although both are United States based) is investing in recycling aluminium drink cans. In the United States, recovery rates of cans are 40 per cent, but Alcoa has only achieved 16 per cent here. But this could be a future area for saving in the high energy costs of production of new’ metal — recycling saves 95 per cent of these.

Just as other industries’ problems have exacerbated aluminium’s, so there is, speculation that British Aluminium — 58 per cent owned by Tube Investments — could be adding to the problems of its parent, which is already troubled by a turnaround from a £3.9 million profit to £7.7 million loss by Raleigh bicycles. Aluminium usage in Britain will certainly grow once the depression is over — the question is whether the metal will come from British producers, or whether it will be cheaper to import from India, the United Arab Emirates, Africa or the Far East. There has only been one real sign of hope for British producers recently — a significant rise in demand for aluminium knitting needles as the recession sets Britain's tour million knitters clicking.