Alcoa To Build Plant In Iceland
The Age
Tuesday January 14, 2003
Alcoa of the US has moved to recapture market favour by making an early commitment to building the $US1.1 billion ($A1.88 billion) Fjaroaal (Aluminium of the Fjords) aluminum project facility in eastern Iceland.
First production from the 322,000 tonnes-a-year plant - the first in a developed economy since the 1997 Kyoto protocol on greenhouse gases - is expected in 2007 and is considered strategically important by industry analysts on several counts.
Analysts said the commitment was notable in that it followed last week's report by Alcoa of big losses in its downstream aluminium businesses of fabrication and extrusion, forcing a cut of 8000 jobs from the mainly US-based operations.
It also signals to the group's competitors, including BHP Billiton and Rio Tinto, that Alcoa believes the project has the right economics to secure the next slab of growth in the aluminium market, underpinned as it is by low-cost hydro-electric power.
And like BHP Billiton's commitments to becoming an aluminium force from operations in South Africa and Mozambique, the Fjaroaal commitment confirms that the long-term future of the North American sector of the aluminium industry is increasingly dim because of high energy and labour costs, and growing environmental constraints.
As an aside, local pundits will use the double squeeze on Alcoa of the Fjaroaal commitment and losses in its downstream operations to question whether it will still have the balance-sheet power to bid for Alumina Ltd.
Alumina is the locally listed group created by WMC's demerger in December. It holds the ``old" WMC's 40 per cent share in the Alcoa-managed and 60 per cent-owned global alumina business known as AWAC.
Alcoa's aborted bid of $10.20 a share for WMC in late 2001 had WMC's stake in AWAC as its prime motivation. The demerger of WMC was an effort by the company to ensure competitiveness and transparency in any future bids for Alumina and the remaining part of the old WMC, WMC Resources.
Alcoa said Fjaroaal would be the most environmentally friendly aluminum production facility in the world. ``The Fjaroaal plant is an important element of Alcoa's growth strategy in primary metals," said Alcoa's chairman and chief executive, Alain Belda. ``Across our entire primary metals portfolio, we are taking action to move production assets down the cost curve while maintaining return on capital targets."
© 2003 The Age