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03. October 2010

Australia - Tax wary Alcoa still bullish on aluminum future

The Australian reported that ALCOA soaring Chinese demand for alumina could allow it to revisit a decision to shelve an expansion of the Wagerup refinery in WA.

Mr Alan Cransberg MD Alcoa of Australia warned that domestic factors including a possible carbon tax could keep the long planned USD 3 billion Wagerup expansion on hold despite the forecast rapid rise in China's alumina imports.

He said that there could be no decision on the project until the government's plans to put a price on carbon were clear given the relatively high greenhouse emissions from Alcoa's refineries. I don't think there's anybody in the world who's going to put billions of dollars into the ground without understanding what are the rules for an ETS or a carbon tax. Getting clarity on that over time is very important.

Mr Cransberg said that the US based aluminium producer also wanted to ensure it could secure reasonably priced gas to power the project in what has become a tight domestic market for gas.

He said that major energy users have complained for several years that gas producers are warehousing reserves to export as liquefied natural gas rather than sell it into the domestic market. It's more expensive to get gas here than in Victoria or Queensland. Alcoa announced in November 2008 that falling demand and a plummeting alumina price during the global financial crisis had led it to shelve the Wagerup refinery expansion in WA's southwest.

The project, expected to create 1500 construction jobs has an estimated capital cost of between USD 1 billion and USD 3 billion depending on the ultimate size of the expansion.

Mr Colin Barnett Premier of WA said that he hoped Wagerup's expansion would only be delayed for two years. In his Perth office, Mr Cransberg said that a decision on the expansion would not be made for at least another six months. But he was bullish about the continuing global demand for alumina.

He said that Chinese aluminium smelters were reportedly desperate for alumina due to China's lack of domestic bauxite which is refined into alumina.

Alcoa mines bauxite in WA that is then refined into alumina at Wagerup. It either exports the alumina or sends it to the company's two smelters in Victoria, where it is transformed into aluminium.

Mr Cransberg said that the world does need more alumina because China, which is a significant player in alumina and smelting, doesn't have a lot of bauxite reserves. So we can send them alumina to run their smelters. He said that as you look at the growth rate of the aluminium industry, alumina is going to be a very good business to be in.

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