Load Shedding Curbs BHP Aluminium Smelters

Johannesburg — BHP Billiton's aluminium smelters in Richards Bay are still feeling the effect of 2008's national energy crisis and experience regular load shedding.

The group is one of the pillars of SA's industrial economy, and one of the biggest employers and economic drivers in KwaZulu-Natal but, says Johnny Dladla, BHP Billiton SA's spokesman, the outlook for aluminium smelting in SA is bleak without a guarantee of security of uninterrupted power.

Unsurprisingly, the group plans no further expansion at the smelters in the short to medium terms, or until additional power can be made available.

BHP Billiton's SA-based smelters - Hillside and Bayside - are located about 2km outside Richards Bay harbour.

Hillside produces 708000 tons of aluminium a year, while Bayside's annual production is about 95000 tons.

BHP also holds a 47% stake in the 560 000-ton-a-year Mozal smelter in Mozambique - the Industrial Development Corporation holds 24%, Mitsubishi Corporation of Japan owns 25% and the Mozambican government owns 4%.

Mr Dladla says BHP remains one of the only extensive energy users in SA to have kept to the 10% reduction demanded by the government.

It is still subjected to load shedding as and when Eskom needs power to mitigate its fluctuating reserve margins.

"Load-shedding provisions are included in our contracts and the smelters are subjected to these load sheds as and when Eskom requires them.

"The major concern for us is the load shedding that exceeds the contracted values and the frequency of load shedding as Eskom manages its reserve margin," he says.

The effect of the smelters on the economy was reflected in an Econometrix study in 2008, which showed that up to 33 000 people nationwide are directly or indirectly employed on work created by the aluminium smelting industry.

This amounts to 16300 jobs in the KwaZulu-Natal North Coast region.

As many as 150000 people were found to be dependent on income generated by the smelters, the study found.

There are 2800 employees and contractors employed directly at the two smelter operations. The smelters are also serviced by numerous small local businesses providing engineering and other service-orientated employment for the greater Richards Bay community.

Mr Dladla says the decision to close part of the Bayside operations in 2008 remains in force - production at Bayside has halved and 400 jobs have been lost as a result, since then.

Overall aluminium production in SA is down by 90 000 tons a year, or about 10%, due to the electricity problems.

"The main problem the smelters face is the continual load shedding of the potlines, which results in potline instability and this has a significant effect on our operational costs," he says.

Notwithstanding these difficulties, a small rise in output is expected this year, which BHP attributes to improved operational efficiencies as the smelters now focus on delivering metal in a power-constrained world.

Mr Dladla says the group's focus remains on the stability of its existing operations.

Exports from the South African smelters mainly go to Europe, the US and the Far East, and account for about 84% of production, while increasing amounts are being sold within the southern African region.

Local and regional sales are largely for downstream beneficiation at rolling mills, extrusion plants and cable plants, which manufacture products such as aluminium foil, pots and pans, windows, doors and cables.

Almost 4% of output is sold to SA's automotive components industry for the manufacture of aluminium alloy wheels.

Bloomberg reported that aluminium prices fell 15% in the quarter from March 31 , more or less in line with declines in the prices of other industrial metals due to concern that slower growth in China and the US may curb demand.

BHP Billiton said in a production report for the nine months to March 31 that aluminium output across all its operations was in line with comparable periods.