Australia aluminum sector to contract over carbon plan

 

 

"This puts us at more of a disadvantage than we were at without the scheme," the council's executive director, Miles Prosser, told Reuters.

 

 

"It is now difficult to envisage major expansion in Australia and this will certainly put a number of operations in Australia under severe pressure," Prosser said.

 

 

Australia's parliament on Tuesday said it will impose a A$23 per tonne tax on carbon emissions for 500 of the biggest polluters across mining, energy, heavy manufacturing and transportation from mid-2012.

 

 

Electricity comprises 30 percent of aluminum smelting costs. Predominantly powered by brown and black coal, Australia has some of the world's highest emissions-generating electricity.

 

 

Producers, which include Alcoa and Rio Tinto, argued against implementing a scheme at this time, saying the cost hikes would leave them struggling to compete internationally.

 

 

From a strictly environmental standpoint, some argue this is desirable on balance, because their output is likely to be replaced by facilities overseas with substantially lower greenhouse gas emissions intensity.

 

 

The world's biggest aluminum producer, Rio, last month formed a separate division to hold six Australian and New Zealand units being put up for sale, including Australia's Gove bauxite mine and alumina refinery and Tomago smelter and its New Zealand smelters.

 

 

The legislation imposes a carbon cost on Australian aluminum producers of at least $60 per tonne of aluminum compared to only $8 per tonne in China, according to Prosser.

 

 

Australia's carbon cost will rise every year of the scheme and over the next decade to more than $200 per tonne of aluminum while in China it is not expected to get any higher than $60, he said.

 

 

Aluminum is not in short supply. Power prices are high and, economically, aluminum is more like condensed electricity than refined bauxite.

 

 

Longer term, the metal's profit potential is limited by the ability of China, the biggest consumer and producer of aluminum, to use its abundant cheap energy to pursue self-sufficiency.

 

 

Aluminum prices have tumbled nearly 20 percent in the past three months. UBS rates aluminum as a "least preferred" commodity and sees prices falling another 8 percent in 2012.

 

 

The Australian scheme sets a fixed carbon tax of A$23 tonne on the top 500 polluters from July 2012, then moves to an emissions trading scheme from July 2015. Companies involved will need a permit for every tonne of carbon they emit.

 

 

Prosser said that based on the current European trading price, Australian industry would be better off with a floating price from the start. The contract last closed at 9.95 euros, equal to about A$13.

 

 

"If we were exposed to a market price today, then we'd be likely paying a lower price," he said.