Bosnia's aluminium smelter Aluminij Mostar said it may have to cut output, due to lower metal prices combined with higher power costs, and appealed for help from the government for the country's top exporter and crucial employer.
The metal sector exports account for about 80 percent of overall output in Bosnia, where the economy is still weakened since the end of the 1992-95 war. Aluminij alone exports about 150 million euros ($189 million) worth of metal a year.
A cutback at the plant would also harm metal processors, whose main supplier is Aluminij, and cost jobs in a country where unemployment is already around 45 percent. It might also endanger metal supply deals with its international partners.
"A decision whether to cut output will be made at the July 26 session of the company's board of directors," its General Manager, Ivo Bradvica, said in a letter on Tuesday to the governments of Bosnia and of the Muslim-Croat federation in which the smelter is located.
He did not give a figure for any potential cutback.
"I appeal on the Bosnian authorities to decide if they need Aluminij and other processing companies that rely on Aluminij's production," he added.
Aluminij, which produces around 160,000 tonnes of metal a year and has relied on relatively cheap hydro-power, was hit in March by an increase of about 12 percent in electricity prices.
Bosnia's utility has been hurt by a long-term drought and could not supply Aluminij with the agreed 125 megawatt-hours a year so the smelter had to import power at much higher prices.
Aluminij started additional cost savings in May and said it would cut its 900-strong workforce after reporting a first quarter loss of 20 million Bosnian marka ($12.9 million), or double what it had expected for the whole year.
The smelter had been planning to finish an upgrade of its foundry this year to boost annual output by 30,000 tonnes, much of it destined for long-term partner Glencore International but its spokesman Darko Juka said it was now unclear if the plan would be fulfilled.
The plant, in the southern town of Mostar, has repeatedly complained of high power prices and asked the state to subsidise prices for strategic firms. It said the power price accounts for about 60 percent of the cost of producing each tonne of metal.
Apart from power costs, Bradvica said prices of industrial metals on the London Metals Exchange (LME) had fallen significantly and were unlikely to recover until the end of the year, according to analyst forecasts.
OPERATION IN SUCH CONDITIONS IMPOSSIBLE
"Having in mind that we pay 54 euros per MWh of electricity and that the price of aluminium these days on the LME is below $1,800 per tonne, it is clear that Aluminij's further operation in such conditions is simply impossible," said Bradvica.
He added that Aluminij, the largest smelter in the Western Balkans, was losing $300 per tonne of produced metal.
Benchmark three months LME aluminium futures were trading at above $1,900 a tonne on Tuesday but hovered around 1,800 a tonne at the end of last month. They are down about 1.6 percent this year after falling more than 18 percent last year.
Sharp falls in metals prices and faltering demand have prompted high-cost producers to cut output from late last year.
In 2009, Aluminij was forced to cut output by a quarter after the global economic crisis slashed demand for the metal. It returned to full capacity in late 2010.
Privatisation of the smelter, which employs mainly Bosnian Croats, has been delayed for years due to an ownership dispute with the federation government.
A 2007 deal between the government and Aluminij to set ownership stakes in Aluminij at 40 percent each has expired and the management had said it was no longer valid. Croatian company TLM owns a 12 percent stake and small shareholders the rest.
Much of the company's output goes to the construction and auto industries in the European Union.
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