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EDITORIAL - Shape Alcoa's move into opportunity

Published:Tuesday | June 17, 2014 | 12:00 AM

The more important fact is not that Alcoa is selling its majority stake and, ultimately, exiting Jamaica's bauxite-alumina industry. Rather, it is that someone is willing to take it off them.

For, in the first place, anyone who has followed the meanderings of the global metals industry over the last two decades, and Alcoa's own recent strategic realignments, would hardly be surprised at that company's decision over its Jamalco alumina refinery. And the high cost of energy in Jamaica, while influencing its decision to sell to the Noble Group, doesn't capture the story in its fullest context.

It is against that backdrop that we again urge Phillip Paulwell, the mining minister, to restrain his instinct for waffle and spin, which was on display last weekend, and use the development at Jamalco as a platform from which to launch a serious strategic review of the future of the industry. We had urged this approach last week in the wake of the minister's intemperate muscle-flexing - probably for public consumption - over UC Rusal's failure to be definitive about the future of its Alpart and Kirkvine alumina refineries.

Of course, the high cost of energy in Jamaica impacts negatively on industry and has been a major factor in keeping Alpart (1.4 million tonnes) and Kirkvine (610,000 tonnes) closed since the 2008 financial crisis triggered the global economic downturn.

Being in the lower mid-tier of global efficiency makes Jamaica's alumina refineries, as swing producers, better brought on stream during periods of high demand and high prices.

That is a significant part of the context that guided Alcoa's decision on its planned exit from Jamalco, even in the wake of discussion about finding a solution in coal for the energy problems at Jamaica's alumina refineries. But from Alcoa's perspective, time is not on its side, given the major reorganisation that it has been undergoing over the last seven years.

SIGNIFICANT DEVELOPMENTS

There have been two significant developments for companies like Alcoa. The price for aluminium, to which that for alumina is benchmarked, has been falling: by 15 per cent between 2011 and 2013. Even though several firms have taken out production, global output of aluminium has remained relatively robust, given the rise of Chinese production (43 per cent of global) capacity and the rise of independent smelters, mostly in Asia and the Middle East. It has not helped that Chinese growth has slowed.

In the face of these developments, Alcoa has been reorienting the emphasis of its business, from primary to mid- and downstream production, supplying sectors such as the aerospace industry and consumer packaging. The upshot is that since 2007, Alcoa has trimmed its aluminium baseline capacity by more than six per cent to just under four million tonnes, including 675,000 tonnes of which were idle at the end of the 2014 first quarter. Less or idle aluminium capacity translates to less demand for alumina, especially when it's expensive to produce.

If in the face of Alcoa's departure, Noble, a major commodities firm, acquires its 55 per cent and invests in the plant, that would be good for Jamaica. That would be in line with the evolution of the industry, which our Government must discuss frankly.

At one time, there was a company called Alcan, which was subsumed by Rio Tinto. Kaiser is no longer in the primary end of the industry. Who remembers Anaconda, Atlantic Richfield, Alusuisse, or Pechiney?

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