'too Hot' For Qal Expansion: Alcan

The Age

Thursday December 7, 2006

BARRY FitzGERALD

PROSPECTS for a near-term $1.3 billion expansion of the QAL alumina refinery near Gladstone in Queensland have been dashed by Australia's over-heated development cost base for major resource projects.

The main partner in QAL, Canadian aluminium/alumina giant Alcan, with a 41.4 per cent interest, has identified an expansion of the refinery as one of a number of growth opportunities it has around the world.

But the group's visiting president and chief executive officer for bauxite and alumina, Jacynthe Cote, said that Australia had become a "challenging environment for major projects".

Speaking at the Melbourne Mining Club, Mrs Cote said that an expansion at QAL was an "opportunity we have but we would like to see the local market cool down before proceeding".

Alcan has already endured the pain of sharply rising labour and material costs at the expansion of its Gove bauxite/alumina project near Nhulunbuy in the Northern Territory. To ease the pain, much of the construction was done abroad, with the completed components shipped back for assembly.

Gove ranks as a low-cost producer and Alcan wants to further reduce costs by switching its energy source from oil to gas. That would also reduce plant emissions by 25 per cent. Alcan had hoped to plug Gove in to the PNG-Queensland gas project.

But massive capital cost blow-outs in that project have raised doubts about whether it will proceed. Mrs Cote said that Alcan remained supportive of the pipeline but had given itself six months to make a decision on eight other alternatives.

After correctly predicting that the global alumina market would turn into a surplus by mid-2006, Alcan now predicts that it could take two to three years before the market comes back into balance - another reason why there would be no quick decision on a QAL expansion.

Because of the industry's quick response to oversupply, the price outlook for alumina is not all bad, with Mrs Cote forecasting $US250-$US300 a tonne. That compares with recent spot prices of $US200-$US210 a tonne.

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© 2006 The Age

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