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Norwegian aluminum producer Norsk Hydro ASA (NHY.AU) said Wednesday it is planning to close its Kurri Kurri plant in Australia after failing to turn around the struggling operation.
The plant, located near Newcastle in New South Wales state, employs 344 people and produces about 120,000 metric tons of aluminum a year. The company closed one of three production lines at the operation in January, leading to the loss of 150 jobs.
"The current cash losses are significant, with no sign of improvement any time soon," Hilde Merete Aasheim, vice president of Hydro's primary metal business, said in a statement.
Aasheim said the company is consulting with workers with a view to closing the remaining operations.
Low aluminum prices and an uncertain outlook for demand has weighed heavily on the industry. In Australia, this has been exacerbated by the strength of the Australian dollar. Rio Tinto (RIO) said in March it was reviewing the future of its aluminum operation on the island state of Tasmania, while Alcoa Inc. (AA) said earlier in the year it was reviewing its Port Henry smelter.
Aasheim said it is clear that Kurri Kurri won't be profitable in the short term, while the long-term viability of the plant will be negatively affected by factors including increasing energy costs and the tax on carbon emissions being introduced in Australia this year.
"Despite extensive efforts to improve profitability, we are faced with a very challenging situation at Kurri Kurri," Aasheim said.
Greg Combet, minister for climate change and energy efficiency, said the key uncertainty facing Kurri Kurri has been for the company in trying to reach an agreement with the government of New South Wales state over a long-term electricity supply contract.
"It has long been known that the Kurri Kurri smelter has faced difficulties," Combet said, adding the federal government would work with the company and labor unions to ensure the best outcome for workers and their families.
Norsk Hydro said its customers will be supplied instead through its global supply system if the Australian plant is closed. The operation has a book value of about NOK1.1 billion (US$184 million), it said.
-By Robb M. Stewart, Dow Jones Newswires; +61 3 9292 2094; robb.stewart@dowjones.com
