LISTEN: Boyne Smelter to cash in ... if it survives 5 years
IF BOYNE Smelter can survive the next five years it will be able to cash in on the "brightest future of all the metals".
That was the message from the company's general manager Joe Rea yesterday as he kept no secrets from contractors, industry leaders and executives at the annual Gladstone Engineering Alliance industry update.
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Aluminium prices dipped to US$1433 in November, prices only seen before the global financial crisis, and are currently at about US$1500 as China continues to oversupply the market producing more than 50% of the world's aluminium.
But Mr Rea is confident in the future of the commodity as China and India reach consumption levels similar to those seen in the United States during the 1950s.
The living standards in China and India are expected to reach a point where more people are able to afford household items such as washing machines, laptops and phones.
China and India are number one and two respectively for population size in the world with a combined 2.7 billion people.
Mr Rea said if those countries turned into proper consumer societies, the pressure on the smelter here in Gladstone would decrease.
He said that was expected that to happen within the next five years. And so BSL just has to survive the tough times with these low aluminium prices first.
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The low prices are a result of the booming industry of Chinese aluminium smelters, and so reduced demand, which Mr Rea saw on a recent trip to China. The smelters there had their own power stations and coal mines, something he can only dream of as he admitted "electricity prices are killing us".
He said the electricity prices from Gladstone power station weren't hurting his business but for the other 185 mega watts the smelter needed to operate costs were "extraordinarily high and well above how much it costs to generate".
"This is what is pushing our production into the fourth quartile (of aluminium producers in the world)," he said.
His challenge to everyone in the room was to help the smelter cut costs.
And he used the company's initiative for every worker to find $10,000 in savings each year as an example. It has saved the company $30 million in less than four years.
"I tell them everything I've got," he said. "Sharing where we are with the business... because this is about survival. That's why they are behind us and help us."
He said his workers and contractors needed the smelter whereas investors could choose other commodities to trade but the workers needed the smelter for their livelihoods. And he said the smelter was producing the highest quality of aluminium pallets in its 33-year history.
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With too much aluminium on the market the smelter has been forced to improve quality and remove more of the iron impurities.
"Last month 80% of the product was better than 0.1% iron," he said. The previous aim was 0.2% iron. It makes me so proud to work there. We have never done that before and that's the extraordinary things we have to do to survive."
He said the business currently benefited from the low alumina price but he said that was not going to last forever. Which would be good news for Rio Tinto's two alumina refineries and its community relations manager Jeremy Hastings who yesterday also outlined the challenges facing Rio Tinto as a result of the alumina price before Mr Rea spoke.
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These problems were highlighted in The Observer in the last week with lay offs at QAL on February 16 and an operational at Yarwun revealed in yesterday's Observer.
But, Mr Rea explained, the smelter was not in a position to make redundancies.
He said the smelter had been dealing with a downturn since the global financial crisis in 2007/08 and had lost about 10-14 workers a year through natural attrition and about 15 contractors.
It had allowed the plant to look ahead and try and innovate including taking advantage of recycling used aluminium cans which takes 5% of the electricity to turn back into aluminium than alumina does. "It's forced us to think outside of our five year planning window and have a look at 2020," he said.
"We're doing things now that will set us up for mid 2020. Now we're thinking why didn't we do this five years ago."
But he didn't say despite their efforts they were out of the woods just yet.