Alumina shelves Wagerup expansion

The Alcoa World Alumina & Chemicals joint venture between the pair had been expected to approve development of the refinery expansion next year and to start construction in 2010 after completing a feasibility study.

But those plans were placed in doubt last month when Alcoa began a portfolio-wide review of its growth projects because of to lower aluminium prices.

"We are facing unprecedented economic challenges that require us to rein in capital expenditure and reconsider the timing of our capital projects," said Alan Cransberg, the managing director of Alcoa of Australia.

The 2.1 million tonne a year expansion of the Wagerup refinery would provide an additional $17 billion in export revenues over the life of the project. It received state environmental approvals in September 2006, but rising capital costs during the mining boom led the joint venture to delay making a final investment decision.

The environmental approvals - which were difficult to obtain - will lapse if AWAC does not start significant construction by September 2011.

Alumina's chief executive, John Bevan, would not predict when the project would be revisited. "Eventually it will be a very good expansion," he said. "Now is not the right time."

Earlier this year BHP Billiton approved a $US2.2 billion expansion to its Worsley refinery in WA, which is still proceeding as planned despite the financial crisis and lower short-term demand for aluminium.

Yesterday, Alcoa said it would cut aluminium production by 350,000 tonnes, meaning AWAC would make a corresponding alumina production cut of about 700,000 tonnes. The latest output reduction is in addition to production cuts at the Rockdale smelter and Point Comfort refinery announced last month, meaning Alcoa has now lowered its annual production rate by 15 per cent.

Mr Bevan said the additional alumina cuts would be made at high-cost refineries such as Point Comfort, so WA production was unlikely to be affected.

"[The changes] will have minimal impact on profitability in the short-term," he said.

AWAC's rivals are also struggling due to lower aluminium prices. Rio warned last month it could temporarily close or temporarily cut some of the production capacity in high-cost smelters, lowering its aluminium production by 10 per cent, if the metal price did not recover in the near term.

Last year Rio borrowed $US42 billion to buy the Canadian aluminium producer Alcan, which represented nearly two-thirds of Rio's entire market value of $US66 billion yesterday.