12/11/2008 - 22:00

Financial crisis tightens its grip on WA

12/11/2008 - 22:00

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THE list of global meltdown casualties continue to pile up, with the Western Australian operations of global giants like Alcoa and Rio Tinto among those impacted by financial crisis.

THE list of global meltdown casualties continue to pile up, with the Western Australian operations of global giants like Alcoa and Rio Tinto among those impacted by financial crisis.

Rio Tinto said iron ore production out of WA would be 10 per cent lower than previously projected, while Alcoa put the long-awaited $3 billion Wagerup alumina refinery expansion on hold.

Fortescue Metals Group also revealed its production by the end of calendar 2008 was likely to be about 10 per cent below the 22 million tonne target, further adding to speculation that its full expansion to 55 million tonnes per annum may be in jeopardy.

FMG stated its ramp up to 45mtpa remained on track, though the company conceded its step up to the optimised rate of 55mtpa by the end of the first quarter of 2009 was subject to market conditions.

Rio Tinto revised its WA iron ore export expectations by 10 per cent to about 170-175 mtpa in 2008, following a sharp drop in fourth quarter demand from China.

"We believe this will be a short, sharp slowdown in China, with demand rebounding over the course of 2009, as the fundamentals of Chinese economic growth remain sound," Rio Tinto chief executive Tom Albanese said in a statement.

Alcoa of Australia managing director Alan Cransberg was less enthusiastic about predicting the duration of the current crisis.

"I can't speculate on that," Mr Cransberg said.

"Lots of people are and lots are getting it wrong, I don't want to join that group."

Speaking to WA Business News, Mr Cransberg made it clear that the decision to put the Wagerup expansion on ice was directly related to the economic crisis and not linked to other considerations, such as energy cost constraints, which have been seen as the key obstacle since formal state approval was granted in 2006.

Mr Cransberg said the energy issue would remain on the company's agenda, with exploration and development of potential gas fields continuing.

Staff working on the Wagerup expansion would be absorbed by other parts of Alcoa's operations.

Alcoa produces 11 per cent of the world's alumina out of WA.

While the rest of the Australian operations remained working to capacity, internationally Alcoa has moved to wind back production by as much as 15 per cent of annualised output.

Mr Cransberg said the aluminium giant sought to match production with demand. "We want to be on the front foot so we don't potentially damage our operations," he said.

"We want to do this project, we just have to wait for economic conditions to improve."

But the news has yet to spill over to the engineering sector, with most companies remaining bullish.

GHD's newly appointed chief executive, Perth-based Ian Shepherd, remained bullish about the future, pointing out a number of government infrastructure projects such as the Oakajee port near Geraldton and the desalination plant at Binningup offered new potential work for the sector.

He said it was too early to say whether the financial crisis would affect staff costs and skills shortages, which had plagued the industry and pushed up the cost of high-end projects.

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