6 Sep 2012

Commodity producers suffer as prices fall

6:30 am on 6 September 2012

Companies and workers in the raw commodity sector are pessimistic about the future as a cooling global economy forces job cuts and streamlines production.

In the latest job losses, New Zealand Aluminium Smelters, owned by Rio Tinto, announced cuts at its plant near Bluff in Southland on Wednesday, saying they would take effect by November this year.

The cuts were to have occurred over five years through natural attrition, but are now being fast-tracked. Thirty-five jobs have been lost since August last year and a further 65 are expected to go.

The price of aluminium is the lowest it has been since the depths of the global financial crisis, contributing to a $20 million loss at the Tiwai Point aluminium smelter at Bluff, despite its reputation as one of the most efficient in the world.

These difficulties are not confined to the aluminium industry, as the price of copper steel nickel and coal all slide.

Last month state-owned miner Solid Energy announced job cuts and suspended operations at it Spring Creek mine. Chief executive Don Elder said coal prices had taken "a massive dive off a cliff" in early July "that virtually nobody was expecting".

Norske Skogalsoplans to halve production at its newsprint mill in Kawerau. Whakatane mayor Tony Bonne is involved in projects to promote the Eastern Bay of Plenty which he hopes will counter the setback.

"We're not sure now many jobs are going, but if we lose 100 jobs, that's 100 incomes. We're actually going through a process right at the moment, promoting growth in our area because we want to be proactive."

Not all commodities produced by New Zealand are suffering, however, with both gold and oil prices steady.

Gold is at a relatively high $US1700 an ounce and both major gold mining companies are profitable.

And David Robinson, of the Petroleum Exploration and Production Association thinks the oil industry is in quite good heart. "Supply and demand are relatively stable at the moment," he says.

"There's been a resurgence in oil and gas globally. Gas is replacing coal as one of the main fuels for electricity."

Mr Robinson says the future could be a lot better if the industry expands from sole production in Taranaki to include the country's 17 other sedimentary basins with oil potential.