Editorial | Alpart and probable headwinds
The blustery conditions that have developed around the Chinese-owned Alpart alumina refinery in St Elizabeth may well portend dangerous headwinds, of which we hope the Jamaican Government is mindful and has begun to take precautions.
Shorn of the delicate façade in which the Holness administration has attempted to shroud the matter, the 1.4-million-tonne capacity refinery, acquired in 2016 by Jiuquan Iron and Steel Company (JISCO) from Russian Oleg Deripaska’s Rusal Group, Alpart faces the possibility of being shuttered again after less than two years of operation. JISCO’s managers, led by the group’s chairman, Dexin Chin, will let the Jamaican authorities know in a month or so. Alpart had previously been mothballed for nearly decade, following the Great Recession of 2009.
The loss of several hundred current jobs is not the only thing at stake if Alpart’s production is halted. It would also lead to the shelving of plans to double the capacity of the facility, stall the construction of a 1,000-megawatt coal-fired power plant that would allow it to move upstream to smelting aluminium, as well as foreclose of JISCO’s idea for a major industrial park in the vicinity of the plant. In other words, more than US$3 billion in potential investment would be in jeopardy. This is important, given how significant the plant was to economic growth over the last two years.
Decline of alumina
The proximate reason for JISCO’s review of its Jamaica operations, or what they tell the Government, is the decline of alumina on the world markets. As middling operators on the global efficiency scale, Jamaican alumina refineries tend to be profitable when the price is high. And having paid Rusal US$300 million for the plant and poured millions more into rehabilitation, the low prices are taking their toll.
That, however, is only a small part of the story. After all, Alpart’s modernisation and expansion should have addressed this problem. There are also deep Chinese domestic, as well as global, political and economic issues at play, which should cause the Jamaican Government to have a deep and hard look at its economic strategies, including its dependence on China as a source of investment capital.
First, there is a convergence of forces feeding on each other. The US-China trade war, in which Donald Trump has imposed heavy tariffs on swathes of Chinese imports, has caused a slowdown in China’s economy at the same time that Beijing is telling its heavily leveraged companies to be especially strategic in their global forays, mindful of the stress the build-up of debt could place on its markets.
Moreover, with Mr Trump’s attacks on China’s companies, including placing tariffs on aluminium imports, Jamaica, as a prospective leap-off point to the United States, perhaps doesn’t, at this time, seem so attractive to JISCO.
Further, our sense is that Mr Dexin, the new JISCO chairman, represents the new breed of pragmatic operators, willing to take hard-nosed business decisions rather than throwing good money after bad. Indeed, there was a foreshadowing of this sentiment in Liu Chaoyu’s warning last week that her Pan Caribbean Sugar Company, which has been in the island for a decade, couldn’t continue to lose money indefinitely on its Jamaican business.
The slowdown in the Chinese economy, which has been in train for years and has been exacerbated by the trade war, is also likely to accelerate Beijing’s efforts to have its internal market become the major driver of its economy. In the circumstance, China’s Import-Export Bank, which has funded more than US$2 billion of investments and loans in Jamaica in recent years, will probably become more circumspect in its outlay of capital. All of this is complicated by the signs that the Trump-initiated trade wars may be pushing the global economy into recession.
A decade ago, with the Great Recession about to be ignited, the Government of which Prime Minister Andrew Holness was a member declared that it was unlikely to affect Jamaica. We can’t again afford such naiveté.