For Staff Use Only Bauxite Processing in Developing Countries Hideo Hashimoto Division Working Paper No. 1982-2 January 1982 Commodities and Export Projections Division Economic Analysis and Projections Department Development Policy Staff The World Bank Division Working Papers report on work in progress and are circulated for Bank staff use to stimulate discussion and comment. The views and interpretations in a Working Paper are those of the author(s). BAUXITE PROCESOSING IN DEVELOPING COUNTRIES January 1982 Prepared by: Hideo Hashimoto Assisted by: Jasbir Chhabra and Sompheap Sem Commodities and Export Projections Division Economic Analysis and Projections Department Development Policy Staff The World Bank ACKNOWLEDGEMENTS This report is one of a series of case studies for a research project jointly sponsored by the Commonwealth Secretariat and the World Bank on industrial processing of primary products. The author benefited from comments and discussions given on earlier drafts by the participants in the research project. He also would like to acknowledge the-assistance rendered to him during the field work by goverrnment officials and industry experts in the United States, Canada, Western Europe, Japan, Jamaica and Brazil. Finally, but not the least, thanks are due to Mrs. Jasbir Chhabra and Mr. Sompheap Sem for their valuable research assistance, and Ms. Pamela Sawhneyy Ms. Paula Earp and the Word Processing Unit for their patience in typing the various drafts and proofreading. TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS .......................................... vi I. INTRODUCTION .................... ............... 1 II. BACKGROUND OF THE INDUSTRY ................................... . 3 A. From Bauxite to Aluminum Products ................... 3 1. Bauxite (Mining and Ore Treatment) ......................3 2. Alumina (Refining) ......................... 6 3. Aluminum (Smelting) ........................... 6 4. Mill Products and Finished Products . . 7 B. Production, Trade and Degree of Processing- 7 1. Bauxite .............7........................ 7 2. Alumina ...................... 9............. 9 3. Aluminum ........... ....... .................. 11 4. Degree of Processing ......................... . .12 C. Market Structure .................... ; ................ 15 III. ECONOMICS OF THE LOCATIONAL PATTERN OF BAUXITE PROCESSING .................................... 20 A. From the Mid-1950s to the Mid-1970s ................. 20 1. Introduction ....................................20 2. Aluminum Smelting ........................ 23 3. Alumina Refining .............................. 33 B. Developments Since the Mid-1970s ..................... 38 1. Introduction .................................. ........38 2. Aluminum Smelting ......................... 39 a. Changes in Locational Factors ............. 39 b. New Locations for Aluminum Smelting 42 Page No. 3. Alumina Refining ......... ... .......... 43 a. Changes in Locational Factors ............ 43 b. New Locations for Alumina Ref5ining ........ 47 IV. MACRO-ECONOMIC EFFECTS OF BAUXITE PROCESSING ..... 49 A. Foreign Exchange Earnings .... ................... . .l. 49 B. Generation of GDP * ................0 ................ 56 C. Employment Creation o ............. . ........... 61 D. Other Impact ..................* ....... 61 1. Greater Participation in Management and Operations ........................... 61 2. Gains by Non-Integrated Manufacturers.......... 61 3. Technology Transfer ... .............. . .......... 64 4. Regional Development .* .............. *........ 64 V. ISSUES AND POLICY RECOMMENDATIONS ................ 65 Annex Tables ........... .................................... 67 References ............ . . ... 97 List of Tables Page No. 2.1 Products and Raw Materials by Processing Stage .................... 4 2.2 Reserves, Production and Trade of Bauxite, 1978 .................... 8 2.3 Production and Trade of Alumina, 1978 ............................. 10 2.4 Production and Trade of Aluminum ................................. 13 2.5 Degree of Bauxite Processing into Alumina and Aluminum in Bauxite-Producing Countries, 1978............................. 14 2.6 Degree of Alumina Processing into Aluminum in Alumina- Producing Countries, 1978........................................ 16 2.7 Percentage Share of the Majors in Bauxite/Alumina/Aluminum Production Capacities in Market Economies, 1977 ......... .....17 2.8 Percentage Share of Intra-Company Transfers and Open- Market Sales of Bauxite and Alumina, 1976 ...................... 18 3.1 Production of Aluminum 1900-1950 ................................. 21 3.2 Electricity Sources for Aluminum Smelting in Market Economies, 1955 and 1974, and Increases in Electricity Consumption for Aluminum Smelting by Type of Electricity Source, between 1955 and 1974................................. 22 3.3 Production Costs of Primary Aluminum in US, 1949-1980 .............25 3.4 Percentage Share of Electricity Sources in Aluminum Smelting in Selected Countries, 1974 ............................ 26 3.5 Comparison of Electricity Rates Charged to Aluminum Industry and to Other Large Commercial Users 1955-1977 ...................................................... 28 3.6 Import Tariff Rates of Aluminum in Selected Areas, 1965, 1974 and 1980............................................ ..30 3.7 Aluminum Production Capacity by Type of Company, 1960 and 1974............... ...................... 31 3.8 Estimated Freight Rates for Bauxite and Alumina, 1973 and 1980 ................................................... 35 3.9 Alumina Costs at US Smelters, 1973 ......................... ...... 36 3.10 Percentage Share of Alumina Production by Type of Country... ........................................ 1.........37 - iv - Page No. 3.11 Cost Models of Primary Aluminum, 1980 ............................ 40 3.12 Electricity Rate in Selected Countries, 1977 ................... 41 3.13 Projected Expansion of Smelting Capacities, 1979-1984 ........... 44 3.14 Production Costs of Alumina, 1973-1980..............*.*............ 45 3.15 Projected Expansion of Alumina Refining Capacities, 1979-1984..............................*................*. ........ 48 4.1 Percentage Share of Bauxite, Alumina and Aluminum in Total Exports in Selected Countries, 1979 .....................50 4.2 Export Unit Value of Bauxite, Alumina and Aluminum, 1955-1980 .................................. .......... 52 4.3 Ratio of Export Unit Values between Bauxite, Alumina and Aluminum, 1955-1980 ............................... 53 4.4 Estimated Gross and Net Foreign Exchange Earnings from Bauxite Mining, Alumina Refining and Aluminum Smelting Combined, 1980... ..................* .................. 55 4.5 Estimated Effects on Foreign Exchange Earnings from Investments in Production Activities at a Higher Level of Processing........ ................ t.................. 57 4.6 Share of the Bauxite/Alumina/Aluminum Sector in Total GDP in Selected Countries, 1979 ......................... 58 4.7 Estimated Components Generated from Bauxite Mining, Alumina Refining and Aluminum Smel-ting, 1980. ............ 59 4.8 Estimated GDP Generated from Bauxite Mining, Alumina Refining and Aluminum Smelting and Annual GDP Increments Derived from One Dollar of Investment in B/A/A ...... *e*@@@@e*4*-----*-**--*-***-*-eee***.............o.............................. 60 4.9 Labor Force of the Bauxite/Alumina/Aluminum Sector in Selected Countries .......4*........... * 0 ......... 62 4.10 Direct Employment and Required Capital Costs of Selected Bauxite Mining, Alumina Refining and Aluminum Smelting Projects ..................................... 63 List of Figures Page No. 2.1 Flow Diagram of the Processing Chain................................ 3.1 Start-Up Year of Aluminum Smelting in New Areas .................... 32 3.2 Start-up Year of Alumina Refining in New Areas ..................... 34 - vi - / SUMMARY AND CONCLUSIONS Induced by the increasing oil prices since 1974, a geographical restructuring of bauxite processing (i.e., alumina refining and aluminum smelting) is under way in a wholesale manner. Because sources of low-cost electricity have been largely exhausted in many industrialized countries, aluminum companies are now actively seeking locatiQns for bauxite processing in non-traditional areas. Countries endowed with resources (bauxite and/or electricity) are also showing a strong interest in developing processing activities in their domains. In consideration of these developments, the paper intends (1) to analyze locational determinants of bauxite processing in a historical perspective, (2) to assess gains and losses from bauxite processing and (3) on the basis of these analyses, to examine the policy options that would promote bauxite processing in resource-endowed developing countries. Before the mid-1950s, the world aluminum industry had developed in connection with the importance of war supplies. It also-relied heavily on hydro-electricity, which required huge funds for its development. As a con- sequence, government assistance to the aluminum industry was a predominant feature in this period, and as a result, the choice of locations for bauxite processing was affected by the major industrialized powers' concerns for their national security. However, since the mid-1970s, the rapid increase in demand for aluminum has been related largely to peaceful uses, and electricity sources for aluminum smelting have become diversified, particularly because of the increasing availability of easily transportable oil. As a result, choices of locations for bauxite processing were left increasingly to the private sector, in particular the six multinational corporations (the majors in short). These corporations, which were able to take advantage of vertical integration, could locate production facilities to minimize total costs for their operations, given market imperfections and distortions. H4ost new smelters in this period were developed near areas where demand for aluminum grew fast', while alumina refining showed a move away from the smelter- oriented location to the mine-oriented location, largely because of the weight-saving effect of processing. * Two rather new phenomena since the mid-1970s are relevant to the subject. The first is the sharp increase in oil prices, which have enlarged differentials of electricity rates among different sources of electricity for aluminum smelting. Low opportunity-cost electricity has become the most influential factor in determining new locations for bauxite processing. Because sources of such electricity have been largely exhausted in many industrialized countries, many aluminum companies are now actively seeking locations endowed with it, mostly in non-traditional areas such as Australia and some develoDing countries. Also of increasing concern to the aluminum companies are economic and non-economic uncertainties, which are naturally greater in non-traditional areas than in traditional areas. How to quantify these uncertainties in their cost-minimizing scheme is one of the major issues facing those companies. - vii - The second phenomenon, the increasing influence of resource-endowed countries in the aluminum industry's decision making, is also qualifying the aluminum companies' cost-minimization principle in selecting locations for bauxite processing because of the following two reasons. First, costs of resources such as bauxite and electricity cannot any longer be treated as given; instead, they are now dependent upon the pricing policies of those countries. Second, when the majors were sole agents of bauxite processing and provided most of the resources (particularly financial resources and technology) to host countries, cost-competitiveness in international markets could be the criterion for locating bauxite processing. However, with more active participation in processing activities, host countries now cannot avoid the problem of dividing scarce resources among competing economic activities. The cost-competitivness criterion alone is not sufficient to justify further downstream processing of bauxite and countries must ask whether development of other economic activities would be more beneficial. In consideration of the increased importance of the welfare context of baunite processing in host countries stated-above, a brief study is made. The study, however, will be limited to an analysis of only direct effects of further processing on such macro-economic measurements as foreign exchange earnings and employment creation in a rather general form. The complete analysis is left to a further study. Given that industrialized countries are involved in building a large portion of the new refineries and smelters in developing countries, two policy recommendations are made. The first is formation of a joint venture/consortium to carry out a refining/smelting project with the active participation of international agencies as coordinator. With such an arrange- ment, rather than with a completely foreign-owned subsidiary, the host country can have a greater chance to make the project compatible with its national objectives. At the same time, investors from industrialized countries can diversify risks. The participation of international agencies in such a joint venture/consortium would add to the stability of the relationship between the participating host country and foreign companies. The second recommendation is the establishment of equitable formulas of electricity pricing. Although pricing of electicity has always been a complicated problem throughout the history of the aluminum industry, it has become a more important issue since oil prices started to rise. The increased uncertainties about electricity rates are one of the most important problems keeping foreign companies from moving into new areas. International financial agencies, which work with more than one country and overlook developments in more than one sector, can play a useful role in establishing formulas that could be acceptable to both aluminum smelters and power suppliers. I. INTRODUCTION 1.01 The purpose of this study is (1) to analyze the locational determi- nants of bauxite processing, namely, alumina refining and primary aluminum smelting, (2) to assess gains and losses from bauxite processing; and (3) on the basis of these analyses, to examine the policy options that would promote bauxite processing in resource-endowed developing countries. 1/ The processing chain examined in this report covers bauxite mining, alumina refining and primary aluminum smelting. Aluminum fabrication and secondary aluminum smelting (i.e., smelting from aluminum scrap) are not treated as the major part of the study. (Hereafter, aluminum smelting is referred to as primary aluminum smelting, unless otherwise stated.) 1.02 Unlike the processing of the other products (mainly tropical products) dealt with in the research project undertaken by the World Bank and the Commonwealth Secretariat, bauxite processing in developing countries pre- sents at least two unique complexities. First, industrialized countries have always been among the major bauxite producers. France led the world in bauxite production before 1940, the US was the world's largest producer in the mid- 1940s and Australia has been leading the world since 1971. Thus, promotion of further downstream processing in bauxite-endowed countries is not synonymous to promotion of processing in developing countries. Second, aluminum smelting consumes a large amount of electricity. Electricity cost constitutes a large portion of aluminum production costs. It may well be said that aluminum smelting has two primary resources: bauxite and electricity. Promotion of downstream processing in resource-endowed countries can, thus, go in two potential directions: to countries endowed with bauxite and/or to those with electricity. 1.03 During the 1970s, the aluminum industry underwent structural changes. The share of the multinational aluminum companies (the majors, in short) 2/ in world bauxite processing decreased and local enterprises (state-owned/ private/joint ventures with foreign companies) in developing countries became more directly involved in bauxite mining and processing. When the majors were sole agents of bauxite processing and provided most of the resources (particularly financial resources and technology) to host countries, cost- competitiveness in international markets was the criterion for locating bauxite processing. However, with more active participation in processing activities, host countries are now squarely faced with the prcblem of divid- ing scarce resources among their competing economic activities. The cost- competitiveness criterion alone is not sufficient to justify bauxite process- ing. It must also be asked whether further downstream processing of bauxite 1/ In accordance with the definitions of economic regions in this research project, Southern European countries are classified as industrialized countries throughout the paper. 2/ Aluminum Company of America (Alcoa), Reynolds Metals Company, Kaiser Aluminum and Chemical Corporation, and Alcan Aluminium Ltd. in North America; Aluminium Pechiney and Swiss Aluminium Ltd. (A.lusuisse) in Western Europe. -2- benefits a given country more than other economic activities4 This paper first analyzes cost-competitive locations, given input costs and market imperfections, and then deals with the macro-economic effects of bauxite processing. 1.04 As shown later, cost positions differ greatly among different pro- jects and macro-economic effects also vary among different countries. Con- sequently, this report does not provide country-specific or project-specific analyses; instead, it aims at providing a general framework to analyze bauxite processing on the basis of the two criteria mentioned above: cost-competi- tiveness and relative economic benefits. 1.05 Chapter II provides basic information on the technological and economic aspects of bauxite/alumina/aluminum (B/A/A, hereafter). Chapter III analyzes, in a historical context, how the cost-competitive locations are determined. Chapter IV examines effects of further downstream processing of bauxite in a macro-economic context. Finally, Chapter V examines the policy options of developing countries endowed with bauxite/electricity and attempts to put forward recommendations that could increase over time the degree of processing in those countries. -3- II. BACKGROUND OF THE INDUSTRY A. From Bauxite to Aluminum Products 2.01 Aluminum is the most abundant metallic element in the earth's crust, occurring in various forms. It never occurs in the metallic form in nature and requires a large quant�ty of electricity to be separated from other elements. The primary raw material for aluminum is bauxite, which is first processed into alumina. To produce one ton of alumina, 2.0 - 2.5 tons of bauxite are required. Then, alumina is processed into aluminum by electrolysis. About two tons of alumina are required to produce one ton of aluminum. 2.02 This section provides a brief description of each processing stage from bauxite to aluminum products. The major inputs of each stage are shown in Table 2.1 and a flow chart is in Figure 2.1. 1. Bauxite (Mining and Ore Treatment) 2.03 Bauxite is a rock that consists mainly of aluminum hydrate or hydroxide minerals. The types of bauxite used for alumina are (i) tri- hydrate, consisting chiefly of gibbsite, A1203. 3H20; (ii) monohydrate, consisting chiefly of boehmite, A1203 . H20; and (iii) mixed bauxite, consisting of both gibbsite and boebmite. Most deposits of gibbsitic bauxite are in the tropics, while those of boehmitic bauxite occur chiefly in Southern Europe, the USSR and China. Most alumina plants have been designed to consume a specific type of bauxite and costly adjustments are required when the type of bauxite is changed. 2.04 Wide variations occur in the location, size, shape and depth of the deposits. Some of them allow open-pit mining, while others require underground mining. The accessibility of mines from ports substantially influences costs of the infrastructure. Most of the bauxite that is mined does not require costly beneficiation techniques to improve ore quality. Most bauxite, however, is upgraded by crushing, washing or wet screening, and drying. 2.05 Currently, there are no substitutes for bauxite in alumina refining on a commercial basis except for the Kola Nepheline used in the USSR. Aluminum companies, however, have been heavily engaged in developing substi- tutes for bauxite. Laterites, clays, anorthosites, nephline syenite, dawsonite and alunite are candidates. Actual substitution depends not only on technologital developments but also on economic conditions, particularly bauxite pricing. Table 2.1: PRODUCTS AND RAW MATERIALS BYI PROCESSING STAGE Raw Materials Processing Stage Products: SITC /a Major Raw Materials Secondary Raw Materials Bauxite mining and treatment Dried bauxite: 287.31 /b Refining Alumina: 287.32 /c Bauxite Caustic soda, lime Smelting Aluminum ingots: 684.1 Id Alumina Fluorspar, cryolite, petroleum coke, pitch Fabricating Aluminum products: 684.2 /e Aluminum ingots (rolling and extrusion) Bars, rods, angles, shapes, and wire: 684.21 Plates, sheets and strip: 684.22 Foil: 684.23 Powders and flakes: 684.24 Tubes, pipes and blanks thereof, hollow bars: 684.25 Tube and pipe fittings: 684.26 /a SITC, Revision 2. /b Aluminum ores and concentrates. /c Alumina (aluminum oxide). Aluminum hydroxide is listed under item 522.56. In the previous SITC, both comprised item 513.65. /d Aluminum and aluminum alloys, unwrought. /e Aluminum and aluminum alloys, wrought. -5-� Figure 21: FLLW DIAGRAM OF THE PROCESSING CHAIN. BAUXITE (4 6 tons) Caustic Soda, , - . (.8 ton) DIGESTED WITH CAUSTIC SOOA UNDER PRESSURE ,2 SODIUM ALUMINATE SOLUTION RED MUO SEPARATED BY FILTRATION (UNOISSOLVED MATERIALS) CAUSTIC SODA -i, SOLUTION ALUMINA HYDRATE RETURNED TO PRECIPITATED A12033H20 PROCESS f uel Oil ----- Akwimimo CALCINED TO ALUMINA Pitch Trihydratm, A 1203 Sulphur- Aluminum-Fluoride. 12 tons) (,55 ton) ..t1otn). F w4 (.04ton) (2tons (.03 tonl ). - - . I . . CR-YQ ITS. A1203 IS DISSOLVED IN FUSED CARBON Cryoii CRYOLITE BATH AND TEDUCED ELECT;ROOES -aATH ELECTROLYTICALLY - . Is . .,,= t .(60 ton). | Electricity F--.- - -- Cwkir C" f urme Lining }+Pitch, (15,40O-1t160-;KWH), Tar SECONDARY SMLTERS PRIMARY ALUMINUM INGOT s- -w - - - ' |ANDO BILLET |1 3 1 - -& S -,(I ton) | } |PROMPT j . i SCPRAP- 5 .| MILL PROOUCTS PROMPT jl III11. SHEET' ANO PLATE | SCRAP � , }SECONOARY' 2- POIL.| ..I -10.. INGOT'ANO- 3. ROD, BAR, WIRE ANO CABLELE................... | SL LLE7 4I E-1 XTRUDEO PRODUCTS I OL INAL USERS --'|OL | -SECONtOARY | FABRICATO'RSANO . | i NGOT rnCASTERSI Source: U.S. Council on Waga and Price Stability, Aluminum Prics* 1974-75, p.S. Alcan Jamaica Ltd.., 1The-Aluminum Industry,.in Brief. World Bank-23703 -6 2.06 About 85% of bauxite mined is used to produce aluminum and 15% for other purposes', The latter breaks down into 60% for various chemical applications and 40% for cement, refractories and abrasives. 2. Alumina (Ref ining) 2.07 Practically all the world's alumina production is still produced by the Bayer process and its variation. The only other process used on a commercial scale is the Pedersen process, used in Norway and the USSR. The Bayer process consists of the following four stages: (i) Digestion. Bauxite is dissolved with caustic soda, under high pressure and heat, to form sodium aluminate. (ii) Filtration and Settling (Clarification). Iron oxides and other solid impurities are dropped to the bottom of the settling tanks, as red mud, which is then pumped to a disposal pond. (iii) Precipitation. The liquid sodium aluminatd is agitated and seeded with aluminum hydroxide crystals in order to form larger crystals, which gradually settle out of the solution. (iv) Calcination. The aluminum hydroxide crystals are roasted at more than 10000C to remove the water. 3. Aluminum (Smelting) 2.08 Aluminum is produced from alumina by electrolysis, still using the Hall-Heroult process developed in 1886. Electrolysis of alumina (purer than 99.5% in A1203) takes place in a molten bath of natural or synthetic cryolite (Na3AlF6). The electrolytic reduction cells consist of (1) a carbon-lined box containing a pad of molten aluminum (which serves as the cathode), (2) a carbon anode, and (3) the molten cryolite electrolyte. Cryolite and aluminum fluoride are added to electrolyte to maintain the desir- able ratio of sodium and aluminum fluoride and to replace lost fluoride. The anode, which is consumed during the operation, is replaced by the Soderberg ciuntinuous method or the prebaked method. The electrolysis consumes about 14,000 KWH to 16,000 KWH of electricity to produce one ton of primary aluminum. 2.09 Primary aluminum, which is produced by the above-mentioned process, accounts for about 80% of total aluminum consumption; the balance is made up by aluminum scrap, or secondary aluminum. Prospective increases in aluminum prices are likely to prompt more scrap uses. -7- 4. Mill Products and Finished Products 2.10 Molten aluminum can be cast into ingots or used directly at adjacent rolling mills. Most ingots are shipped to independent or smelter-affiliated fabricators. Ingots, molten aluminum and aluminum scrap with alloying materials are transformed into so-called mill products. These are largely classified into three categories: (i) Sheets, plates and foils. (ii) Extruded shapes and tubes. (iii) Other products (rod, wire, cable, forgings, impacts and powder). 2.11 Mill products are consumed as parts of other goods in the automotive, airplane, electrical and other industries, or made into finished products such as residential siding, cooking utensils, aluminum cans, fasteners and closures,@, B. Production, Trade and Degree of Processing 1. Bauxite 2.12 Reserves of bauxite (reserve base 1/) are estimated at about. 23 billion tons. 2/ With bauxite consumption at the 1978 pace (85 million tons), the currently known reserves would last more than 250 years. Geo- graphically, about 90% of bauxite reserves is found in tropical regions and the balance is in the temperate zone (Table 2.2). By economic region, about 70% is found in developing countries, and about 25% in industrialized coun- tries. Centrally planned countries account for less than 5%. The bulk of reserves is in West Africa (Guinea and Cameroon), Australia, Brazil and the Caribbean region (Jamaica, Guyana, Surinam and Venezuela). Among these countries, Cameroon and Venezuela are not engaged in production. 2.13 Throughout the 1970s the relative importance of developing countries in world bauxite production decreased, owing to the stagnation 1I/ That part of an identified resource that meets minimum physical and chemical requirements related to current mining and production practices, including those for grade, quality, thickness and depth, regardless of currenit economic requirements related to extraction and marketing methods. The reserve base is the in-place part of the demonstrated (measured plus indicated) resource from which reserves are estimated. It encompasses those parts of the resources that are likely to be economically available within a long-term planning frame; that is, those that are currently economic (reserves) and marginally economic (marginal reverses), as well as some of those that are currently subeconomic (sub-economic resources). (The US Bureau of Mines, Mineral Commodity Summaries, 1980, p. 188). 2/ Ibid. Table 2.2: RESERVES, PRODUCTION AND TRADE O BAUJXITE, 1978 Region Reserves /a Production Exports Imports Qoantity Percentage quantity Percentage quantity Percentage Quantity Percentage Share Share Share Share (Million (Thousand (Thousand (Thousand tons) tons) tons) tons) Developing 16,120 70.9 39,302 46.5 .23,221 70.3 256 .7 Caribbean /b 3,870 17.0 21,691 25.7 11,602 35.1 15 .1 Guinea 6,500 28.6 12,065 14.3 9,168 27.8 - - Others 5,750 25.3 5,546 6.7 2,451 7.4 241 .7 Industrialized 5,810 25.6 33,627 39.8 9,115 27.7 29,480 85.2 Australia 4,600 20.2 24,301 28.7 6,422 19.5 40 .1 US 40 .2 1,669 2.0 101 .3 14,288 41.3 Others 1,170 5.1 7,657 9.1 2,592 7.9 15,192 43.9 Ceantrally Planned 800 3.5 11,600 13.7 673 2.0 4,861 14.1 TOTAL 22,730 100.0 84,528 100.0 33,009 100.0 34,597 150 .0 /a Reserve base (See footnote of p. 10). /b Irnluding Venezuela and Costa Rica. - Heans zero or negligible quantity. Sources: US Bureau of M4ines, Mineral C ditySumries, 1980, for reserves; Hetallgesellschart, Metal Statistics, 19 8, for production; UNCTAD for trade. -9- in the production of Caribbean countries and the rapid increase in Australia's production. In 1978, developing countries accounted for 46% of world bauxite production, industrialized countries 40% and centrally planned economies 14% (Table 2.2). 2.14 Since 1971, Australia has been the world�s largest producer, followed by Guinea. The Caribbean countries (Jamaica, Surinam, Guyana, Haiti and Dominican Republic) are still important producers and their total production in 1978 was just below Australia's. Outside the Caribbean region, Brazil's production is increasing rapidly. In West Af rica, Sierra Leone and Ghana follow Guinea in bauxite production quantity. Other major producing regions are South and Southeast Asia (India, Indonesia and Malaysia) and Southern Europe (Greece, Yugoslavia, Turkey, Hungary and Romania). The US, France, the USSR and China also produce a significant amount of bauxite. 2.15 In 1978, developing countries accounted for 71% of world bauxite exports, industrialized countries for 27%, and centrally planned economies for only 2% (Table 2.2). The largest exporter was Guinea, followed by Australia and Jamaica. These three countries made up two-thirds of world bauxite exports. Other Caribbean bauxite-producing countries also export significant amounts. Outside the Caribbean region, major exporters are Greece, Yugoslavia, Indonesia, Malaysia, Sierra Leone and Ghana. 2.16 Industrialized countries are major importers of bauxite. In 1978, they accounted fcr 85% of world bauxite imports, and centrally- planned economies for 14% (Table 2.2). The developing countries' share was less than 1%. Major bauxite importers are the US, Japan, the Federal Republic of Germany, Canada, France, Italy and the USSR. 2. Alumina 2.17 Although bauxite-producing developing countries have increased their relative weight in alumina production, industrialized countries are still the major alumina producers, accounting in 1978 for two-thirds of world production (Table 2.3). The balance was shared equally by developing countries and centrally planned economies. Australia and the US are by far the largest alumina producers. In 1978, their shares in world alumina production were 22% and 20% respectively. Other major alumina producers among the industrialized countries are Japan, the Federal Republic of Germany, France and Canada. Most of them rely on imported bauxite. Jamaica, Surinam, Guinea and Guyana are major alumina producers among the developing countries. In 1978, these four countries together accounted for 14% of world alumina prnduction. 2.18 To examine the relative importance of the mine-oriented versus the smelter-oriented location of alumina refining, alumina production - 10 - Table 2.3: PRODUCTION AND TRADE OF ALUMINA, 1978 Production Exports Imports Region Quantity Percentage Quantity Percentage Quantity Percencage Share Share Share (Thousand (Thousand (Thousand tons in tons in tons in aluminum. aluminum aluminum equivalent) equivalent) equivalent) Bauxite-producing: 12,664 82.2 6,368 92.2 2,634 39.1 Developing 2,552 16.6 2,090 30.3 240 3.6 Caribbean /a 1,826 11.9 1,770 25.6 - - Guinea 311 2.0 310 4.5 - - Others 416 2.7 10 .1 240 3.6 Industrialized 7,604 49.4 3,928 56.8 2,027 30.1 Australia 3,381 22.0 3,187 46.1 3 0.1 Us 3,083 20.0 437 6.3 1,981 29.4 Others 1,134 7.4 304 4.4 43 .6 Centrally Planned 2,508 16.3 349 5.0 367 5.4 Non-bauxite producing: 2,737 17.7 540 7.8 4,106 60.9 Developing 26 .2 - - 572 10.0 Industrialized 2,642 17.1 540 7.8 3,222 47.8 Centrally Planned 69 .4 -- - 212 3.1 TOTAL 15,401 100.0 6,907 100.0 6,740 l0O.O Memo Item Both bauxite & aluminum-producing countries 7,770 50.4 1,688 24.4 2,630 39.0 Bauxite-producing but non-aluminum producing countries./b 4,894 31.8 4,680 67.8 16 .2 Noa-bauxite- producing. but aluainum-producing countries 2,737 17,8 539 7.8 4,094. /c. 60.8 /a. Including. Venezuela. /b Australia is included in this category. /c A small quantity of imports for non-aluminum smelting by countries that produce neither bauxite nor aluminumwis included.. - Means zero or negligible quantity. Sources: Metallgesellschaft., Metal Statistics, 1978) for production; UNCTAD for trade. was divided by type of country with respect to bauxite and aluminum production. 1/ In 1978, 50% of world output of alumina was accounted for by countries that produced both bauxite and aluminum. (This group include the US, the USSR and France.) Bauxite-producing but non-aluminum- producing countries (mine-oriented locations) accounted for 32%, while non-bauxite-producing but aluminum-producing countries (smelter-oriented locations) accounted for only 18%. (The historical change in the relative importance will be discussed in Section III.) 2.19 The bulk of alumina is exported from Australia and bauxite-producing- developing countries. In 1978, Australia accounted for 46% of world alumina exports and the four major bauxite-producing developing countries (i.e., Jamaica, Surinam, Guinea and Guyana) accounted for 30% (Table 2.3). The balance came from France, Greece, Yugoslavia, Hungary, other European coun- tries, and the US. (But the US is a net importer with a significant deficit.) By economic region, developing countries accounted for 30% of world alumina exports. Industrialized countries accounted for 65% and the centrally planned economies' share was only 5%. 2.20 Major importers are the US and both industrialized and developing countries that are engaged in aluminum smelting without domestic bauxite resources. In 1978, the US accounted for about 30% of world alumina imports and other industrialized countries for 48% (Table 2.3). The largest importer in 1978 was the US, followed by Norway, Canada, Japan, the UK and the Nether- lands. In the same year, centrally planned economies accounted for 12% of world alumina imports and developing countries for 10%. Except for Surinam, Brazil, India and Taiwan, the other ten aluminum-producing developing coun- tries totally rely on imported alumina. 2/ 3. Aluminum 2.21 Although the importance of developing countries in aluminum produc- tion has increased remarkably in the last quarter century, industrialized countries still play a dominant role. In 1978, industrialized countries accounted for 71% of world aluminum production, while developing countries accounted for 8% and centrally planned economies for 20% (Table 2.4). The US is the largest producer, with 30% of world production iL 1978, followed by the USSR (16%), Japan (7%), Canada (7%), the Federal Republic of Germany (5%) and Norway (4%). Currently, 14 developing countries are engaged in aluminum 1/ In this computation, Australia is classified as a bauxite-producing but non-aluminum producting country, because its alumina production is aimed largely at exports, not domestic smelting, although it started smelting in 1955. Australia processed only 8% of its alumina for domestic smelting in 1978. 2/ Surinam, Brazil and India produce a significant amount of alumina for domestic aluminum smelting from their own bauxite. The Province of Taiwan, China, is the only aluminum-producing developing country that produces alumina totally from imported bauxite. - 12 - smelting, the largest producers of which are India, followed by Brazil, Bahrain, Ghana and Egypt. 2.22 From the viewpoint of the relation between bauxite endowment and aluminum smowlting, bauxite-producing countries altogether accounted for about 60% of world aluminum production in 1978 and non-bauxite-producing countries accounted for 40% (Table 2.4). If net importers of bauxite (namely, the US, France, the USSR and China) had been excluded from the group of bauxite-producing countries, the percentage of 1978 production would have been only about 10%, although it '.ad increased remarkably from 2% in 1955. 2.23 Industrialized countries accounted for 89% of the aluminum exports of market economies (i.e., world minus centrally planned economies) 1/ and developing countries for 11% (Table 2.4). On the other hand, industrialized countries accounted for 91% of aluminum imports, while developing countries accounted for 9%. By country, the major industrial countries such as the US, Japan and the Federal Republic of Germany are net aluminum importers. The largest net importer in 1978 was Japan, followed by the US. Among developing countries, the Republic of Korea and Brazil are net importers with a fairly large amount of deficit. Fifteen countries were net exporters in 1978. Among them, bauxite-producing countries (largely Greece and Australia) accounted for only 15% of total exports. The balance, 85%, was exported by non-bauxite producing countries such as Canada, Norway, the Netherlands, Bahrain and New Zealand (in order of net export quantities in 1978). Surinam, Ghana and Cameroon also exported a significant amount of aluminum. 4. Degree of Processing 2.24 To examine the degree of bauxite processing in bauxite-producing countries, three ratios are calculated for each region. These are ratios of alumina production to bauxite production, aluminum produiction to alumina production and aluminum production to bauxite production. 2.25 The first set of ratios (alumina/bauxite) indicates that bauxite- producing developing countries as a whole processed 36% of domestic bauxite into alumina in their regions in 1978 (Table 2.5). However, the ratios for individual countries show a large variance in the degree of bauxite processing into alumina between non-aluminum-producing (Jamaica, Guyana and Guinea) and aluminum-producing developing countries (Surinam, Brazil, India and Ghana). 2/ The former countries processed only 26% of their bauxite, while the latter processed 68%. The larger figure is roughly comparable to the percentage processed by Australia and even higher than that in Southern Europe. Hungary and Romania processed 91% of their bauxite into alumina. Other major bauxite- producing countries, i.e., the US, France, the USSR and China produce more alumina than their domestic bauxite yields, therefore making them rely heavily on imported bauxite. 1/ Complete trade figures for centrally planned economies are not available. 2/ Ghana produces bauxite and aluminum, but not alumina. If Ghana is excluded from this group, the corresponding ratio would be 70%. Table 2.4: PRODUCTION AND TRADE OF ALUMINUM Production Exports Imports Region _ . ._._.._ _ Quantity Percentage Quantity Percentage Quantity Percentage Share Share Share (Thousand (Thousand (Thousand tons) tons) tons) Bauxite-producing: 8,755 59.8 664 18.7 1,100 31.6 Developing 562 3.8 171 4.8 81 2.3 Industrialized 5,368 36.7 493 13.9 1,019 29.3 US 4,358 29.8 102 2.9 686 19.7 Others 1,010 6.9 391 11.0 333 9.6 Centrally Planned 2,824 19.3 N.A. N.A. N.A. N.A. Non-bauxite-producing: 5,886 40.2 2,882 81.3 2,377 68.4 Developing 602 4.1 218 6.1 219 6.3 Industrialized 5,069 34.6 2,664 75.1 2,158 62.1 Centrally Planned 215 1.5 N.A. N.A. N.A. N.A. TOTAL 14,641 100.0 3,546 100.0 3,477 100.0 N.A. Data are not available. Sources: Metallgesellschaft, Metal Statistics, 1978 for production; World Bureau of Metal Statistics, World Metal Statistics (various issues) for trade. - 14 - Table 2.5: DEGREE OF BAUXITE PROCESSING INTO ALUMINA AND ALUMINUM IN BAUXITE-PRODUCING COUNTRIES, 1978 Region Ratio of Alumina Production Ratio of Aluminum to Bauxite Production Production to Bauxite Production Developing .36 .08 Aluminum-producing /a .68 .38 Non-aluminum-producing /b .26 0 Industrialized 1.24 .92 Australia .76 .06 US 10.14 15.08 France 1.69 1.14 S. Europe /c .51 .36 Centrally Planned 1.19 1.41 Hungary and Romania .91 .91 USSR and China 1.31 1.88 /a Surinam, Brazil, Ghana and India. /b Jamaica, Guyana and Guinea. /c Yugoslavia, Greece and Turkey. Source: Derived from Tables 2.2, 2.3 and 2.4. - 15 - 2.26 The second set of ratios (aluminum/alumina) also shows substan- tial differences in the degree of processing alumina into aluminum among bauxite-producing countries. In 1978, Australia domestically processed only 8% of alumina into aluminum (Table 2.6). At the other extreme were the US, the USSR and China, which together produced about 50% more aluminum than their domestic alumina yielded, causing them to rely heavily on imported alumina. The ratios for other bauxite-producing countries (Hungary and Romania, the aluminum-producing developing countries, and France and Sou.thern Europe) ranged from 47% to 72%. Incidentally, the ratios for non-bauxite- producing countries (particularly developing countries) are high, implying a high degree of dependency on imported alumina. 2.27 The third set of ratios (aluminum/bauxite), which are products of the first and second, indicates that developing countries as a whole in 1978 processed only 8% of their domestic bauxite through ali.mina into aluminum. Among developing countries, aluminum-producing countries had a fairly high percentage, 38%, again comparable to that of Southern Europe. The corresponding ratio to Australia was only 6%. C. Market Structure 2.28 The alumi'um industry can be best characterized as an oligo- polistic one with vertical integration from bauxite mining, to alumina refining, to aluminum smelting, through to fabrication. The six major multinational corporations, play a key role in the vertical integration. For example, in 1977, the majors accounted for 58% of the bauxite mining, 65% of the alumina refining and 55% of the aluminum smelting of market economies (Table 2.7). Although the majors shares have declined slightly since then, they still maintain more than 60% of each production stage. 2.29 Because of vertical integration, a large percentage of bauxite and alumina is transferred within each major's system, including its subsidiaries and affiliated companies. In 1976, for example, intra-system transfers of bauxite accounted for 90% of total trade of bauxite (See Table 2.8). Only 10% of bauxite came out to open markets. In the same year, intra-system transfers of alumina accounted for 83% and open market sales for 17%. Although the corresponding figures are not available for trade of aluminum (ingots), it is thought that a higher percentage of aluminium (ingots) is traded through open markets. 2.30 Because open market sales of bauxite 4nd alumina are of limited quantity, there are no indicative market prices. Even though 10% to 15% of bauxite and alumina are sold to independent smelters, actual prices are kept highly confidential. On the other hand, several quotations for aluminum ingots are available to outsiders. Two kinds of prices deserve mentioning. - 16 - Table 2.6: DEGREE OF ALUMINA PROCESSING INTO ALUMINUM IN ALUMINA-PRODUCING COUNTRIES, 1978 Region Ratio of Aluminum Production to Alumina Production Bauxite-producing: .73 Developing .23 Aluminum-Producing /a .57 Non-Aluminum-Producing /b 0 Industrialized .74 Australia .08 US 1.49 France .67 S. Europe /c .72 Centrally Planned 1.18 Hungary & Romania .47 USSR & China 1.42 Non-bauxite-producing: 2.26 Developing 23.12 Industrialized 2.03 Centrally Planned 3.31 Memo Item Industrialized, both bauxite- producing & non-bauxite- producing, excluding Australia 1.56 /a Surinam, Brazil, Ghana and India. /b Jamaica, Guyana and Guinea. /c Yugoslavia, Greece and Turkey. Source: Derived from Tables 2.3 and 2.4. - 17 - Table 2.7: PERCENTAGE SHARE OF THE MAJORS /a IN BAUXITE/ALUMINA/ ALUMINUM PRODUCTION CAPACITIES IN MARKET ECONOMIES, 1977 Bauxite Alumina Aluminum Alcoa 22.0 22.4 13.0 Reyniolds 6.0 9.6 9.4 Kaiser 13.2 9.6 7.8 Alcan 6.8 9.9 13.1 Pechiney-Ugine Kuhlman 4.9 8.6 6.8 Alusuisse 4.9 5.3 5.2 TOTAL 57.8 65.4 55.3 /a Production capacities which include proportionate shares in joint ventures' capacities. Source: UNIDO, Mineral Processing in Developing Countries pp. 13 and 14. - 18 - Table 2.8: PERCENTAGE SHARE OF INTRA-COMPANY TRANSFERS AiND OPEN-MARKET SALES OF BAUXITE AiND ALUMINA, 1976 Type of Transfer or Sale Bauxite Alumina Transfers between parent company and subsidaries 78.1 75.6 Sales between affiliated companies 12.6 7.7 Open-market sales 9.3 16.7 TOTAL 100.0 100.0 Source: J. K. Cornish, "A Study of the Potential Size of Intra-Company Transfers and Open-Market Sales of Bauxite and Alumina in 1976 and 1982," pp. 32-33. The first is the so-called Alcan prices, which ate export list prices an- nounced by Alcan, and the second is the price quoted at the London Metal Exchange (LME). 1/ Alcan prices seem to reflect long-term market conditions, while LME prices reflect short-term conditions. 2.31 In many countries, government policies have decisively influenced the development of the aluminum industry. The direct financial assistance to the industry in the US during the Second World War and in the post-war period is one of the most outstanding cases. Goveriment intervention is still seen in tariffs and subsidies in various forms in many countries. How the locational pattern has been influenced by government intervention is one of the subjects to be examined in detail later. 2.32 There are several international organizations related to B/A/A at both government and non-government levels. The first is the International Bauxite Association (IBA), which now has eleven members: Australia, Dominican Republic, Ghana, Guinea, Guyana, Haiti, Indonesia, Jamaica, Sierra Leone, Surinam and Yugoslavia. In 1978, these countries accounted for 74% of world bauxite production and practically all the exports" In the same year, they accounted for 37% of alumina production and 77% of exports. The IBA holds meetings regularly to discuss bauxite pricing, the formulation of a fair and just return from bauxite mining, and equity sharing and controlNof production facilities. The IBA has adopted a recommendation for indexing bauxite prices, i.e., to set the minimum bauxite price at a level relative to the realized price of aluminum ingots. Furthermore, bauxite is one of the commodities of the Integrated Programme for Commodities of UNCTAD. OECD has an ad hoc committee on aluminum industry, which studies prospects for aluminum markets annually. Most of the primary aluminum-producing companies are members of the International Primary Aluminium Institute (IPAI), which promotes understanding of the world-s aluminum industry. 1/ Aluminum has been traded at the London Metal Exchange since October 1978. - 20 - III. ECONOMICS OF THE LOCATIONAL PATTERN OF BAUXITE PROCESSING 3.01 This section analyzes locational determinants of alumina refining and aluminum smelting. The analysis focusses on (1) regional differentials of major cost items at each processing stage, (2) the type of dominant economic agents for bauxite processing and (3) policies of governments. To understand recent developments, the period between the mid-1950s and the mid-1970s is first analyzed. Developments since the mid-1970s and their implications for the future locational pattern are subsequently examined. A. From the Mid-1950s To the Mid-1970s 1. Introduction 3.02 Between the mid-1950s and the mid-1970s, two major factors began to influence the choice of locations for the aluminum industry. 3.03 The expansion of the aluminum industry before the 1950s had been heavily connected with its importance in war supplies. As shown in Table 3.1, alumTnum production increased dramatically during the First and Second World Wars and, with the Korean War, continued to expand until the mid-1950s. During these times, security of aluminum supply was the major issue and direct government assistance to the aluminum industry in various countries was a prominent feature. However, around the mid-1950s there was a rapid increase in demand for aluminum that was not directly related to war supplies. 3.04 Another change took place at roughly the same time. The source of electricity for aluminum smelting before the mid-1950s had been almost exclusively hydro-electricity (Table 3.2). 1/ Because more electricity was consumed in smelting in those days than at present 2/ and moving bauxite was easier and cheaper than transmitting power to bauxite mines, most smelters were located near hydro-electric generation sites such as Niagra Falls and the Northwestern region in the US, Upper Quebec in Canada, Norway and Switzer- land. However, around the mid-1950s, other sources of electricity for aluminum smelting became available. There were increasirng supplies of easily transportable oil at prices stable in the short run and declining in real terms over the years, the coal industry had been rehabilitated after World War II, and nuclear energy was being developed. 1/ A notable exception was in Germany, where electricity for aluminum smelting was made from the abundant resources of brown coal. 2/ Before the end of the Second World War, production of one ton of aluminum required 20,000 - 25,000 KWH of electricity, compared to 14,000 - 16,000 KWH today. (See I.G. Litvak and C.J. Maule, "Alcan Aluminum Ltd.: A Case Study.") - 21 - Table 3.1: PRODUCTION OF ALUMINUM, 1900-1950 1900 1913 1918 1935 1943 1950 -------------------- (Thousand tons) ------------ Bauxite-producing 4.2 36 116 115 1,003 967 us 3.2 21 102 54 835 652 France 1.0 14 12 22 47 61 USSR - - - 25 62 209 Others - 1 2 14 59 45 Non-bauxite-producing 3.1 29 81 144 948 544 Canada - 6 15 21 450 360 Germany /a 2.5 13 34 _.85 269 67 UK .6 8 14 15 57 30 Norway - 2 18 15 24 47 Japan /b - - - 5 144 34 Others - - - 3 4 6 TOTAL 7.3 65 197 259 1,951 1,511 /a Includes Austria, Switzerland and East Germany. /b Includes North Korea, and the Province of Taiwan and the former Manchuria of China. - Means zero or negligible quantity. Source: Metallgesellschaft, Metal Statistics, 1978. - 22 - Table 3.2: ELECTRICITY SOURCES FOR ALUMINUM SMELTING IN MARKET ECONOMIES, 1955 AND 1974, AND INCREASES IN ELECTRICITY CONSUMPTION FOR ALUMINUM SMELTING BY TYPE OF ELECTRICITY SOURCE, BETWEEN 1955 AND 1974 Electricity Percentage Share of Percentage Share of Source Electricity Sources Total Increase in for Aluminum Smelting Electricity Use for Aluminum Smelting - _ - between 1955 and. 1974 1955 1974 Hydro-power 80.0 53.5 44.0 Coal 9.0 21.0 25.0 Oil - 12.3 16.0 Natural gas 11.0 10.6 11.0 Nuclear power - 2.3 3.0 Others 0.3 1.0 TOTAL ;A0.0 100.0 100.0 - Means zero or negligible share. Sources: Industry sources for 1955; and Revue de l'Aluminium, February 1974. - 23 - 3.05 Because no major war occurred during the period and the issue of security of aluminum supply became less important, decisions on how to satisfy the growing demand for aluminum were left increasingly (but not com- pletely) to the private sector, in particular to the majors. The reduced government control and the diminished importance of hydroelectricity gave the private sector a wider choice in determining production locations. The majors in particular, were also able to take advantage of vertical in- tegration - from bauxite mining through to aluminum fabrication,, including power generation - to put production facilities in more diverse locations in order to achieve maximum profitability. 3.06 While private sector companies probably sought cost-minimizing locations for their operations, they did not operate in a world free of market imperfections and distortions. They tended to qualify their own perceptions of costs of production in different locations according to their assessment of the risks associated with operating there. Governments in different locations also tended to modify the firms' perceptions of costs by introducing negative (taxes) or positive (subsidies, protection) distortions. The result has been that, freed from strategic controls and dependence on hydro-electric power, the majors and other private firms-have moved towards locations offering lower cost production under a given set of market distor- tions and imperfections. 2. Aluminum Smelting 3.07 It has already been shown that shifts in production locations were largely accounted for by the private sector responding to market forces and also to inducements offered by governments. The major market forces affecting the locational pattern in this period were (1) a rapid growth of demand for aluminum, with regional differertials in the growth rate; (2) a change in relative prices among various electricity sources, and (3) the increased supply sources of bauxite. 3.08 In the period 1955-74, consumption of primary and secondary aluminum increased rapidly with an annual growth rate of 9.5% (Annex Table 9). 1/ Especially high growth rates were seen in Japan, Italy, the Federal Republic of Germany, Southern Europe and the developing coun- tries. The growth rate in the US and Canada was below the world's average. Primary aluminum production also grew rapidly at an annual rate of 8.2% (Annex Table 8). High growth rates of production were in areas relatively new to aluminum production: Japan, Australia, New Zealand and developing countries. 3.09 Before the mid-1950s, aluminum smelting was based mainly on hydro-electricity. Diversification of electricity sources for aluminum 1/ Data for consumption of primary aluminum alone are not available. - 24 - smelting became conspicuous after the mid-1950s (Table 3.2). 1/ This was because the increasing availability of other fuel sources and conse- quential shifts in relative prices (sometimes induced or strengthened by governments) led to other sources being used for aluminum smelting. 3.10 In tae mid-1960s, when the cost of electricity from all sources ranged betweeni 2 to 8 mills per KWH, those of coal-based electricity in the US were estiraated at about 4 mills per KWH. 2/ 3/ Thus, coal-based electri- city in countries like the US could be cheaper than remaining domestic hydro-electricity, although it could not compete with the cheapest remaining hydro-electricity on a world basis. On the other hand, oil-based electricity in the mid-1960s was not considered to be competitive withl other sources. 4/ However, after a decline in oil prices (in real terms), oil-based electricity in the early 1970s became available at 7.5 mills per KWH in Japan, which was within the range of electricity costs prevailing at the time. The easy availability of relatively cheap, stably priced oil made it possible for countries with limited hydro-electric capacity to start and expand aluminum smelting. 3.11 The change in the composition of electricity sources for aluminum smelting is shown in Table 3.2. From 1955 to 1974, aluminum production in market economies increased 4.3 times, or about 8% per annum over the period. The share of hydro-electric power as a source of energy for this new capacity was still the largest at 44% but the shares of other energy sources increased. As a result, by 1974 the share of hydro-electricity had fallen from 80% in 1955 to 54%. The share of coal had grown to 21%, of natural gas to 11% and of nuclear power to 2.3%. 3.12 The move away from dependency on hydro-electric power is most noticeable in the cases of Japan and Italy (Table 3.4). Because both countries have limited hydro-electric capacity and restricted domestic availability of other fuels, Japans rapid (16.9%) and Italy-s more modest (6.7%) growth in production of primary aluminum were based on oil. The US also diversified its energy sources away from hydro-electricity to coal and natural gas, and France to natural gas, oil and coal. The UK (and probably the Federal Republic of Germany) partially based their expansion on nuclear energy and coal. Australia 1/ Except for small-scale smelters in the initial stage and those in Germany, the first smelter based on non-hydro-electricity (largely natural gas) was built by Alcoa in 1949, Reynolds and Kaiser followed in the early 1950s. 2/ S. Brubaker, Trends in the Aluminum Industry, pp. 180-87. 3/ Production costs of aluminum at typical US smelters for 1949-1980 are shown in Table 3.3. 4/ Brubaker, pp. 194-95. - 25 - Table 3.3: PRODUCTION COSTS OF PRLXARY ALUINIUt IN US, 1949-1980 /a (Current US. $/ton) Cost Item 1949 /b 1966 /c . 1973 /d 1974 /d 1976 /e 1980 /f Electricity 40 (17%) 61 (14%) 82 (13%) 140 (18%) 225 (22%) 435 (27%) Alumina ) 150 (33%) 193 (31%) 235 (30%) 310 (31%) 435 (27%) ) 90 (38%) Other raw materials) 50 (11%) 85 (14%) 113 (14%) 119 (12%) 125 (8%) Labor ) 42 (9%) 56 (9%) 67 (8%) 73 (7%) 100 (6%) ) Miscellaneous ) 105 (45%) 56 (13%) 73 (12Z) 85 (11%) 94 (9%) 135 (8%) ) Capital costs ) 91 (20%) 135 (21%) 157 (20%) 193 (19%) 410 (25%) TOTAL 235 (100%) 450 (100%) 624 (100%). 797 (100%) 1014 (100%) 1640 (100%) Memo item Electricity requirement N. A. 17.5 15.0 15.0 15.0 15.0 (thousand KWH/ton) Electricity rate N.A. 3.5 5.5 9.3 15.0 29.0 (Current US mills/KWH) Alumina requirement N.A. 2.0 1.93 1.93 1.93 1.93 (Ton of alumina/ ton of aluminum) Unit cost of alumina N.A. 75 100 122. 160 225 (Current US $/ton) /a Production costs were estimated on the basis of sources shown below. Production costs for 1973-1980 are given as if for new plants, while those for 1949 and 1966 are average production costs of a particular company or hypothetical plant. Because alumina is assumed to be supplied from various sources, alumina costs shown in this table are lower Chan those of shown in Table 3.9. /b Source: W. Nicholas, The North American Aluminum Industry: Its Evolution and Present Status," P.30. /c Source: J. Reimers, "Pre-InVvestment Data on the Aluminum Industry," p. 18. /d Charles River Associates, Inc., Policy-Implications of Producer CountrY Supply Restrictions: The World Aluminum/Bauxite Market, p. 39. /e RM Vedavalli, Market Structure of 3auxite/Alumina/Aluminum: and ProsPect for Developing Countries. /f T. G. Langton, "Economic Aspects of the Bauxite/Aluminum Industry," p. 10. N.A. Data are not available. Table 3.4: PERCENTAGE SHARE OF ELECTRICITY SOURCES IN ALUMINUM SMELTING IN SELECTED COUNTRIES, 1974 Fed Rep. Type of Source US Canada of Germany France UK Italy Norway Japan Australia Hydro-power 37 100 11 25 11 38 100 13 41 Coal 37 - 67 11 35 - - 7 59 Oil 2 - 6/a 23 - 62 - 71 - Natural gas 21 - - 37 - - - 9 - Nuclear power 3 - 16 3 54 Others - - - 1 - - - - - TOTAL 100 100 100 100 100 100 100 100 100 /a Including natural gas. - Means zero or negligible share. Source: OECD, Industry Committee Industrial Adaptation in the Primiary Aluminium Industry, p. 13. - 27 - moved towards increased use of its coal deposits so that 59% of its smelting was based on coal-generated elect5ricity by 1974. By that year, only Canada and Norway had smelting industries totally based on hydro-electricity. 1/ 3.13 The period also saw development of new supply sources of bauxite. By 1955, about one-half of the world's bauxite was produced in the industria- lized countries and in the centrally planned economies, largely tied with domestic smelting (Annex Table 1). The other half was produced in three Caribbean countries (Surinam, Jamaica and Guyana) by the majors' subsidiaries. However, in the 1960s, new mines were developed and expanded in Australia and West Africa (particularly Guinea). As a result, in the mid-1970s, the percentage share of Australia and West Africa in world bauxite production increased to 44%, up from only 4% in 1955. Development of new mines in new areas helped non-majors obtain direct access to bauxite sources. 3.14 Governments have frequently intervened in the aluminum industry in various forms. During World War II, government assistance to the industry was direct. For example, in the US the government constructed nine aluminum smelters, which accounted for about one-half of the nation-s aluminum produc- tion capacity in 1944. These facilities were later sold-to two private companies, Reynolds and Kaiser, at prices far below initial costs. The Korean War prompted a second round of US government-supported expansion in primary aluminum facilities. 2/ Canada's expansion of smelting capacity was also assisted by the governments of Canada, the US, the UK and Australia during World War II. Canada-s smelting capacity increased five times in this period. 3/ 3.15 As the issue of security of aluminum supply subsided, government policies to promote the domestic aluminum smelting industry became less direct. The most common form of such policies in the period from the mid-1950s to the mid-1970s was preferential electricity rates applied to the aluminum industry. For example, in the US electricity rates paid by aluminum smelters in the Bonneville Power Authority (BPA) system and the Tennessee Valley Authority (TVA) system were about one-fifth and one-half of those available to most other large consumers (Table 3.5). In countries less endowed with electricity resources, preferential electricity rates to the aluminum industrY were more common and essential. Other forms of government inducements were protective trade policies such as tariffs and direct import controls. Although the tariff rates in the 1960s were generally higher 1/ Unfortunately no data are available for developing countries. The analysis of this paragraph is therefore limited to selected developed market economies only. 2/ T.G. Langton, "Economic Aspects of the Bauxite/Aluminum Industry," pp. 73-78. 3/ I.G. Litvak and C.J. Maule, "Alcan Aluminium Ltd: A Case Study," pp. 47-48. - 28 - Table 3.5: COMPARISON OF ELECTRICITY RATES CHARGED TO ALUMINUM INDUSTRY AND TO OTHER LARGE COMIIERCIAL USERS, 1955-1977 Year TVA: BPA: Total utility: Direct electric Sales to aluminum Industry commercial sales to aluminum industry and industrial large industry light and power ------------(Mills per KWH)--------------------------- 1955 3.91 1.98 9.4 1960 4.17 1.92 9.7 1965 4.26 1.94 9.0 1970 4.82 2.01 1.5 1973 6.62 2.01 11.7 1974 7.56 2.01 15.5 1975 10.43 3.00 19.2 1976 15.22 3.15 N.A. 1977 15.90 3.16 N.A. N.A. Data are not available. Source: T. G. Langton, "Economic Aspects of the Bauxite/Aluminum Industry," p. 56. - 29 - than the current rates (Table 3.6), probably more important were various forms of direct import control. 1/ Japan's import control through its allocation scheme of foreign exchanges and Australias import quotas were examples of this. 2/ 3.16 Under given government inducement policies, the private sector responded to changing market forces quickly. Prior to 1959, the majors' aluminum smelc,ers were located on their own continents. 3/ In the 1960s, however, the North American majors started to invest in aluminium smelting in Western Europe where demand for aluminum grew rapidly. To counteract the North American majors' move, the European majors also invested in the US during the same period. The majors on both continents also expanded the smelting capacities in Australia and developing countries. As a result, 24% of the North American majors' smelting capacities was on other continents by 1974, up from 5% in 1960 (Table 3e7). The corresponding share for the European majors also increased from 11% in 1960 to 41% in 1974. 3.17 Besides t:hese moves by the majors, the aluminuni industry expe- rienced a significant number of new entries in this period. The number of aluminum smelting companies in market economies doubled between 1960 and 1974. 4/ Non-majors' production capacity increased much faster (by 6.5 times) than the majors' (by 2.3 times) in this period. As a result, the majors' share in total aluminum production capacity of market economies decreased from 79% in 1960 to 57% in 1974. 5/ The number of aluminum smelting countries also increased from 23 in 1955 to 40 in 1974.In 1974, 14 developing countries produced aluminum, compared to only three in 1955 (Figure 3.1). 1/ Although escalated tariff rates for aluminum were applied to many countries, effective rates of protection were not significantly different from nominal tariff rates. For example, in 1974 the former rate in Japan was 4.9%, while the latter rate was 4.5%. 2/ Brubaker, Trends in the Aluminum Industry, p. 32. 3/ The only exception was Alcan which had invested on a significant scale in smelting outside North America. 4/ Except for the majors' 100% subsidiaries, the numbers of aluminum smelting companies in market economies were estimated at about 25 in 1960 and about 60 in 1974. 5/ Measured by production capacity in proportion to a percentage share of equity ownership. - 30 - Table 3.6: IMPORT TARIFF RATES OF ALUMINUM IN SELECTED AREAS, 1965, 1974 and 1980 Nominal Tariff Rates /a Effective Tariff Rates /b Country 1965 1974 1980 1965 1974 1980 -4---- ---- ------------- - M %- - --- ---------------------- US 5.1 /c 3.5 /d 3.1 5.6 3.8 3.4 EC 11.5 /e 7.0 6.8 12.6 7.6 7.4 Japan 13.0 9.0 9.0 14.2 9.8 9.8 /a NFN rates. /b Based on bauxite and aluminum prices listed in Table 4.2. /c At price of $540 per ton. /d At price of $752 per ton. /e Mean of the tariff rates of West Germany, France and Italy. Source: S. Brubaker, Trends in the World Aluminum Industry, p. 130; and the official tariff schedules shown in Annex Tables 15, 16 and 17. - 31 - Table 3.7: ALUMINIUM PRODUCTION CAPACITY BY TYPE OF COMPANY, 1960 AND 1974 /a Location of North American W. European Other Market Total Smelters Majors /b Majors /b Economics /b 1960 1974 1960 1974 1960 1974 1960 1974 -----------------------(Thousand tpy)------------------------- North America 2,760 4,484 - 429 272 1,230 3,032 6,143 W. Europe 76 550 380 1,016 401 1,904 857 3,470. Japan & Oceania 39 366 - - 114 1,560 153 1,926 Developing 31 503 45 281 85 --1,019 161 1,803 countries TOTAL 2,906 5,903 425 1,726 872 5,713 4,203 13,342 /a Year-end. lb Production capacity is divid-d in proportion to a percentage of equity ownership if it is owned by more than two companies. - Means zero or negligible quantity. Source: Aluminium-Zentrale, European Aluminium Statistics,. 1969, 1970; The Spector Report, August 13, 1975. - 32 - Figure 3.1: START-UP YEAR OF ALUMINIUM SELTING IN NEW AREAS Year Production Country Qu----- /a '40 '45 '50 '55 '60 '65 '70 175 Quantity /a Brazil ___ Venezuela _ _-- Surinam Arge.ntina Mexico _ _ _ _ _ _ _. Ghana __ _ _- _- _-_ - Cameroon _____________ S. Africa - Bahrain ___' _Cll Egypt Iran India Taiwan, Prov. of /b Korea, R. _--------------_- Australia - _ - _..__ New Zealand * Start-up year. /a The area for each country shown above is in proportion to its primary aluminium production quantity in 1978. /b Primary aluminum production during the period of Japan's domination was not counted. Source: Metallgesellschaft, Metal Statistics, (various issues). - 33 - 3. Alumina Refining 3.18 The major locational trend of alumina refining in this period was a move from the smelter-oriented location to the mine-oriented location. This trend was initiated by Jamaica in 1.952 (See Figure 3.2). Other bauxite- producing countries followed Jamaica's lead and started alumina production in the early 1960s. Guinea started in 1960, Guyana in 1961 and Surinam in 1965. Although Australia began alumina refining in 1956, its production reached a significant level only in the mid-1960s. 3.19 There were two factors that prompted such a shift. The first was elimination of import duties on alumina by industrialized countries. This was particularly important in the early period. In the US, for example, while the import duty on bauxite was suspended in 1954 t-he 1/4-cent-per- pound (or $5.5 per ton) rate on alumina remained in force until 1957. (This was 4.4% of import unit value of alumina in the same year) It was since then that the US aluminum producers turned more actively to location of alumina facilities outside the US. l/ 3.20 The second factor was the weight-saving effect on transportation costs. In 1973, for example, transfer and transportation-costs from the Caribbean to North America were estimated at $6 per ton of bauxite or alumina 2/ (Table 3.8). Thus, assuming a bauxite/alumina conversion rate of 2.5:1, the weight-saving effect due to refining at the bauxite source, in Caribbean/North America case, was $9 per ton, which accounLed for 8% of aluminum production costs (Table 3.9). In the case of a route between Australia and the US East Coast, the weight-saving effect would be $30 per ton, which would be 27% of alumina production costs. 3/ In many cases, the weight-s,aving effect probably outweighed the disadvantage of higher capital charges associated with the mine-oriented location of alumina refining. 3.21 This trend is shown statistically in the change in relative importance of alumina production among different types of countries with respect to B/A/A production. As expected from the abovementioned analysis, the percentage share of bauxite-producing but non-aluminum-producing countries (mine-oriented locations) in world alumina production actually increased from only 3% in 1955 to 31% in 1975 (Table 3.10). The share for aluminum-producing but non-bauxite-producing countries (smelter-oriented locations) decreased from 30% in 1-955 to 19% and that for both bauxite- producing and aluminum-producing countries also decreased from 87% in 1955 to 50% in 1975. 1/ S. Brubaker, Trends in the World Aluminum Industry, p. 131. 2/ Inland transportation and transfer costs were assumed to be about $2-$3 per ton. 3/ Assume that processing costs in Australia were the same as in the Caribbean. - 34 - Figure 3.2: START-UP YEAR OF ALUMINA REFINING TN NEW AREAS Year Production Country '40 '45 '50 '55 '60 '65 '70 175 Quantity /a Jamaica Surinam Brazil Guyana Guinea _ India Taiwan, Prov. of Australia O Start-up year. /a The area for each country shown above is in proportion to its alumina production quantity in 1978. Source: Metallgesellschaft, Metal Statistics, (various issues) and others. - 35 - Table 3.8: ESTIMATED FREIGHT RATES FOR BAUXITE AND ALUMINA, 1973 AND 1980 /a Route Estimated Freight Rates 1973 1980 (Current US $/ton) Jamaica - US East Coast/Gulf Ports 4.25 6.25 Jamaica - Europe 16.00 23.50 Australia - US East Coast/Gulf Ports 19.00 28X00 Australia - Europe 20.00 29.50 Guinea - US 8.50 12.50 Guinea - Europe /b 6.00 9.00 Guyana/Surinam - US (via Trinidad) 8.00 12.00 /a Open-market freight rates. /b Quotation from large tonnage contracts. Source: United Nations, Monthly Bulletin of Statistics (various issues) and industry sources. - 36 - Table 3.9: ALUMINA COSTS AT US SMELTERS, 1973 Item Alumina from Alumina from a US refinery /a a refinery in Caribbean countries /a (Current US $/ton) Bauxite lb 31 15 Other raw materials /c 6 7 Fuel oil /d 15 18 Labor 11 9 M4aintenance and plant supplies 17 18 Capital charges 38 45 Transportation costs to US smelters 0 6 TOTAL 118 118 /a New alumina plant. /b 2.5 tons of bauxite to produce one ton of lumina. /c Mainly caustic soda. /d Including natural gas and electricity. Source: Industry sources. - 37 7 Table 3.10: PERCENTAGE SHARE OF ALUMINA PRODUCTION BY TYPE OF COUNTRY Type of Country 1955 1960 1965 1970 1975 1978 Both bauxite & 67.5 65.7 68.0 59.4 50.3 50.4 aluminum-producing Bauxite-producing but non- aluminum-producing (mine- oriented locations) /a 2.9 9.6 12.9 23.0 31.2 31.8 Aluminum-producing but non- bauxite-producing (smelter-oriented locations) 29.5 24.7 19.1 17.6 18.6 17.8 TOTAL 100.1 100.0 100.1 100.0 100.0 100.0 /a Australia is included n this category. Source: Derived from Annex Tables 1, 4 and 7. - 38 - B. Developments Since the Mid-1970s 1. Introduction 3.22 Since the mid-1970s, the aluminum industry has been affected by several new factors. These factors seem to qualify the applicability of the cost-competitiveness principle, which was the basic reason for the locational pattern of bauxite processing in the previous period. 3.23 The first factor is the OPEC-induced oil price rises which began in October 1973. Between 1973 and 1974 the average price of OPEC oil in- creased 3.8 times. After a relatively stable period in 1975-78, oil prices again increased significantly in 1979. In total, the price in 1980 is 10.5 times higher than in 1973 in current dollar terms and 4.5 times higher in constant dollar terms. Increased oil prices have enlarged the differentials between opportunity costs and actual costs of electricity. The distinction between these two kinds of costs are more important than ever in analyzing the locational pattern of the aluminum industry. 3.24 The second factor is the increasing influence of resource-endowed developing countries in the indu.stry's decisionmaking. Before the early 1970s, the industry-s decisionmaking had been largely left to the majors in the industrialized countries. However, throughout the 1970s, more resource- endowed developing countries participated in bauxite mining/processing in various forms (mostly, forming joint ventures with aluminum companies in the industrialized countries) and took a more active role in taxing/ pricing raw materials (for example, bauxite production levies adopted by Jamaica and other Caribbean countries). As a result, costs of resources for processing (such as electricity costs in aluminum smelting and bauxite costs in alumina refining) cannot be treated as given any more. Instead, they are now dependent upon pricing policies of resource-endowed countries, which in turn affect the cost-competitiveness of their locations for processing. 3.25 The third factor is the increased concern on uncertainties of new locations of bauxite processing, especially aluminum smelting. Because low-cost electricity sources have been largely exhausted in most of the traditional aluminum-smelting countries (except for Canada), aluminum companies in those countries are now seeking new smelting sites in non-tradi- tional areas. (Australia and developing countries). An increasingly important factor in such moves is the economic and non-economic uncertainties of the surrounding locations for bauxite processing, which are considered to be greater in non--traditional areas than in traditional areas. As long as the present pattern of investments continues, with the bulk accounted for by aluminum companies in the industrialized countries, the consideration on uncertainties would be a significant locational factor. The aluminum companies must quantify uncertainties in their cost-minimizing scheme more seriously. - 39 2. Aluminum Smelting 3.26 Following is an analysis of how the locational pattern of aluminum smelting will be affected by recent changes in its three major cost items: electricity, alumina and capital charges (Table 3.11). 1/ a. Changes in Locational Factors (i) Electricity 3.27 The oil price rises seem to have two consequences for locations of aluminum smelting. The first consequence is enlarged differentials of electricity rates among different plants and countries (Table 3.12). This results from the fact that sources of electricity for aluminum smelting vary from location to location and from plant to plant. The increase was minimal in hydro-electricity; the largest increase was in oil-based electricity. 3.28 Before the 1973 increase in oil prices, the cost of oil-based electricity at the most efficient stations was about 8 mills/KWH; it is now about 45 mills/KWH, compared to about 5 mills/KWH for electricity generated by a hydro-power station at its best condition, whose capital costs have already been written off. The differential, 40 mills/KWH, is equivalent to about $600 per ton of aluminum, or is about 40% of the selling price of aluminum. This eliminated the profitability of aluminum smelting with oil-based electricity. As a result, Japan, for example, was forced to reduce its smelting capacity from 1.6 million/tpy to 1.1 million/tpy between 1976 and 1980. This cut represents 4% of market economies' productive capacity in 1980. 3.29 The second consequence of the rise in oil prices has been an increase in importance of the difference between opportunity costs and actual costs of electricity. Because the differentials between these two kinds of costs are expected to enlarge along with oil price increases and because electricity rates are linked to its opportunity costs, more locational significance is put on opportunity costs than on actual costs of electricity. Locations with electricity of low opportunity costs are preferred for aluminum smelting. (ii) Alumina 3.30 Alumina costs differ by supply source, mainly because of taxes on bauxite and ocean transportation costs. However, because a large percentage of alumina is traded within each major's system, each major can choose -an appropriate combinatior of supply sources in such a way that alumina costs 1/ The following comparisons of production costs in different locations can only be interpreted as rough indicators, because production costs vary greatly from one plant to another and also over time. - 40 - Table 3.11: COST ODELS OF PRIIaY ALUMINUM, 1980 /a Old Plants New Plants Type of Industrialized Developing Industrialized DeveloDing Electricity Hydro-based 7b Aixed /c Ol-based /d. Natural gas- Non-hydro- Coal-based lg Hydro-based /h Cost Item based /e based If _________- (Current US @/ton) Electricity 80 240 700 45 435 225 300 Alumina 400 400 350 480 435 400 420 Other raw materials 125 125 125 150 125 130 130 Labor 120 120 100 145 110 110 105 Hiscellaneous 270 230 170 190 140 180 170 Capital charges /i 105 105 155 370 405 440 575 TOTAL 1,100 1,220 1,600 1,380 1,650 1,435 1,700 Memo item Electricity requirement 15.0 15.0 15.0 1.5.0 15.0 15.0 15.0 (Thousand 44H/ ton) Electricity rate (Current US Mills/KWH) 5.5 16.0 46.5 3.0 29.0 15.0 20.0 Alumina requirement 1.93 1.93 1.93 1.93 1.93 1.93 1.93 (Ton of alumina/ ton of aluminum) Unit cost of alumina- 205 205 180 250 225 205 220 (Current US $/ton) Capital cost of mow plants 2,200 2,400 2,700 (Current US $/tpy) Ia Because of differences in size of capacity, age of facilities, smelting method, sources of inputs and other factors estimated costs vary considerably among- plants. Thus, estimated costs are presented as cost models which are deemed to represent "typical" cases shown below. /b Canada, as a typical case, with-smelting, refining and hydro-electricity generating facilities, most of which came on stream before 1970. /c The US, as a typical case, with smelting, refining and hydro-electricity generating facilities, most of which came on stream in the early 1970s. - 41 - Table 3.12: ELECTRICITY RATE IN SELECTED COUNTRIES, 1977 Country Electricity Rate (Current US Mills/KWH) Industrialized Ccunttries US 3 - 16 Canada 3- 4 Fed. Rep. of Germany 8 - 16 France 9 - 15 UK 7 - 16 Italy 20 Norway 5 Japan 27 - 30 Australia 10 - 12 Developing Countries (Planned) Brazil 8 - 12 Guyana 15 Cameroon 13 Zaire 4 Indonesia 9 Source: Industry sources. 42 - at different smelting sites are aligned. Furthermore, the weight-saving factor due to smelting at the refinery site in 1973 was only about $6 per ton in the Caribbean/North America case and $22 per ton in the Australia/US East Coast case (Table 3.8), compared to total production costs of $624 per ton. Thus, neither regional differentials of alumina "prices" nor the weight-saving effect seem sufficient reasons for locating aluminum smelting in a particular place. (iii) Capital Charges 3.31 Capital charges differ, above all, between old plants and new plants. In old plants, capital costs (in real terms) have become low (partly because of high inflation in the last half of the 1970s) and a large percent- age has been already writtern off. In new plants, expected inflation in the 1980s and more difficult infrastructure conditions (largely in non-traditional areas) will push up expected capital charges significantly. As shown by the cost models presented in Table 3.11, capital charges range from $100/ton in old plants to almost 600/ton in new plants. The difference is at least about one-third of the total production cost of aluminum. This seems to be a serious obstacle to building new plants vis-a-vis maintaining old plants that may be inefficient in other cost aspects. 3.32 Initial capital costs vary for new plants are different depending on the geographic and economic conditions of plant sites and the size of production capacity. Conditions of the infrastructure-such as ports, rail- ways, roads, and towns-determine a large portion of the initial capital costs. Rough estimates for capital costs by economic region are about $2,200/tpy in industrialized countries, $2,400/tpy in Australia and $2,700/tpy in develop- ing countries. The higher degree of uncertainty associated with new areas, particularly developing countries, shortens the period of amortization for plants and equipment. This also raises capital charges in developing coun- tries and limits the scope for building new plants in developing countries (See Annex Table 2.2). b. New Locations for Aluminum Smelting 3.33 In summarizing the changes in locational factors, it may be concluded that locations with (1) low-opportunity-cost electricity, (2) less difficult infrastructure conditions and (3) lower levels of uncertainty have the best chances of becoming sites of new aluminum smelting facilities. Abundance of bauxite or low production costs do not seem to bear signifi- cantly on locational decisions. - 43 - 3.34 The actual plans for capacity expansion in market economies between 1980 and 1984 (surveyed as of the end of 1979) are shown by region in Table 3.13. The non-traditional areas (Oceania and developing countries) account for about 50% of projected expansion. Australia alone accounts for 21% of total planned expansion. 1/ Australia's first advantage is low-cost electricity based on its abundant lignite, whose costs are estimated between 12 mills and 18 mills pet K-WH. This is probably the cheapest electricity except for Canada's hydro-electricity, whose generating facili- ties have been written off, and electricity based on associated natural gas in the Middle East. Australia's second advantage is its relatively well established infrastructure and expected stable economic development. 3.35 Developing countries altogether account for 36% of planned capacity expansions Compared to the potential for increased energy supplies that exist in these countries, this expected increase in aluminum smelting capacity is modest. Furthermore, the planned capacity expansion is concentrated in higher or middle income countries such as Venezuela and Brazil. The move into lower income countries is limited (only Indonesia and India are targeted for capacity expansion). Prospects for expansion in Africa (south of Sahara) up to the mid-1980s are slim, particularly in view of its potential energy resources. 3. Alumina Refining 3.36 Two factors seem to be decisive in the choice of new locations for alumina refining since the mid-1970s. They are increases in oil prices and governments' policies, particularly taxation policies, on bauxite production. a. Changes in Locational Factors (i) Consequences of Increased Oil Prices 3.37 In alumina refining, fuel is used for three major purposes: to heat powerhouse boilers for steam and electricity generation (about 70% of total fuel consumption), to burn limestone to lime (about 5%) and to calcine alumina (about 25%). Although a clean-burning neon-ash fuel is required to calcine alumina to avoid contamination of ashes, any fuel can be used for the other purposes. Altogether fuel costs account for 16% of the total cost of producing alumina (Table 3.14). 1/ There are industry plans for further capacity expansion in Australia, which will increase that country's percentage share of the total. - 44 - Table 3.13: PROJECTED EXPANSION OF SMELTING CAPACITIES, 1979 - 1984 /a Projected Existing Capacity Projected Capacity Expansion Capacity 1979 1979-1984 1984 ---------------- (Thousand tpy) ------- Developing 1,878 856 2,734 Latin America and Caribbean 829 351 1,180 Africa: South of Sahara 439 26 465 N. Africa & Middle East 190 310 500 South & Southeast Asia 420 169 589 Industrialized 11,834 1,513 13,347 N. America 5,848 353 6,201 W. Europe 3,144 433 3,577 S. Europe 852 283 6,135 Japan 1,555 -61 1,494 Oceania 435 505 940 TOTAL 13,712 2,369 16,081 /a All the figures refer to year-end capacities. Source: Industry sources. - 45 - Table 3.14: PRODUCTION COSTS OF ALUIMINA, 1973-1980 /a (Current US $/ton) Cost Item 1973 lb 1974 /c 1980 /d Bauxite 31 (26%) 36 (26%) 73 (27%) Other raw materials 6 (5%) 7 (5%) 15 (5%) Fuel oil 15 (13%) 26 (19%) 44 (16%) Labor 11 (9%) 11 (8%) 14 (5%) Maintenance and plant supplies 17 (15%) 17 (12%) 29 (10%) Capital charges 38 (32%) 42 (30%) 102 (37%) TOTAL 118 (100%) 139 (100%) 277 (100%) Memo Item Bauxite requirement 2.5 2.5 2.5 (ton of bauxite/ ton of alumina) Unit cost of bauxite 12.4 14.4 29.2 (Current US $/ton) /a Production costs were estimated on the basis of sources shown below. Bauxite costs shown in this table are lower than those from new mines. /b At a new plant in the US. Major source: Industry sources. /c At a new plant in the US. Major source: Charles River Associates, Policy Implications of Producer Country Supply Restrictions: The World Aluminum/Bauxite Market, p. 34; and World Bank estimates. /d At a new plant in the Caribbean countries. Major source: R.Jn Robson and P.K. Frame, "Criteria for Investment in Alumina Refining," p. 31. - 46 - 3.38 Because of increased oil prices, it is likely that fuel sources will be diversified--particularly to decrease the use of fuel oil, which has been the major fuel source for alumina refining. However, as a locational factor, cost differentials of different fuel sources among different regions for alumina refining do not seem to be as decisive as for aluminum refining. It is the indirect effects of increased oil prices that are affecting loca- tions of alumina refining. 3.39 The first such indirect effect is the change in location of alumi- num smelting. As discussed before, new smelters are being constructed largely in areas with low opportunity-cost electricity, in Australia, for example. New smelters in Australia are now an encouragement for the expan- sion of bauxite mining and for the location of alumina refinieries in their vicinities. The second indirect effect is increased weight-savings. The weight-saving effect will become more significant because freight rates are expected to increase faster than overall inflation. (ii) Government Policies 3.40 In 1974, the Jamaican government introduced a production levy on bauxite, and Haiti, Surinam and the Domonican Republic promptly followed. In 1979, the levy was estimated at about 60% to 75% of bauxite "prices" (CIF) at the US East Coast. The bauxite production levy could have locational significance on alujmina refining in two ways. 3.41 The first is through its direct effect on cost-competitiveness. If a bauxite-producing country does not keep its levy low enough, it would then lose its cost-competitiveness for bauxite mining and alumina refining. 1/ 3.42 The second is through differential levy rates to bauxite exported in the form of ore and to bauxite that is domestically processed into alumina. A differential levy system, which Jamaica has recently adopted, would introduce a bias in favor of local processing. 3.43 Other policies adopted by governments include export promotion. Ireland, for example, is planning to build an alumina refinery, although the country has neither bauxite mines nor aluminum smelters. Its advantages as a location are free entry into alumina markets in the EC and a tax exemp-- tion on profits derived from export earnings. Incidentally, Spain is planning a refinery, although the country is not endowed with bauxite. The major purpose is to secure alumina supplies for its domestic aluminum smelting. 1/ Besides bauxite levies, the cost-competitiveness of a bauxite mine depends upon mining costs and transportation costs. Mining costs depend upon mining.conditions such as ease of mining (open-pit or underground), accessibility to ore deposits, ore quality and others. Transportation costs depend largely on distance from a mine to its major market. - 47 - b. New Locations for Alumina Refining: 3.44 In 1979, Jamaica, the iniLiator of the bauxite levy system, revised its levy rate so as to restore a clear competitive position vis-a- vis other bauxite-producing countries and to introduce differential levy rates in favor of domestic alumina production. Other Caribbean countries quickly followed Jamaica's move, Under the new levy rates, levy-related negative factors, which had in the past constituted a bias against domestic alumina production in those countries, are likely to diminish. Therefore, the weight-saving effect would again be the major locational factor of alumina refining. As a result, bauxite-producing countries could have chances to expand alumina refining. 3.45 The industry's expansion plans for alumina refining are actually concentrated in bauxite-producing countries (Australia, Southern Europe and developing countries, which, according to a survey at the end of 1979, altogether account for about 80% of the market economies' expansion plans between 1980 and 1984). (Table 3.15). 1/ Australia has the single largest expansion of alumina refining capacity, reflecting a rapid expansion of aluminum smelting. Given their bauxite reserves, expansion plans in develop- ing countries are rather modest, accounting for only 38% of those in market economies. 1/ The only exceptions to this trend are Ireland and Spain. 48 - Table 3.15: PROJECTED EXPANSION OF ALUMINA REFINING CAPACITIES, 1979-1984 /a Country Existing Projected Projected Capacity Capacity Capacity Expans ioiS 1979 1979-1984 1984 ------(Thousand tpy)----------- Developing 6,760 2,910 9,670 Latin America and Caribbean 5,240 1,860 7,100 Africa: South of Sahara 700 600 1,300 South and Southeast Asia 820 450 1,270 Industrialized 24,640 4,770 29,410 N. America 8,460 140 8,600 W. Europe 4,000 1,330 5,330 S. Europe 2,420 1,600 4,020 Japan 2,620 - 2,620 * Oceania 7,140 1,700 8,840 TOTAL 31,400 7,680 39,080 /a All figures refer to year-end capacities. - Means zero or negligible quantity. Source: R. J. Robson and P. K. Frame, "Criteria for Investment in Alumina Refining," and industry sources. - 49 - IV. MACRO-ECONOMIC EFFECTS OF BAUXITE PROCESSINC 4.01 When only the majors were involved in the aluminum industry in developing countries, the question of whether a country endowed with bauxite/ energy should develop refining/smelting could be answered on the basis of the cost-competitiveness discussed in the previous section. Because the majors could provide most of the required resources, especially capital, the host country generally faced no serious problem in the allocation of scarce resources among competing economic activities. Now, however, since more developing countries have become directly involved in bauxite processing, the question is more complicated. It must be answered not only on the basis of cost competitiveness but also in the context of the welfare of the country concerned. 4.02 Probably, the best way to analyze the effects of bauxite processing on a country's welfare is to measure its total effects on GDP. This could be done with an input-output analysis; however, input-output tables are not available in most developing countries. Therefore, the analysis in this section is limited to the direct effects of bauxite processing. The study covers foreign exchange earnings, sectoral GDP generation and employment creation and some non-quantifiable effects. An analysis of total effects is left to a further study. A. Foreign Exchange Earnings 4.03 The contribution of the B/A/A sector to a country's foreign exchange earnings is conspicuous in the Caribbean countries and Guinea (Table 4.1). The B/A/A sector accounted for 97% of (gross) foreign exchange earnings in Guinea, for 77% in Surinam, for 71% in Jamaica and for 39% in Guyana. The relative importance of bauxite, alumina and aluminum depends on the degree of development of downstream processing. In Surinam and Jamaica, alumina accounts for about 50% of the countries' total foreign exchange earnings and bauxite accounts for 20%. In contrast, in Guinea and Guyana, bauxite earns more foreign exchange than alumina. Although Surinam exports aluminum, its foreign exchange earnings from aluminum are far less than those from alumina. 4.04 In other developing countries, the contribution of the B/A/A sector is less important because they rely on other products, mainly tropical products. In Ghana, one of the few aluminum smelting countries in - 50 - Table 4.1: PERCENTAGE SHARE OF BAUXITE, ALUMINA AND ALUMINUM IN TOTAL EXPORTS IN SELECTED COUNTRIES, 1979 Country Bauxite /a Alumina /b Aluminum /c Total Surinam Id 18.4 45.0 13.3 76.7 Ghana /e .5 - 12.1 12.6 Cameroon /f - 4.2 4.2 Bahrain e - - 8.0 8.0 Jamaica 19.5 51.2 - 70.7 Guyana 31.4 7.2 - 38.6 Dominican Rep. /d 3.8 - 3.8 Haiti /f 12.1 - 12.1 Guinea 69.6 26.9 - 96.5 Australia If .5 5.3 .6 6.4 New Zealand If - - 3.5 3.5 Canada /d .2 2.1 2.3 Norway /d 7.8 7.8 /a SITC 2833, bauxite, etc. /b SITC 51365, aluminum oxide and hydroxide. /c SITC 684, aluminum unworked and worked. /d 1978 /e 1976 /f 1977 - Means zero or negligible share. Source: United Nations, Yearbook of International Trade Statistics, 1978; and World Bank and UNCTAD estimates. 51 - Africa, bauxite and aluminum account for about 12% of foreign exchange earnings, while cocoa accounts for 67%. In Cameroon, another aluminum- smelting country in this region, aluminum accounts for only 4%, while coffee and cocoa together make up 68%. In the Dominican Republic and Haiti, which export all their bauxite in the form of ore, bauxite accounts for 4% and 12% respectively. Coffee exports make up for a much larger percentage share of these Caribbean countries- foreign exchange earnings. 4.05 The relative importance of the B/A/A sector in industrialized countries is further limited because they have diverse sources of foreign exchange earnings. In Australia, the world's largest alumina exporter, the percentage of B/A/A earnings in total earnings of foreign exchange is only 6% and in Canada, the world's largest aluminum exporter, it is less than 3%. 4.06 Gross foreign exchange earnings from a ton of bauxite, a ton of alumina and a ton of aluminum (all in aluminum equivalent) are shown in Table 4.2. The ratio of aluminum to alumina has been about 3:1 and that of alumina to bauxite 4:1 for the last twenty years (Table 4.3). Consequently, the ratio of aluminum to bauxite has been about 12:1. In other words, gross foreign exchange earnings, when bauxite is exported in the form of aluminum, are about 12 times larger than when it is exported in the form of ore. This ratio shows a slight decrease throughout the period, indicating that earnings from exports of ore are increasing vis-a-vis earnings from aluminum. 4.07 Besides the magnitude of gross foreign exchange earnings, net foreign exchange earnings depend on the relative shares between domestic and foreign components in total outlays. These shares in turn depend on two factors: (i) a country's capability to supply capital, intermediate goods, energy, technical and administrative personnel from domestic sources; and (ii) a country's ability to tap part of the rent component (resource rent, oligopoly rent and others) of B/A/A and electricity production. 4.08 The first factor is dependent upon the state of a country's industrial sector. Although it is difficult to quantify it, it is broadly believed that about 50% of the items listed above can be supplied domesti- cally in countries such as Brazil, Venezuela and Mexico. In fact, Brazil is enforcing a regulation that at least 50% of those goods must be supplied domestically. In other developing countries, the figure is lower, probably about 20%. Table 4.2: EXPORT UNIT VALUE OF BAUXITE, ALUMINA AND ALUMINUM, 1955-1980/a Product 1955 1960 1965 1070 1973 1974 1976 1978 1980 /b ----------(Current US $/ton of aluminum equivalent)------------- Bauxite Ic 28.8 35.0 42.6 41.2 45.9 56.8 80.9 90.6 120.0 Alumina /c 161.0 149.3 152.5 155.5 157.7 183.6 255.7 310.0 440.0 Aluminum /d 470.0 516.0 486.0 570.0 610.0 680.0 880.0 1,050.0 1,400.0 /a FOB. /b Estimates. /c World average. /d Estimated on the assumption that transportation, handling and other charges are 10% of New York list prices. Sources: UNCTAD, World Bank, and Metals Week (various issues). Table 4.3: RATIO OF EXPORT UNIT VALUES BETWEEN BAUXITE, ALUMINA AND ALUMINUM, 1955-1.980 la Product 1955 1960 1965 1970 1973 1974 1976 1978 1980 /b Aluminum/alumina 2.9 3.5 3.2 3.7 3.9 3.7 3.4 3.4 3.2 Alumina/bauxite 5.6 4.3 3.6 3.8 3.4 3.2 3.2 3.4 3.7 Aluminum/bauxite 16.3 14.7 11.4 13.8 13.3 12.0 10.9 11.6 11.7 /a All ratios are computed in aluminum equivalent. /b Estimates. Sources: Derived from Table 4.2. - 54 - 4.09 The second factor depends upon the generation of economic rent and its distribution between domestic and foreign economies. In bauxite mining, resource rent is often collected by producing countries in the form of taxes on bauxite. These taxes constitute a large portion of gross foreign exchange earnings from bauxite. As stated earlier, in alumina refining, the bulk of alumina is traded within the majors- system. Only a small percentage is sold to independent smelters. Actual prices are not known and reported export values reflect merely those of intracompany transactions for accounting purposes. No rent components are shown in our calculation of net foreign exchange earnings from alumina (Table 4.4); however, it is likely that oligopoly rent exists and is tapped by the majors when alumina is sold to independent smelters or that it is hidden as a part of rent components in aluminum when alumina is used in their own smelters. In aluminum, rent components are of two kinds: resource rent of electricity, and oligopoly rent. 4.10 Net foreign exchange earnings derived from a unit of B/A/A (all expressed in aluminum equivalent) at each stage of the production activity in 1980 are shown in Table 4.4. Bauxite, at $81 per ton, accounts for 68% of gross foreign exchange earnings, while alumina, at $176 per ton, accounts for 40% and aluminum, at $843 per ton, accounts for 60%. 4.11 Estimating possible future increments in foreign exchange earnings from a new refinery or smelting plant is complicated because it involves time profiles of expected prices of products and costs of inputs, payment schedules of capital charges and learning curves of production. It normally takes two to three years for a plant to reach full production, and, therefore, it would take that long for it to begin contributing to a country's net foreign exchange earnings. 4.12 To cope with these difficulties, an attempt was made to estimate by how much net foreign exchange earnings could have increased in 1980 if in the early 1970s production activity had been stepped up with new bauxite mining, had moved from bauxite mining to alumina refining or had moved from alumina refining to aluminum smelting. 1/ In the latter two cases, it is assumed that all bauxite or alumina were exported before the start-up of alumina refineries or aluminum smelters. The estimated increments are shown 11 If these production facilities had been started in the early 1970s, it is safe to assume that they would by 1980 be operating at normal levels. - 55 - Table 4.4: ESTIMATED GROSS AND NET FOREIGN EXCHANGE EARNINGS FROM BAUXITE MINING, ALUMINA REFINING AND ALUMINUM SMELTING COMBINED, 1980 /a Production Activity Domestic Foreign Gross Component Component Foreign (or Net Foreign Exchange Exchange Earnings Earnings) (Current US $/ton of aluminum equivalent) Bauxite mining /b 81 39 120 Alumina refining /c 176 264 440 Aluminum smelting /d 843 557 1,400 Ia Derived by applying the ratios of domestic and foreign components of the B/A/A industry in representative Caribbean countries to the prices in 1980 shown in Table 4.3. /b Conversion rate: 2.5 ton of bauxite to produce 1 ton of alumina. /c Domestically mined bauxite is assumed to be used for alumina refining. Conversion rate: 2.0 ton of alumina to produce 1 ton of primary aluminum. /d Domestically produced alumina from domestically mined bauxite is assumed to be used for aluminum smelting. Sources: World Bank estimates (see Annex Tables 24, 25, 26). - 56 - in Table 4.5. A shift from alumina refining to aluminum smelting shows the highest increment in absolute terms, followed by a shift from bauxite mining to alumina refining. Comparing these increments with unit capital costs for each shift, annual increments in net foreign exchange earnings derived from one dollar of investment are computed. New bauxite mining shows the largest gains followed by aluminum smelting. Gains from alumina refining are far lower. Apart from a possible downward bias in estimating rent components of alumina refining, this result stems from the fact that alumina refining is the most capital-intensive of these three activities. B. Generation of GDP 4.13 In the Caribbean countries and Guinea, the B/A/A sector makes an important contribution to GDP generation, although a smaller one than to foreign exchange earnings. In 1979, the B/A/A sector accounted for 25% of GDP in Surinam and for 16% to 19% in Guinea, Jamaica and Guyana (Table 4.6). 1/ 4.14 GDP generated directly from unit production of bauxite, alumina and aluminum in 1980 is estimated by eliminating domestic purchases of primary and intermediate goods from net foreign exchange earnings (Table 4.7). GDP generated from a ton of aluminum production is the largest, about four times larger than that from bauxite production and about seven times larger than that from alumina production. GDP generated from bauxite production is larger than that from alumina production because of the significance of bauxite taxes in GDP generation and a possible downward estimate in rent components in alumina, mentioned above. When bauxite taxes are subtracted, GDP generated from bauxite would be 16, much less than that from alumina. 4.15 Annual increments in GDP derived from one dollar of investment in B/A/A are estimated by the same procedure described in the preceding subsec- tion and are listed in Table 4.8. The estimated annual increment is the highest for bauxite followed by aluminum and alumina in this order. However, when bauxite taxes are subtracted, aluminum shows the highest annual increment from a unit dollar of investment. f 1/ Data for the sectoral GDP of B/A/A are not available for other countries. - 57 - Table 4.5: ESTIMATED EFFECTS ON FOREIGN EXCHANGE EARNINGS FROM INVESTMENTS IN PRODUCTION ACTIVITIES AT A HIGHER LEVEL OF PROCESSING /a Shift in Activity Increment in Unit Capital Increment in 1980 Net Foreign Cost in Net Foreign Exchange (in the early Exchange Earnings Earnings 1970s) /b Derived from One Dollar (in 1980) Invested in the early 1970s (1980 US $/ton (1980 US $/tpy (1980 US $) of aluminum - in aluminum equivalent) equivalent) New bauxite mining 81 230 .35 From bauxite mining 95 1,500 .06 to alumina refining From alumina refining 667 2,300 .29 to aluminum smelting /a In this calculation, it is assumed that production facilities came on stream in the early 1970's and that all bauxite or alumina had been exported before the start-up of alumina refineries or aluminum smelters. /b Unit capital costs in the early 1970-s (in 1973 dollars) were estimated at $100/tpy for bauxite mining, $650/tpy for alumina refining and $1,000/tpy for aluminum smelting (all tpy's are expressed in aluminum equivalent.) (Major source: Industry). These figures are then con- verted into 1980 dollars by using the World Bank International Price Index. Source: Table 4.4. - 58 - Table 4.6: SHARE OF THE BAUXITE/ALUMINA/ALUMINUM SECTOR IN TOTAL GDP IN SELECTED COUNTRIES, 1979 Country Percentage Share Surinam /a 25.4 Jamaica 16.3 Guyana 15.8 Guinea 18.5 /a In 1978. Source: World Bank estimates. - 59 - Table 4.7: ESTIMATED GDP COMPONENTS GENERATED FROM BAUXITE MINING, ALUMINA REFINING AND ALUMINUM SMELTING, 1980 /a Production Activity Wages Rents, Total Interests, Profits & Corporatea Taxes (Current US $/ton of aluminum equivalent) Bauxite mining Including taxes on bauxite 11 65 76 Excluding taxes on bauxite 11 49 60 Aluminum refining 26 16 42 Aluminum smelting Including rent components accruing to electricity 143 165 308 Excluding rent components accruing to electricity 135 120 255 /a Based on the B/A/A industry in representative Caribbean countries. Sources: World Bank estimates. - 60 - Table 4.8: ESTIMATED GDP GENERATED FROM BAUXITE MINING, ALUMINA REFINING AND ALUMINUM SMELTING AND ANNUAL GDP INCREMENTS DERIVED FROM ONE DOLLAR OF INVESTMENT IN B/A/A /a Production Activity GDP Generated Unit Capital Increment in GDP in from One Ton Cost (in the 1980 Derived from One of Production early 1970's)/b Dollar Invested in (in 1980) the Early 1970-s (1980 US $/ton (1980 US $/tpy (1980 US $) of aluminum in aluminum equivalent) equivalent) Bauxite mining Including taxes on bauxite 76 230 .33 Excluding taxes on bauxite 16 230 o07 Alumina refining 42 1,500 .03 Aluminum smelting Including rent components accruing to electricity 308 2,300 .13 Excluding rent components accruing to electricity 255 2,300 .11 /a Based on the assumptions described in Table 4.5. /b See Table 4.5. Source: Derived from Table 4.7. - 61 - C. Employment Creation 4.16 The direct contribution of the B/A/A sector to a country's employ- ment is low. Even in countries such as Surinam, Jamaica and Guinea, where more than 70% of foreign exchange earnings are derived from the B/A/A see -or, the shares of the B/A/A sector in employment are less thaa 8% (Table 4.9). There are 6,000 to 8,000 employees.in this sector. The capital costs required to create one job in B/A/A are shown in Table 4.10. Develop- ment of new aluminum smelters (excluding electric-power systems) would require capital costs of 4.5 million dollars to 6 million dollars in 1980 dollars (Table 4.10). 1/ When development of electric power systems is included, the total capital requirement for creation of one job would be about $10 million. The corresponding figure for expansion of an aluminum smelter is much lower, about $500 thousand per job. The figures for alumina refinery and bauxite mining are also lower, about $750 thousand dollars and >500 thousand per job, respectively. D. Other Impacts 4.17 Moves to higher stages of production activity produce non-quanti- fiable impacts, and these are examined below. 1. Greater Participation in Management of Operations 4.18 A move to a higher stage of production activity often accompanies a host country's greater participation in management and operation through its expanded equity share. One of the direct consequences is a greater accessibility to basic industry information. Because of the highly oligopo- listic structure of the industry, bauxite/alumina-producing countries do not have sufficient informatin on, for example, the actual prices of the bauxite/ alumina they produced. Lack of this kind of information is a serious obstacle to national planning. 2. Gains by Non-Integrated Manufacturers 4.19 Many developing countries fabricate aluminum from imported aluminum ingots. Fabricators, generally small in size, do not have a strong bargaining position vis-a-vis importers of aluminum ingots. Fabricators would benefit from the opening of domestic aluminum production because of increased supply sources. 1/ CapitaJ. costs in Table 4.10 are expressed in 1975 or 1977 dollars. The figures quoted in this paragraph have been converted into 1980 dollars, using the World Bank International Price Index. - 62 - Table 4.9: LABOR FORCE OF THE BAUXITE/ALUMINA/ALUMINUM SECTOR IN SELECTED COUNTRIES B/A/A Employees Percentage Share of Total Employmen, Surinam /a 7,500 7.3 Jamaica /b 7,500 7.O Guyana /c 8,000 14.1 Guinea /d 6,400 4.5 /a In 1974. /b In 1977. /c In 1979. /d In 1977, registered wage earners. Source: World Bank estimates. Table 4.10: DIRECT EMPLOYMENT AND REQUIRED CAPITAL COSTS OF SELECTED BAUXITE MINING, ALUMINA REFINING AND ALUMINUM SMELTING PROJECTS Direct Required Capital Required Capital Production Proj ect Employment Costs Costs per Job Capacity (Thousand tpy (Million US $) (Thousand US $) or thousand KWH) New aluminum smelting & hydro-electricity generation (Indonesia) Aluminum melting 1,920 7,500 /a 3,900 225 (aluminum) Hydro-electricity generation 200 4,200 /a 21,000 513 (electricity) Infrastructure and others 2,000 /a TOTAL 2,120 13,700 /a 6,500 New aluminum smelting (Brazil) 845 3,700 /a 4,400 87 (aluminum) New aluminum smelting (Brazil) 3,180 9,500 /a 3,000 320 (aluminum) Expansion of aluminum smelting (Venezuela) 670 200 /a 300 70 (aluminum) New alumina refining (Brazil) 810 409 /a 505 800 (alumina) New bauxite mining (Brazil) 1,000 330 330 3,700 (bauxite) Ia In 1975 US $. /b In 1977 US . Source: Industry sources. 64 - 3. Technology Transfer 4.20 Both aluminum smelting and alumina refining require semi-skilled labor, which may not be found immediately in most developing countries. Opening aluminum-smelting and/or alumina-refining plants would result in the training of local employees, with foreign assistance at first. 4. Regional Development 4.21 Stable and large consumers of hydro-electricity, such as aluminum smelters, may make hyd.ro-electric projects economically viable. Without them, investments in new hydro-electric plants, most of which are located in remote areas, may not be as effective in fostering regional development. - 65 - V. ISSUES AND POLICY RECOMMENDATIONS 5.01 Induced by the increasing oil prices since 1974, a geographical restructuring of bauxite processing is under way in a wholesale manner. Because sources of low-cost electricity have been largely exhausted in many industrialized countries, aluminum companies are-now actively seeking locations of bauxite processing, especially aluminum smelting, in non- traditional areas. Thus, developing countries endowed with bauxite and/or electricity sources have chances to initiate or expand alumina refining/ aluminum smelting in order to achieve various economic targets. However, as mentioned earlier, moves of processing activities into developing countries are not highly promising, especially if compared to the countries' abundant bauxite and/or potential electricity resources. A large portion of the firmly committed expansion plans of alumina refining and aluminum smelting is in Australia, Southern Europe and a limited number of developing countries of relatively high living standard such as Brazil and Venezuela. 5.02 The lagged moves of processing into developing countries are attributable to various factors such as higher costs of infrastructure and economic and non-economic uncertainties in some of those countries and limited effects on direct employment creation. These factors vary consider- ably among different countries and projects. Thus, the assessment of the present situation needs a further study--country-specific and project- specific--which is beyond the scope of this paper. However,-this study does suggest that two types of uncertainties--general uncertanties accompa- nied by moves of processing activities into non-traditional areas and (more specific) uncertainties on electricity rates--are blocking a smoother transition of bauxite processing from industrialized countries into develop- ing countries. On the basis of this recognition, the following policy recommendations are proposed. The first is formation of a joint venture! consortium to carry out a refinLng/smelting project with international agencies as active coordinators. The second recommendation is the establish- ment of equitable formulas of electricity pricing, in which international financial agenicies can play the role of referee. 5.03 Under the present investment pattern in which industrialized countries are involved in planning a large portion of the new refineries and smelters in developing countries, the countries that have cost-competitive resources but lack in domestic capital are likely to rely on foreign capital to implement their plans for bauxite-processing. The problem faced by those developing countries is to achieve two sometimes conflicting objectives at the same time: (1) to obtain maximum profits from their own resources by relying on foreign capital and (2) to maintain their initiative in developing processing activities. On the other hand, industrialized countries also must achieve two conflicting objectives: (1) to secure supply sources (2) to minimize risks related to investment in new areas. A method commonly used to satisfy both parties' conflicting objectives is the formation of a joint venture/consortium that consists of more than one partner from both foreign and host countries. By participating in such a joint venture/consor- tium, the host country can retain greater bargaining power vis-a-vis fcreign - 66 - investors than in the case of a 100% foreign-owned subsidiary or a joint venture with a single foreign Dartner. From the viewpoint of investors from industrialized countries, the risks are diversified through such an arrange- ment. The participa.tion of international agencies in such a joint venture/ consortium would add to the stability of the relationship between the participating host country and foreign companies. 5.04 Although pricing of electricity has always been a complicated problem for the aluminum industry, it has become more important since oil prices started to increase. Because opportunity costs of electricity increase with oil prices, the aluminum industry is now facing an increased degree of uncertainty on electricity rates. This seems to be one of the biggest reasons why foreign companies do not move into new areas. The establishment of pricing formulas for electricity, acceptable to both aluminum smelters and power suppliers, especially at the planning stage, could contribute to a smoother transition of aluminum smelting from indus- trialized countries to developing countries. This is an area where interna- tional financial agencies could'play a useful role by working with more than one country and overseeing developments in more than one'sector. - 67 - ANNEX TABLES Page No. 1. Percentage Share of Bauxite Production by Economic and Geographic Regions, 1955-1978 .......................... 69 2. Percentage Share of Bauxite Exports by Economic and Geographic Regions, 1955-1978 ............................... 70 3. Percentage Share of Bauxite Imports by Economic and Geographic Regions, 1955-1978 . .............. ................ 71 4. Percentage Share of Alumina Production by Economic and Geographic Regions, 1955-1978 ........................... 72 5. Percentage Share of Alumina Exports by Economic and Geographic Regions, 1955-1978 ............................... 73 6. Percentage Share of Alumina Imports by Economic and Geographic Regions, 1955-1978 ............................... 74 7. Percentage Share of Aluminum Production by Economic aud Geographic Regions, 1955-1978 ........................... 75 8. Production of Aluminum, 1955-1978 ................ .-76 9. Consumption of Aluminum, 1955-1978 ........................... 77 10. Net Exports of Aluminum, 1970-1978 ........................... 78 11. Net Imports of Aluminum, 1970-1978 ............................ 79 12. Ratio of Alumina Production to Bauxite Production, 1955-1978 ..................................... .80 13. Ratio of Aluminum Production to Bauxite Production, 1955-1978 ...................................... 81 14. Ratio of Aluminum Production to Alumina Production, 1955-1978 ....................................... 82 15. Import Tariff Rates on Aluminum Ingots, 1964 ................... 83 16. Import Tariff Rates on Bauxite and Alumina, 1980 ............... 84 17. Import Tariff Rates on Unwrought Aluminum, 1980 ........... 85 18. Import Tariff Rates on Unwrought Aluminum Bars, Rods, Angles, Shapes and Section of Aluminum, 1980 ........... 86 - 68 - ANNEX TABLES - Continued Page No. 19. Actual and Projected OPEC Prices for Crude Oil, 1960-1990 ........................ ............................ 87 20. Capital Costs of Planned or Proposed Bauxite Mining Projects, 1980 ....................................... 88 21. Capital Costs of Planned or Proposed Alumina Refining Projects, 1980 ..................................... ....89 22. Capital Costs of Planned or Proposed Aluminum Smelting Projects, 1980 ..................................... 90 23. Freight Rate Index, 1966-1980 ................................. 91 24. Energy Requirements in the Aluminum Industry .................. 92 25. Bauxite Production Levy, 1980 ................................ 93 26. Estimated Gross and Net Foreign Exchange Earnings from Bauxite Mining, 1980 ......................................... 94 27. Estimated Gross and Net Foreign Exchange Earnings from Alumina Refining, 1980 ....................................... 95 28. Estimated Gross and Net Foreign Exchange Earnings from Aluminum Smelting, 1980 . .................................. ..96 - 69 - Annex Table 1: PERCENTAGE SHARE OF BAUXITE PRODUCTION BY ECONOMIC AND GEOGRAPHIC REGIONS, 1955-1978 Region 1955 1960 1965 1970 1975 1978 Developing 54.3 59.8 60.5 53.8 46.4 46.5 Caribbean /a 47.7 48.6 48.6 42.4 30.2 27.1 .W. Africa 3.6 6.0 5.9 5.6 12.8 15.5 S. & S.E. Asia 3.0 5.2 6.0 5.8 3.4 3,9 Industrialized 28.0 22.9 22.7 31.1 40.2 39.8 Australia - .2 3.2 15.3 27.3 28.8 US 11.0 7.9 4.8 3.7 2.5 2.0 France /b 9.6 7.8 6..9 4.8 2.9 2.3 S. Europe 7.4 7.0 7.8 7.3 7.5 6.7 Centrally Planned 17.7 17.3 16.8 15.1 13.4 13.7 Hungary & Romania 6.7 4.3 4.0 4.3 4.4 4.5 USSR & China 11.0 13.0 12.8 10.8 9.0 9.2 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 Memo Item Total production 16,765 27,620 37,174 60,610 76,339 74,529 (thousand tons) /a Includes Brazil whose percentage share increased from O.2% to 1.4% between 1955 and 1978. /b Includes Italy whose percentage share was 2.2% in 1955 but declined to 0.4% by 1970. It gas less than 0.1% in 1975 and 1978. - Means zero or negligible quantity. Source: Metallgesellschaft, Metal Statistics. (1978). - 70 - Annex Table 2: PERCENTAGE SHARE OF BAUXITE EXPORTS BY ECONOMIC AND GEOGRAPHIC REGIONS, 1955-1978 Region 1955 1960 1965 1970 1975 1978 Developing 79.9 83.6 81.7 71.5 64.8 70.6 Caribbean /a 70.8 70.4 70.6 58.1 34.5 35.3 W. Africa 4.8 5.9 3.4 5.8 25.0 31.0 S. & S.E. Asia 4.3 7.3 7.7 7.6 5.3 4.3 Industrialized 15.0 13.3 15.9 26.1 33.4 27.4 Australia .1 .2 3.0 13.8 24.3 19.5 US .1 .2 .7 - .3 .3 France /b 3.3 2.0 1.0 .6 .1 .1 S. Europe 11.5 10.9 11.2 11.7 8.7 7.-5 Centrally Planned 5.1 3.1 2.4 2.4 1.8 2.0 Hungary & Romania 5.1 3.1 2.4 2.4 1.8 1.8 USSR & China - - - - - .2 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 Memo Item Total exports 10,120 15,634 20,773 27,816 32,939 33,009 (thousand tons) /a See Annex Table 1. /b See Annex Table 1. /c Romania's bauxite exports are zero for all the years listed above. - Means zero or negligible quantity. Source: UNCTAD data. - 71 - Annex Table 3: PERCENTAGE SHARE OF BAUXITE IMPORTS BY ECONOMIC AND GEOGRAPHIC REGIONS, 1955-1978 Region 1955 1960 1965 1970 1975 1978 Developing .3 .4 .7 .8 .6 .7 Industrialized 95.0 92.9 92.1 90.2 84.4 85.3 US 49.2 57.4 59.6 50.2 37.1 41.4 Canada 26.0 14.8 9.4 9.2 7.4 7.0 Fed. Rep. of Germany 11.2 8.6 8.3 9.5 12.9 10.4 France .1 .3 .6 1.8 4.4 5.6 Italy 1.0 1.8 2.4 2.6 5.6 4.8 UK 3.3. 2.4 2.4 1.5 .9 .9 Japan 3.4 7.0 8.5 13.3 14.0 13.7 Others .8 .6 .9 2.1 2.1 1.5 Centrally Planned 4.7 6.7 7.0 9.0 15.0 14.0 USSR 1.2 2.7 3.1 5.6 10.6 10.1 Others 3.5 4.0 3.9 3.4 4.4 3.9 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 MHemo Item Total imports 10,120 15,634 19,781 27,567 32,766 34,597 (thousand tons) Source: UNCTAD data. - 72 - Annex Table 4: PERCENTAGE SHARE OF ALUMINA PRODUCTION BY ECONOMIC AND GEOGRAPHIC REGIONS, 1955-1978 Region 1955 1960 1965 1970 1975 1978 Bauxite-producing 72.8 77.7 82.9 83.8 81.6 82.3 Developing 3.2 9.9 13.2 19.8 18.4 16.6 Aluminum-producing/a .3 .6 1.8 6.9 5.5 6.8 Non-aluminum Producing /a /b 2.9 9.3 11.4 12.9 12.9 9.8 Industrialized 54.7 46.5 47.7 47.0 45.3 49.4 Australia - .3 1.5 10.2 19.1 22.0 US 46.2 38.5 37.8 28.5 19.1 20.0 France 7.8 8.9 7.7 6.2 4.0 4.0 S. Europe .7 .8 .7 2.1 3.1 3.4 Centrally Planned 14.9 19.3 22.0 i1.0 17.9 16.3 Hungary & Romania 2.4 2.4 2.7 3.0 4.3 4.1 USSR & China 12.5 16.9 19.3 14.0 13.6 12.2 Non-bauxite-producing: 27.2 22.3 17.1 16.2 18.4 17.7 Developing .2 .2 .3 .2 .2 .2 Industrialized 25.7 21.1 15.9 15.4 17.6 17.1 Centrally Planned 1.3 1.0 .9 .6 .6 .4 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 Memo Item Total production 3,188 4,566 6,694 10,599 13,222 15,401 (thousand tons in aluminum equivalent) /a Based on aluminum smelting in 1978. India, Brazil and Surinam are in this category. /b Jamaica, Guyana and Guinea are in this category. - Means zero or negligible quantity. Source: Metallgesellschaft, Metal Statistics (various issues). 73 - Annex Table 5: PERCENTAGE SHARE OF ALU-INA EXPORTS BY ECONOMIC AND GEOGRAPHIC REGIONS, 1955-1978 Region 1955 1960 1965 1970 1975 1978 Bauxite-producing 70.0 85.3 90.3 95.6 93.0 92.2 Developing 28.6 60.3 64.3 52.4 36.0 30.3 Aluminium-producing /a - - 2.4 11.7 8.7 8.7 Non-aluminum- producing /a /b 28, gri 60.3 61.9 35.5 27.3 21.6 Industrialized 30.2 16.5 18.1 42.8 51.2 56.8 Australia - - - 21.5 37.4 46.1 us 7.3 1.1 11.9 15.1 7.7 6.3 France /a 19.8 14.0 5.7 3.6 3.1 2.2 S. Europe 3.1 1.4 .5 2.6 3.0 2.2 Centrally Planned 12.1 8.5 7.9 5.6 5.8 5.0 Hungary & Romania /c 12.1 8.5 7.9 5.5 5.8 5.0 USSR & China - - - .1 - - Non-bauxite producing 29.1 14.7 9.7 4.4 7.0 7.8 Developing - - - - - Industrialized 29.1 14.7 9.7 -4.4 7.0 7.9 Centrally Planned - - - - - - TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 Memo Item Total exports 438 704 1,230 3,807 6,031 6,907 (tF -isand tons in ai.tminum equivalent) /a See Anex Table 4t /b See Anne.- Table 4. /c Romania's alumina exports were zero for all the years listed above. - Means zero or negligible quantity. Source: UNCTAD data. - 74 - Annex Table 6: PERCENTAGE SHARE OF AL UMINA IMPORTS BY ECONOMIC AND GEOGRAPHIC REGIONS, 1955-1978 Region 1955 1960 1965 1970 1975 1978 Developing .3 6.8 5.4 7.2 9. 13.5 Ghana - - - 2.9 2.3 3.4 Venezuela - - - .G .5 2.1 Bahrain - - - - 1.9 1.8 Others .3 6.8 5.4 1.7 5.0 6.2 Industtialized 84.8 85.9 89.1 81.2 77.5 77.9 US .5 5.8 13.8 33.7 27.9 29.4 Canada 25,,7 28.1 27.4 12.8 6.4 7.8 Fed. Rep. of Germany .3 .1 2.2 1.6 4.0 3.6 France - 3.2 .7 .1 .1 .4 UK- 4.5 1.8 .4 .7 4.7 5.2 Norway 20.3 23.6 20.4 13.5 10.5 9.1 Netherlands .8 .5 .4 2.5 4.9 4.2 Spain 2.7 4.5 4.4 3.2 3.8 3.2 Japan - - 2.1 4.7 4.7 5.6 New Zealand - - - .1 2.0 2.2 Others 30.0 21.3 17.3 21.3 8.5 6.6 Centrally Planned 14.9 7.3 5.5 11.6 12.8 8.6 USSR - - - 7.0 8.7 4.8 Others 14.9 7.3 5.5 4.6 4.1 3.8 TOTAL 100.0 100.0 1200.0 100.0 100.0 100.0 Memo Item Total imports 345 697 1,326 3,698 5,918 6,740 (thousand tons in aluminum equivalent) - Means zero or negligible quantity. Source: JUNCTAD data. - 75 - Annex Table 7: PERCENTAGE SHARE OF ALUMINUM PRODUCTION BY ECONOMIC AND GEOGR.APHIC REGIONS, 1955-1978 Region 1955 1960 1965 1970 1975 1978 Bauxite-Producing: 66.9 66.9 69.-3 66.9 59.1 59.8 Developing .3 .7 1.5 3.8 3.7 3.8 Industrialized 52.3 48.1 47.0 43.6 34.9 36.7 Australia - .3 1.3 2.0 1.7 1.8 US 45.7 40.2 37.9 35.2 27.7 29.8 France /a 6.2 7.0 7.2 11.1 3.0 2.6 S. Europe .4 .6 .6 1.3 2.5 2.4 Centrally Planned 14.3 18.1 20.8 19.5 20.5 19.3 Hungary & Romaunia /c 1.4 1.1 1.2 1.6 2.2 1.9 USSR & China 12.9 17.0 19.6 17.9 18.3 17.3 Non-Bauxite-Producing: 33.1 33.1 30.7 33.1 40.9 40.2 Developing .2 1.2 1.3 1.5 3.4 4.1 Industrialized 30.6 29.6 27.6 29.7 35.9 34.6 Centrally Planned 2.3 2.3 1.8 1.9 1.6 1.5 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 Memo Item Total production 3,105 4,543 6X586 10,257 12,717 14,641 (thousand tons) - Means zero or negligible quantity. Source: Metallgesellschaft, Metal Statistics (various issues). - 76 - Annex Table 8: PRODUCTION OF ALUMINUM, 1955-1978 Quantity Annual Growth Region -_ r_- _ -_ __ __-___ _ 1955 1974 1978 1955-74 1955-78 --- (Thousand tons)--- ------() Developing 17 877 1,165 23.1 20.2 Caribbean & Latin America 2 254 407 29.0. 26.0 Africa : S. of Sahara - 279 236 N.A. N.A. N. Africa & Middle East - 167 249 N.A. N.A Asia 15 177 273 13.9 13.4 Industrialized 2,573 10,217 10,439 7.5 6.3 N. America 1,971 5,472 5,407 5.5 4.5 US 1,420 4,448 4,358 6.2 5.0 Canada 551 1,024 1,049 3.3 2.8 W. Europe 523 2,813 2,991 9.3 7.9 Fed. Rep. of Germany 137 689 740 8.9 7.6 France 129 393 391 6.0 4.9 Italy 62 212 271- 6.7 6.6 UK 25 293 346 13.8 12.1 Netherlands - 247 259 N.A. N.A. Norway 72 648 657 12.3 10.1 Others 98 331 327 6.7 5.4 S. Europe 20 485 568 18.3 15.7 Japan 58 1,118 1,058 16.9 13,5 Oceania 1 329 415 35.7 30.0 Centrally Planned 514 2,738 3,040 9.2 8.0 TOTAL 3,104 13,834 14,641 8.2 7.0 - Means zero or negligible quantity. N.A. Incomputable because the quantity in the initial period is zero. Source: Metallgesellschaft, Metal Statistics (various issues). - 77 - Annex Table 9: CONSUMPTION OF ALUMINUM, 1955-1978 /a Quantity Annual Growth Region 1955 1974 1978 1955-74 1955-78 ---(Thousand tons)---- -------(%)----- Developing 57 1,010 1,372 16.3 14.8 Caribbean & Latin America 31 453 511 15.2 13.9 Africa /b 7 122 151 16.2 14.3 Asia /c 19 435 710 17.9 17.0 Industrialized 2,544 12,880 13,918 8.9 7.7, N. AmerIca 1,665 6,679 6,831 7.6 6.3 US 1,582 6,291 6,445 7.5 6.3 Canada 83 388 386 8.4 6.9 W. Europe 792 3,882 4,147 8.7 7.5 Fed. Rep. of Germany 174 1,146 1,336 10.4 9.3 France 109 597 683 9.4 8.3 Italy 62 579 668 12.5 10.9 UK 291 681 568 4.6 3.0 Others 156 879 892 9.5 7.9 S. Europe 20 440 542 17.7 15.4 Japan 50 1,638 2,164 20.2 17.8 Oceania 17 241 234 15.0 12.1 Centrall, Planned 495 3,550 4 ,110 10.9 9.6 TOTAL 3,096 17,439 19,391 9.5 8.3 /a Both primary and secondary aluminum. /b Including North Africa. /c Including the Middle East. Source: Metallgesellschaft, Metal Statistics (various issues). - 78 - Annex Table 10: NET EXPORTS OF ALUMINUM, /a 1970-1978 Country 1970 1975 1978 - ----------(Thousand tons)--------- Canada 750 491 851 Norway 406 433 622 Netherlands 19 143 149 Bahrain - 86 140 New Zealand - 91 133 Greece 60 88.. 85 Australia 81 76 80 Iceland 31 44 77 Surinam 55 26 57 Ghana 109 14 37 Yugoslavia (53)/b 40 17 Cameroon 39 24 12 /a Unwrought aluminum. /b Net imports. - Means zero or negligible quantity. Source: World Bureau of Metal Statistics, World Metal Statistics (various issues). - 79 - Annex Table 11: NET IMPORTS OF ALU3MINUM, /a 1970-1978 Country 1970 1975 1978 ----------(Thousand tons) -------- Japan 253 295 686 US (53) /b 247 584 Belgium 175 178 257 Fed. Rep. of Germany 394 128 162 France 36 54 125 Italy 162 78 121 S Korea - 17 87 Brazil - 64 60 UK 353 72 25 /a Unwrought aluminum. /b Net imports. - Means zero or negligible quantity. Source: World Bureau of Metal Statistics, World Metal Statistics (various issues). - 80 - Annex Table 12: RATIO OF ALUMINA PRODUCTION TO BAUXITE PRODUCTION, 1955-1978 Region 1955 1960 1965 1970 1975 1978 Developing .06 .17 .22 .37 .40 .36 Aluminum-producing /a .02 .05 .14 .55 .75 .68 Non-Aluminum-producing /b .08 .20 .25 .34 .34 .26 Industrialized 1.96 2.12 2.10 1.50 1.15 1.24 Australia - 1.25 .47 .66 .70 .76 US 4.20 4.87 7.80 7.63 7.65 10.14 France .83 1.15 1.13 1.30 1.41 1.69 S. Europe .09 .11 .09 .28 .42 .51 Centrally Planned .84 2.11 1.06 1.13 1.34 1.19 Hungary & Romania .35 .55 .67 .70 .97 .91 USSR & China 1.14 1.30 1.51 1.30 1.52 1.32 /a Based on the aluminum situation in 1978. This category includes Surinam, Brazil, Ghana and India, among which, only Ghana does not produce alumina. /b Jamaica, Guyana, Guinea, Dominican Republic, Haiti, Sierra Leone, Indonesia and Malaysia. Among these countries, only Jamaica, Guyana and Guinea produce alumina. - Means zero or negligible quantity. Source: Computed from Annex Tables 1.4 and 7. - 81 - Annex Table 13: RATIO OF ALUMINUM PRODUCTION TO BAUXITE PRODUCTION, 1955-1978 Region 1955 1960 1965 1970 1975 1978 Developing .01 .01 .02 ..07 .08 .08 Aluminum-producing /a .02 .06 .11 .29 .33 .38 Non-aluminum producing /b - - - - Industrialized 1.87 2.10 2.06 1.40 .87 .92 Australia .50 1.00 .42 .13 .06 .06 US 4.15 5.09 7.83 9.39 11.07 15.08 France .65 .90 1.02 1.08 1.05 1.14 S. Europe .05 .08 .08 .18 .33 .36 Centrally Planned .80 1.04 3.25 4.09 1.53 1.41 Hungary & Romania .20 .25 .31 .38 .49 .91 USSR & China 1.17 1.30 1.53 1.66 2.05 1.88 /a Based on the 1978 situation of aluminum situation. This category includes Surinam, Brazil, Ghana and India, among which, only Ghana does not produce alumina. /b Jamaica, Guyana, Guinea, Dominican Republic, Haiti, Sierra Leone, Indonesia and Malaysia. Among these countries, only Jamaica, Guyana and Guinea produce alumina. - Means zero or negligible quantity. Source: Computed from Annex Tables 1.4 and 7. - 82 - Annex Table 14: RATIO OF ALUMINUM PRODUCTION TO ALUMINA PRODUCTION, 1955-1978 Region 1955 1960 1965 1970 1975 1978 Bauxite-Producing : .92 .86 .83 .80 .70 .73 Developing .09 .08 .11 .19 .20 .23 Aluminum producing /a 1.02 1.23 .79 .54 .57 .57 Non-aluminum producing /b - - - - - - Industrialized .96 .99 .98 .93 .77 .74 Australia - .80 .89 .20 .09 .08 US .99 1.05 1.00 1.23 1.45 1.49 France .78 .78 .90 .83 .74 .67 Centrally Planned .95 .94 .95 1.15 1.14 1.18 Hungary & Romania .58 .46 .46 .54 .50 .47 USSR & China 1.03 1.00 1.02 1.28 1.35 1.42 Non-Buxite-Producing: 1.22 1.49 1.79 2.05 2.61 2.26 Industrialized 1.19 1.40 1.74 1.93 2.07 2.03 Developing 1.00 6.50 4.68 7.60 17.00 23.12 Centrally Planned 1.82 2.26 2.14 3.32 2.94 3.31 Memo-Item: Industrialized, both 1.03 1.12 1.18 1.37 1.48 1.56 bauxite producing & non- bauxite producing, but excluding Australia /a Based on the of aluminum situation in 1978. This category includes Surinam, Brazil, Ghana and India, among which, only Ghana does not produce alumina. /b Jamaica, Guyana, Guinea, Dominican Republic, Haiti, Sierra Leone, Indonesia anid Malaysia. Among these countries, only Jamaica, Guyana and Guinea pro- duce alumina. - Means zero or negligible quantity. - 83 - Annex Table 15: LMPORT TARIFF RATES ON ALUMINUM INGOTS, 1964 Developing Nominal Industrialized Nominal Country Tariff Rate /a Country Tariff Rate /a (%) (%) Brazil 50.0 US 5.1 /d Argentina/b 0 Canada 5.1 /d Columbia /b 0 Fed. Rep. of Germany 9.0 India 45.0/c France 10.2 Indonesia /b 50.0 Italy 15.4 Pakistan /b 12.5 UK 0 Philippines /b 0 Belgium /b 5.4 Denmakr lb 0 Netherlands /b 5.4 Norway 0 Sweden 0 Spain 16.0 Japan 13.0 Australia 7.5 /a Percent of ingot price, ignoring preferential treatment accorded to trading-block members and taking no account of turnover taxes which may be imposed. /b Countries with no primary aluminum production in 1964. /c Including a surcharge. /d At price of $540 per ton. Source: S. Brubaker, Trends in the World Aluminum Industry, p. 130. - 84 - Annex, Table 16: IMPORT TARIFF RATES ON BAUXITE AND ALUMINA, 1980 Nominal Tariff Rate Country Non-MFN MFN GSP US $1 per long ton a/ Free /c $10 per short ton /b EC Free Free /c Japan Free Free |c /a Bauxite. /b Alumina. /c GSP does not apply. Sources: Tariff Schedules of the United States Annotated (1981); EEC, Common Customs Tariff, L 315, vol. 23, Nov. 1980; and Japan Tariff Association, Custom Tariff Schedules of Japan (1979). - 85 - Annex Table 17: IMPORT TARIFF RATES ON UNWROUGHT ALUMINUM, 1980 Nominal Tariff Rate Country Non-MFN MFN GSP -------------------------- ---------------------------- US a! 18.5 3.1 b/ EC 10.0 6.8 b/ Japan 10.0 9.0 4.5 a/ Rates are for unwrought aluminum with uniform cross-section throughout its length, the least cross-sectional dimension of which is not greater than .0375 inch in coils. b/ GSP does not apply. Sources: Same as for Annex Table 16. 8 $6 - Annex Table 18: IMPORT TARIFF RATES ON UNWROUGHT ALUMINUM BARS, RODS, ANGLES, SHAPES ANi3 SECTIONS, 1980 Nominal Tariff Rate Country Non-MEN MFN GSP ------------ -----------------(%)- - - -------------------- US a! 11.0 2.9 Free EC 15.0 11.3 Free Japan 16.0 14.4 Free a/ Wrought rods of aluvninum. Sources: Same as for Annex Table 16.