UPDATE: Alcoa Reviews Australia Aluminum Smelter, May Halt Output

Alcoa Inc. (AA) joined the ranks of international companies casting doubt on the future of some Australian operations Wednesday, after pressures including the high Australian dollar prompted it to put an aluminum smelter under review.

Alcoa said its aim was to keep the Point Henry smelter in Victoria state open, but that it may shut down production if profitability targets aren't met. The review is set to last until the end of June, when a final decision will be made.

"A combination of factors, including metal prices, input costs and exchange rates, have resulted in the Point Henry smelter becoming unprofitable," said Alan Cransberg, managing director of Alcoa of Australia, in a statement.

Point Henry, which started operations in 1963, produces around 190,000 metric tons of aluminum a year. Together with another Alcoa smelter at nearby Portland, the units account for around 30% of Australia's aluminum production.

Over half of the aluminum--used in products ranging from soft drinks cans to aircraft--from the Point Henry smelter is exported.

Victoria is Australia's manufacturing heartland but is being squeezed by the impact of the rising Australian dollar, which Tuesday hit a six-month high against the greenback above $1.08. The local currency has now risen by about 80% since 2008 when it reached a trough during the financial crisis.

The Australian dollar has been driven up by investors seeking a proxy to China's boom, as Australia is a vital supplier of commodities such as coal and iron ore, but officials worry that it exposes the economy Down Under to a bust if Chinese demand dries up.

In a speech Feb. 1, Prime Minister Julia Gillard warned manufacturers and exporters that the currency was likely to stay relatively high for several years.

Victoria's problems are compounded by few natural resources that can offset the decline in manufacturing by generating mining jobs and revenue.

Toyota Motor Corp. (TM) said Jan. 23 it was laying off 350 workers at its plant in Altona, Victoria, in large part because the Australian dollar is making car exports uncompetitive. The cuts were equivalent to 7% of its Australian staff.

General Motors Co. (GM) has also shed 100 casual and temporary staff in South Australia state, while H.J. Heinz Co. (HNZ) has closed a plant in Victoria and BlueScope Steel Ltd. (BSL.AU) has shuttered production units in New South Wales state.

"Together with our employees, we have worked hard to minimise costs and improve margins, but the current situation makes it difficult for Point Henry to be globally competitive in the foreseeable future," Cransberg said.

The associated aluminium rolling mill at Point Henry and Anglesea power station aren't included in the review, he said.

Cransberg added the review hasn't been triggered by Canberra's move to put a price on carbon. Although the carbon tax would add a new cost to the business, the smelter was already losing money, he said.

-By David Winning, Dow Jones Newswires; [phone]; [e-mail]