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Work Boots to Fruit Squeezed as Australian Manufacturing Wanes

Photographer: Carla Gottgens/Bloomberg

A hardening skin is skimmed off freshly poured molten aluminum moulds at an Alcoa World Alumina Australia smelting plant, partially owned by Alumina Ltd., in Point Henry, Australia in this 2008 file photo. Close

A hardening skin is skimmed off freshly poured molten aluminum moulds at an Alcoa World... Read More

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Photographer: Carla Gottgens/Bloomberg

A hardening skin is skimmed off freshly poured molten aluminum moulds at an Alcoa World Alumina Australia smelting plant, partially owned by Alumina Ltd., in Point Henry, Australia in this 2008 file photo.

From tinned fruit to work boots, high labor costs and an elevated currency are squeezing Australian manufacturing, threatening to increase a jobless rate already at the highest level in more than 10 years.

Alcoa Inc. (AA) announced the closure of an aluminum smelter and two mills with the loss of 980 jobs, while Coca-Cola Amatil Ltd. (CCL), the nation’s biggest beverage company, yesterday took a A$404 million ($365 million) charge against its packaged-foods unit days after getting a government handout. Makers of workwear and protective clothing are feeling the pain as a mining investment boom wanes and car producers prepare to shutter plants.

“We have high cost labor and a small market here,” said Matthew Hope, a Sydney-based analyst at Credit Suisse Group AG. “What might have made sense 50 years ago doesn’t make sense now” for manufacturers facing similar pressures, he said.

The decline of Australian manufacturing creates a challenge for Prime Minister Tony Abbott’s government, which was elected in September pledging to create 2 million jobs within a decade. About 50,000 jobs in the nation’s auto and parts industry are in jeopardy after Toyota Motor Corp. (7203) this month followed Ford Motor Co. and General Motors Co. (GM) in announcing plans to quit making cars in the country.

“We’ve seen the end of most of the large-scale traditional manufacturing,” said John Quiggin, a professor at the University of Queensland’s School of Economics in Brisbane. “The rapid decline is overwhelmingly the result of the strength of the dollar.”

Surging Aussie

The local currency surged almost 50 percent against the U.S. dollar from 2009 to 2012, making exports uncompetitive and boosting the appeal of imports. The so-called Aussie traded at 90.42 U.S. cents at 5:15 p.m. in Sydney yesterday, down from the record $1.1081 in July 2011, though still higher than the average of 76 cents since it was floated in 1983.

Manufacturing employed 943,700 people as of November, down from 1.05 million 20 years ago, according to government data. The sector has lost about 82,000 jobs in the past five years. Australia’s population grew to 21.5 million in 2011 from 16.9 million in 1991, according to Australian Bureau of Statistics census data.

Alcoa’s 50-year-old Point Henry aluminum smelter and two rolling mills “are no longer competitive and are not financially sustainable,” Chief Executive Officer Klaus Kleinfeld said in a Feb. 17 statement. The smelter in Geelong, Victoria state, is about 16 kilometers (10 miles) from a Ford site scheduled to close in 2016.

Auto Industry

Ford said last May that its costs in the country were double those in Europe and four times those of its Asian divisions. GM’s Holden unit, which will close its production lines in 2017, estimates it costs about A$3,750 more to produce a car in Australia than elsewhere. Toyota will also end production in 2017.

Pacific Brands Ltd. (PBG), maker of the Hard Yakka and King Gee workwear labels, wrote A$242 million off the value of its workwear unit yesterday as a decline in industrial jobs cuts demand for its boots and overalls.

Ansell Ltd. (ANN), the world’s largest maker of protective clothing, sees weak demand in Australia as out of step with markets in other developed economies, Chief Financial Officer Neil Salmon said Feb. 17 on a conference call.

Coca-Cola Amatil’s Managing Director Terry Davis yesterday apologized to investors after the writeoff at its SPC Ardmona fruit and vegetables unit drove profit to its lowest level since 1992.

‘Corporate Welfare’

The federal government, which has said it doesn’t believe in “corporate welfare,” on Jan. 30 turned down Coca-Cola Amatil’s request for a A$25 million grant to fund efficiency savings at the unit. The government of Victoria state will instead provide A$22 million alongside A$78 million from the company, Coca-Cola Amatil said Feb. 13.

The challenge facing manufacturers is “not a regional issue,” Industry Minister Ian Macfarlane said yesterday in a statement. “It is part of a global evolution of industry which is causing major changes in ‘old world’ industry sectors across the globe.”

Still, manufacturing of dairy products and aircraft parts are expected to continue to support jobs. Dairy exports to Asia are forecast to rise on increased demand, while Boeing Co.’s Australian unit is the planemaker’s largest manufacturer outside North America, and employs about 3,400 people in the country.

Boeing’s aircraft components plant, about 400 meters from Holden’s engine factory at Fishermans Bend in southwest Melbourne, employs 1,300 people building wing components for aircraft including the 787 Dreamliner.

Not Inevitable

With proximity to growing Asian markets and strong research and development capability, Australia needs to find growth in areas including building products and packaged food, said Ben Eade, executive director of Manufacturing Australia, which represents producers including BlueScope Steel Ltd. (BSL) and Allied Mills Pty.

“What’s important now is how we respond,” Eade said by phone from Melbourne. “Australian manufacturing is not a sunset industry, this isn’t an inevitable transition.”

To contact the reporter on this story: David Stringer in Melbourne at dstringer3@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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