Employees were told the news this morning as they arrived for work.

VIDEO: Ben Smee reports from the Kurri Kurri.

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After curtailing one of three potlines in January, the company has begun consultation with the plant’s workforce with a view to closing the remaining operations.

‘‘Our Kurri Kurri workforce has worked intensively to improve the plant’s cost position and no stone has been left unturned,’’ Hilde Merete Aasheim, executive vice-president of Hydro’s Primary Metal business area said in a statement.

‘‘Despite extensive efforts to improve profitability, we are faced with a very challenging situation at Kurri Kurri.’’

The profitability of Hydro’s Kurri Kurri plant has suffered as a result of the continued weak macro-economic conditions, with low metal prices and an uncertain market outlook, as well as the strong Australian dollar.

The company announced in January that it would lay off 150 staff while agreements with many Hunter-based contractors were also severed.

Following a thorough review, Mr Aasheim it was clear the plant would not be profitable in the short term with current market prices, while long-term viability would be negatively affected by a number of factors including increasing energy costs and the carbon tax.

‘‘The current cash losses are significant, with no sign of improvement anytime soon,’’ he said.

‘‘We have therefore started to consult about full curtailment and will maintain a close dialogue with employees, unions and local stakeholders.’’

Customers’ contracts will be supplied through Hydro’s global metal products supply system, if the Kurri Kurri plant is fully curtailed.

Hydro Aluminium bought the Kurri Kurri smelter in 2002 as part of a global expansion strategy but its operations have been plagued by the skyrocketing value of the Australian dollar, reduced demand for aluminium and the loss of a major state government contract.

Hydro is listed on the Oslo stock exchange. Its largest shareholder is the Norwegian government with 34 per cent of the stock.

Hydro vice president explains

Hydro vice president of communications, Oslo-based Halvor Molland, said the company’s intention was to mothball the plant with the potential to reopen it later.

But Mr Molland, who has flown from Norway for the closure, said Hydro’s long-term prognosis was for an industry getting worse rather than better.

As had been the case in January when Hydro shut one of Kurri’s three potlines and laid off 200 workers, the two major factors in the decision were low global aluminium prices and the high Australian dollar.

There were a range of secondary issues including uncertainty over Hydro’s power contract, the federal government’s carbon tax and the rising cost of raw materials, but these were not as crucial as the Australian dollar and the low product price, as quoted through the London Metals Exchange or LME.

Australian Workers Union branch secretary Richard Downie said the Kurri closure was a shock but not a surprise.

‘‘Everyone knew things were tough but we are not real pleased with their methods, in putting out a statement at 7am today with no prior warning,’’ Mr Downie said.

He said the union’s suspicions were raised on Friday when Hydro cancelled a meeting with the union that had been set down for Monday this week.

Mr Molland said 50 workers had been laid off in December and another 150 when the potline was closed earlier this year. That left 344 Hydro employees on site.

Part of the cost-cutting process had involved dramatically reducing the number of contractors on site, to the point where Hydro had just 50 contractors on site.

Most of the people laid off earlier this year had found work and Hydro believed the buoyant Hunter jobs market meant the prospects were good for the remaining workers whose jobs would go if the ‘‘curtailment’ became a reality as expected.

He said Kurri’s product had been sold into the Australian and Asian markets. He said Hydro had a major new smelter in Qatar but he disagreed with speculation that the Qatar smelter’s success was a major factor in Kurri’s demise.

The rise of the Chinese aluminium industry is seen in many circles as a major factor in the Australian industry’s problems but Mr Molland said China was a ’’zero’’ player, in that its production had traditionally matched its consumption, meaning it had little influence in that sense.