It will only be small beer for a company as large as Rio Tinto, but for New Zealand, the news that the miner is reviewing the future of its Tiwai Pont (at Bluff in the South Island) aluminium smelter means a great deal.
The news sent the shares of Kiwi power companies listed on the NZX plunging by around $NZ2 billion.
Shares in Meridian Energy shares were down more than 8% on the NZX, slashing its value by almost $NZ1.2 billion. Contact, Mercury, Genesis and Trustpower shares also fell by between 3% and 8%, also knocking more than $NZ1 billion off their combined values.
In Australia though shares in Rio Tinto rose 0.8% to $89.80 as investors saw the news as a positive
The smelter accounts for 13% of the country’s electricity supply and if it closes, the surplus will drive down prices.
It is similar to what may happen in Victoria where Alcoa is reviewing the future of its smelter.
Tiwai is owned by New Zealand Aluminium Smelters (NZAS), whose major shareholder is Rio Tinto. the other is Sumitomo Chemical Co of Japan
There are between 900 and 1,000 jobs associated with the smelter which has exited on a cheap power deal from the Manipouri hydro plant since 1971.
According to Rio Tinto the “strategic review of its interest in New Zealand’s Aluminium Smelter (NZAS) (will) determine the operation’s ongoing viability and competitive position.
“Under current market conditions and with high energy costs, we expect the short to medium outlook for the aluminium industry to be challenging and this asset to continue to be unprofitable. Rio Tinto intends to hold discussions with the Government of New Zealand and energy providers to explore options and identify economically viable solutions to find a pathway to profitability for the asset.
Rio Tinto Aluminium chief executive Alf Barrios said in yesterday’s statement “The aluminium industry is currently facing significant headwinds with historically low prices due to an over-supplied market. This means that many aluminium providers are reviewing their positions.
“Rio Tinto will work with all stakeholders including the government, suppliers, communities and employees in order to find a solution that will ensure a profitable future for this plant.”
The strategic review will consider all options, including curtailment and closure and will be complete in the first quarter in 2020.
NZAS reported a $NZ220 million profit for the year to December 2018, but the world price of aluminium had dropped about 25% in 2019.
The price of aluminium is sitting at about $US1730 a tonne, down from a peak of just over $US2500 a tonne in April last year and is now around levels last seen in late 2017.
The global markets have been hit by a combination of continuing solid production from Chinese smelters, falling demand, the impact of Trump’s tariff wars on Chinese and other metal exports to the US and the impact of global warming which is changing demand and production patterns as well as pushing up energy costs (especially for coal-fired power).