Rio Tinto's exposure to aluminium material costs on the rise

THE impact of significant material costs on Rio Tinto's aluminium business in the past six months has exceeded the struggle the miner during the whole of 2017.

Rio Tinto Yarwun January 31, 2017. Picture: Mike Richards GLA3102017REOY

THE impact of significant material costs on Rio Tinto's aluminium business in the past six months has exceeded the pain felt by the global miner during the whole of 2017.

Its second quarter report revealed while aluminium prices on the London Metals Exchange had risen, the company's exposure to raw material costs did too.

"As previously guided, significant raw material cost headwinds have been experienced by the aluminium business, with the impact during the first half of 2018 already considerably exceeding the full year 2017 impact," the report said."

The report said there were higher-than-expected power costs in Australia due to higher coal prices impacting power contracts, with the second half of 2018 tipped to be the same.

Documenting the past three months of production, Boyne Smelter Limited produced 74,000 tonnes of aluminium, taking the tally to 146,000 tonnes for the year.

The smelter's production is slightly lower than the first six months of 2017, which was 154,000 tonnes.

Queensland Alumina limited produced 752,000 tonnes of alumina this quarter, and Yarwun 763,000 tonnes.

Rio Tinto chief executive JS Jacques said: "Operational performance was solid across most commodities, rounding out a strong first-half performance for the group."

Average aluminium prices in the first half of 2018 were $2547 per tonne, compared to $2151 per tonne last year.

The company cashed in on an "attractive" price for value-added aluminium products, which represented 58 per cent of metal sold, averaging $222 per tonne, an increase of $5 per tonne on last year.

Meanwhile the company continues to explore the potential impacts from the United States' 10 per cent tariff on aluminium imports. The tariffs were effective from June 1 for Canada, with only Australia and Argentina remaining exempt.

Rio Tinto is yet to declare if it will prevent them from fulfilling any contracts.