Alcoa set to shut Portland smelter

Victoria’s Portland aluminium smelter is likely to close given its struggle to turn a profit and the expiry of subsidies, analysts say.

Portland's Alcoa aluminium smelter may be shutting down. Picture: Jake Nowakowski

Victoria’s Portland aluminium smelter is likely to close given its struggle to turn a profit and the expiry of state and federal government subsidies potentially triggering $US100m ($146m) in rehabilitation costs, Ord Minnett analysts say.

US giant Alcoa, which operates the Portland plant, signalled on Thursday the facility could be among assets shut or sold amid a global review of its aluminium portfolio, as it looks to cut costs and reduce its carbon footprint.

The smelter received a four-year $230m government bailout in return for a guarantee it will stay open until 2021, but its marginal profitability and looming expiry of the subsidy may spell the end of the industrial facility, according to the broker.

“The difficulty facing the asset is that power subsidies end in 2021 which would have likely triggered a separate review of the asset,” Ord Minnett analysts wrote. “Given these assets are not profitable through the cycle we believe the likely outcome is closure, which would likely trigger rehabilitation costs. These could amount to more than $US100m.”

With the smelter accounting for 10 per cent of Victoria’s electricity demand, its closure could free up power in a tight market and in theory result in an easing of prices.

But it would also likely raise fresh challenges for the state’s ageing coal plants should such a large user of baseload supply exit the system, with EnergyAustralia’s Yallourn station in the Latrobe Valley seen at risk.

“Portland’s closure should act to substantially relieve much of the pressure that is keeping power prices up in Victoria, but of course in lowering wholesale power prices across all time periods — not just high wind and high solar periods — it will increase the risk of Yallourn closing,” Green Energy Markets director Tristan Edis told The Australian.

Portland’s owners have been on the hunt to secure a cheap enough energy deal to ensure the smelter can remain viable well into the next decade, with renewables among the options being considered as part of a power mix.

But Mr Edis said it may be a stretch to find a cheap enough contract without some form of government assistance.

“Portland’s owners have been sounding out the market on renewables for some time now but the price they need to be viable is ridiculously low — low $40s per megawatt hour flat all-time, not just when the wind is blowing or sun shining.,” Mr Edis said.

“That kind of price isn’t really achievable anywhere in the world without government subsidies or government-driven investment.”

Alcoa and Australian-listed Alumina jointly own 55 per cent of Portland, with Citic and Marubeni each holding a 22.5 per cent stake.

AGL currently supplies 500 megawatts of electricity to Portland from its Loy Yang A coal plant and has indicated it expects the plant to continue operating.

Alcoa declared its ambition to become “the lowest emitter of carbon dioxide” among the world’s aluminium companies, adding to the clouds over Portland’s future, given it draws power from the Victorian grid, which is heavily reliant on brown coal from the Latrobe Valley.