Alcoa’s Portland aluminium smelter closure likely: Ord Minnett
Victoria’s Portland aluminium smelter is likely to close given its profit struggles and the end of subsidies, analysts say.
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 $US100 million ($146m) in rehabilitation costs, Ord Minnett analysts said.
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 while also raising fresh challenges for the state’s ageing coal plants should such a large user of baseload supply exit the system.
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.
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