Can Victoria’s Portland aluminium smelter be saved?
The owners of Victoria’s Portland aluminium smelter are edging closer to a deal to save the manufacturing centre.
The owners of Victoria’s Portland aluminium smelter are edging closer to a deal to save the manufacturing centre, confirming on Tuesday they have reached “in principle” deals with state and federal governments for assistance for the smelter, pending a final deal on power supply to the plant.
Alumina managing director Mike Ferraro said on Tuesday that “arrangements have been agreed in principle” with the Andrews government for an assistance package for the smelter to keep it operating beyond June.
In December the federal government announced a $76.8m revenue underwriting deal under its reliability and emergency reserve trader (RERT) scheme over the next four years to support Portland’s future.
Mr Ferraro would not be drawn on details of the agreement with the Victorian government, but Portland operator Alcoa is believed to have been pushing for the waiver of an easement tax on power lines to the plant, as well as assistance to include more renewable energy into its power mix.
Victoria’s existing assistance package is due to expire in June, worth $200m over four years, along with Portland’s current power deal with AGL.
But Mr Ferraro indicated the government assistance packages were both contingent on Portland winning an acceptable new power deal, saying negotiations with potential providers were moving in a positive direction, but far from resolved.
“There are a number of issues beyond price that need to be sorted. These power contracts are quite complicated when you’re talking about such a significant amount of power,” he said.
Mr Ferraro said he could not comment further, but it is believed sticking points include the rights over the sale of power freed up by Portland’s agreement to curtail energy use at times of peak demand – which currently sits with AGL, but which Alcoa is believed to want for Portland itself.
AGL would not comment on the details of the discussions on Tuesday, but chief executive Brett Redman told the Australian earlier this month the energy major was “bending over backwards” to cut a new power deal for Portland.
“We view Portland as one of our biggest and most important customers. We’re also very mindful of the importance of the smelter in the context of the energy market and the Victorian economy,” he said.
“So we are bending over backwards to keep them on and get the right energy deal that they need to keep going.”
Alumina declared a US2.9c a share final dividend on the back of a $US146.6m full-year profit on Tuesday, saying global aluminium markets are recovering from the impact of the coronavirus pandemic.
Alumina released its full-year financial results saying it had achieved a solid result despite a dire period as its markets were hit by crashing global demand for its products as the pandemic shut down industrial centres across the world.
The company, which owns 40 per cent of Alcoa World Alumina and Chemicals, said its profit – effectively a dividend from AWAY – fell 31 per cent for the year on the back of low prices and demand, despite a strong operational performance from its assets.
Mr Ferraro said the company’s profit and cashflow demonstrated the resilience of the AWAY assets.
“In a year where the world was significantly impacted by Covid, AWAY’s mining and refinery operations both achieved record production. AWAY’s cash costs continued to fall and remain in the lowest quartile of the global cost curve,” he said.
“Primary aluminium demand fell over the first half of 2020 as a result of the pandemic but in the second half aluminium, and as a result alumina, demand recovered with the help of government stimulus. Prices for both aluminium and alumina have recovered from Covid induced lows and have stabilised. We expect aluminium demand to increase during 2021. A narrowing rest of world alumina surplus in 2021 is expected to be exported to China to meet a deficit there.”
Alumina shares closed down 3.5c to $1.655 on Tuesday.