Energy prices cloud future of Tomago aluminium smelter
High energy prices are putting much of Australia’s aluminium industry in doubt, with NSW’s giant Tomago smelter now also under a cloud.
The future of Australia’s aluminium smelters has been called into question after major investors Rio Tinto and CSR raised fresh doubts over facilities, including the giant Tomago unit in NSW, due to high energy prices.
The warning came after Alcoa raised the alarm over its Portland smelter, signalling last month the facility could be among assets shut or sold amid a global review of its aluminium portfolio. The US giant wants to cut costs and reduce its carbon footprint with the Victorian government “actively involved” in talks over its future.
Concern is also mounting over the medium-term prospects for Tomago. The plant is the biggest user of electricity in Australia but is struggling under the weight of power prices uncompetitive with those its international rivals buy at.
READ MORE: Portland smelter placed under review | Ticky – Helter skelter for the smelters as aluminium prices fall
Mining giant Rio Tinto – a joint owner of Tomago with CSR and Hydro Aluminium – said energy prices remained too high and described the situation as unsustainable.
“Power accounts for about a third of the global cost of the smelters and the smelters do lack internationally competitive energy prices, which undermine the viability of these assets,” Rio’s aluminium chief executive Alf Barrios told reporters after the company’s investor day. “We are working very closely with the power supplier and the governments to find a solution to this challenge. I’m not going to speculate on the outcome, but clearly the current situation is not sustainable.”
Rio has put the New Zealand government on notice it is prepared to shut its Tiwai Point smelter over a power price dispute, but its comments made on Thursday also raised questions over the future of Tomago along with its Boyne smelter in Queensland and Bell Bay facility in Tasmania.
CSR also said it was concerned about the plight of manufacturers in Australia struggling under higher prices and potentially losing out to overseas rivals.
“High electricity costs in Australia threaten the viability of all energy intensive businesses, Tomago included. Aluminium is a globally traded commodity and it’s a product of the future. And if it doesn’t get produced in Australia, it will get produced somewhere else,” CSR’s finance chief David Fallu told The Australian. “I think it would be a shame to lose that capability and that value added product from the manufacturing landscape in Australia.”
Last alternative
Asked if the joint venture companies had discussed closing Tomago, Mr Fallu said:
“That is the last alternative. You are seeing across smelters in the Asia Pacific region and Australia and New Zealand in particular a number of businesses reviewing their positions. Tomago is a very-well performing smelter in all operational metrics and plays a very important role in the stability of the grid. It’s important to ensure it can continue to play that role and continue to employ highly skilled manufacturing roles based in regional NSW.”
The situation appears more pressing in Victoria, with the Portland smelter dependent on a four-year, $230 million government bailout in return for a guarantee it will stay open until 2021. However, fears are now growing that its marginal profitability and looming expiry of the subsidy may spell the end of the industrial facility.
On Thursday Victorian Premier Daniel Andrews confirmed his government was concerned regarding the possible implications of Alcoa’s review of its global portfolio for the smelter in the state’s southwest, and was “actively involved” in discussions with the company.
Under questioning from Liberal member for South-West Coast Roma Britnell, Mr Andrews highlighted his government’s 2017 commitment of what is understood to be $200m over four years to ensure Portland would continue to operate until at least 2021.
At the time the federal government contributed an additional $30m. “I think for reasons of precedent we have not named the figure, but it is a very substantial amount of money and the smelter would be closed today without it,” Mr Andrews said.
Mr Andrews said comments from Alcoa CEO Roy Harvey indicating the review would focus on smelters with curtailed capacity – of which Portland is one – “are indeed concerning”.
“There will be no argument from me on that point,” he said. “But to suggest that the government has not done enough to this point or … to suggest that we are not in active discussions with Alcoa is wrong; it would be wrong.
“To suggest that the government is not actively involved in these issues and actively supportive of those jobs and other jobs is simply wrong.”
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