NZ power discount keeps Rio Tinto’s Tiwai Point smelter alive
Rio Tinto has backtracked on plans to close down its New Zealand aluminium smelter in August.
Rio Tinto has backtracked on plans to close down its New Zealand aluminium smelter in August, after forcing Meridian Energy to the table to negotiate a new power deal and keep the smelter alive until December 2024.
But the extension of the Tiwai Point smelter will be its last, according to both companies, with Rio not changing its decision that the New Zealand aluminium producer will not be a part of its long-term portfolio.
Rio announced the closure of the Tiwai Point smelter in July 2020, triggering exit clauses in its New Zealand power contract — which still had another decade to run — and saying the facility would close by August because the company had not been able to secure the “power price reduction” needed to keep the smelter running.
But Rio said on Thursday it had backtracked on that decision after Meridian offered terms that would make the smelter “economically viable and competitive over the next four years”.
Costs at Tiwai Point could fall further if Rio wins additional concessions from the NZ government, which had promised to review transmission charges that were the centre of Rio’s original decision to review the future of the smelter.
Rio Tinto Aluminium chief executive Alf Barrios said the company was pleased to have reached an agreement with Meridian that would enable the Tiwai Point smelter to continue.
“This agreement improves Tiwai Point’s competitive position and secures the extension of operation to December 2024. It also provides Rio Tinto, the New Zealand government, Meridian, and the Southland community more time to plan for the future and importantly gives our hardworking team at Tiwai and our customers the certainty they deserve,” he said.
Meridian chief executive Neal Barclay said the terms of its new power deal would be “acceptable” to the company’s shareholders.
“We have worked hard to provide solutions that we believe were of lasting value to the smelter and acceptable to our shareholders. We’re pleased that Rio Tinto has accepted this offer, which will now provide certainty for the Southland community,” he said.
The agreement will save the jobs of about 1000 New Zealand workers, but Aluminium Council of Australia executive director Marghanita Johnson said the power deal that allowed Rio to keep Tiwai Point running would not necessarily be replicated for under-threat smelters in Australia.
“Today’s announcement is good news for New Zealand, but their electricity market is not going through the difficult transition which Australia’s market is — and unfortunately you can’t draw a link between a good outcome there and the situation faced by smelters here,” she said.
“While wholesale power prices have been lower in recent times, the unpredictability in the Australian market makes it hard to secure long-term contracts which smelters need.”
The aluminium price has recovered markedly since hitting long-term lows of about $US1455 a tonne in April 2020, as the pandemic closed manufacturing centres across the world, trading at $US2009 a tonne on the London Metals Exchange.
Ms Johnson said the recent price recovery had been offset by the rising Australian dollar, which had wiped out some of the benefits for exporters such as aluminium smelters.
Alcoa’s Portland smelter in Victoria remains under review by its owner, although it is believed the global aluminium major is inching closer to a deal with power providers and the Victorian government which could keep Portland in business.
Rio has also said its Australian smelters — at Gladstone in Queensland, Tomago in NSW and Bell Bay in Tasmania — are under threat from high power prices.
Rio shares closed down 0.9 per cent at $119.66, with Meridian Energy up 0.3 per cent to $7.38.
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