Tiwai Point

Patrick Smellie does some excellent analysis of Tiwai Point:

A UBS research report issued in November 2011, just after Rio put its New Zealand and Australian smelters up for sale as Pacific Aluminium, suggests Tiwai Pt makes metal at around US$1900 per tonne, against US$1700 at Tomago – the lowest cost of the Australian smelters being sold – and US$1400 in Canada.

Since 2007, when Meridian Energy and Rio inked the now disputed contract for up to 18 years’ electricity supply to Tiwai Point from 2013, the price of aluminium has tanked. It was above US$3000 per tonne that year, plunged to below US$1300 a tonne in 2009, and is close to US$1900 a tonne today.

Global commodity prices are highly variable. That risk should be borne by the private sector, not the Government.

His only question will be whether the Tiwai Pt smelter is worth more open than closed. In the absence of buyers, closure grows as an option, despite hundreds of millions of dollars of site remediation costs that a closure would trigger.

In other words, no matter how hard Meridian Energy tries to do a new deal with the smelter, it’s time to get ready to kiss it goodbye. After 42 years, it’s served New Zealand well enough, raking in billions of dollars in foreign exchange earnings, paying a lot of tax in its many profitable years, and creating high-paying jobs in one of our more remote regional economies.

But the aluminium industry is changing. Lower cost, larger scale plant is being built, especially in China, and the integrated “mining-to-metal” business model is looking outdated.

Using cheap New Zealand electricity to turn Australian bauxite into high-grade metal is not the money-spinner it once was, all the more so because New Zealand itself can probably use the energy from Manapouri for higher-value activities. Meridian, for example, expects to be more profitable if the smelter closes because it will be free to market its excess power to higher-paying customers.

A sunset industry maybe?

And as to the supposed pressure on the MightyRiverPower float?

Even nine years ago, when the smelter was still owned by Comalco, the company was saying if smelter power was “freed up at Lake Manapouri, a reduction in coal-fired generation at Huntly would remove any benefit of extra power from the national grid.”

That logic is even stronger today. Genesis Energy is desperate to be rid of Huntly, while Contact Energy talks openly of closing one or both the company’s combined cycle gas generation plants at Otahuhu and Stratford. Transpower says it could upgrade the national grid to get smelter load out of Southland “in three summers”.

In other words, Rio has pushed Meridian and the government as hard as it can. It has contractual obligations that would see an orderly closure over the next five-and-a-half years. That would be a blow, but not an unmanageable one for Southland or New Zealand.

Very interesting and useful.

Also Kate Chapman at Stuff reports:

Labour won’t say whether it would step in to save the Tiwai Point aluminium smelter if successful at the next election.

Yet their major funder wants them to:

The Engineering, Printing and Manufacturing Union called on the Government to consider other ways it could help make the smelter viable in the long term.

The question for Rio Tinto is whether they think they will find a buyer. Much more profitable to sell it than close it.