AWAC aluminium production drops 5% in 2016; rising energy costs threaten smelter operations

Alcoa's Australian partner Alumina Limited has reported a loss of $US30.2 million ($A39.3 million)in 2016, down from a $US88.3 million ($A114.8 million) profit in 2015 driven by restructuring-related write-offs and lower prices and volumes.

Alumina Limited holds a 40 per cent stake in AWAC and the company had to pay an impairment charge of $US115 million pertaining to the share as cost for closing down operations. Notably, the Portland smelter in which AWAC has a 55% equity interest is the only remaining aluminium smelting operation in the AWAC portfolio. Alumina Limited and its partner Alcoa have reduced their stake in the Portland aluminium smelter in Victoria by $US126 million ($163.7m). This has caused a value hit of $US229m for the whole smelter also contributed by the higher power prices in a deal struck with AGL ­Energy.

AWAC reported aluminium production of approximately 1,54,000 tons in 2016, off 5% from the total production in 2015. This is attributed to the power outrage in the Portland smelter in Dec 2016. Prior to the electrical fault the smelter had been operating at nearly 85% of its nameplate capacity of 3,58,000 metric tons per year. The power outage reduced production to approximately 21% of capacity.

Victorian State and Austalian Federal governments and energy provider AGL Energy ltd signed an agreement in January to restart of the lost smelting capacity.  Restoring the curtailed production is expected to take approximately six months.

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The average cash cost of aluminium per ton produced in Portland till the point of molten metal exiting the potrooms decreased by 7% to $1471 per ton mainly due to lower alumina prices. The average realized aluminium price dropped by 11% to $ 1702 per ton due to low LME aluminium prices.  Portland smelter contributed $5 million in EBITDA, at a margin of $34 per ton of aluminium produced.

Alumina chief executive Peter Wasow expressed his concern that ­renewable energy schemes and onshore gas bans were making power too expensive for Victorian businesses to be competitive in the market.

“If eastern Australia can’t break the stranglehold that subsidised renewables have on the market that are forcing out not only baseload but intermediate load, I don’t see how we are going to generate electricity reliably or affordably within four years,” Mr Wasow told The Australian after the release of its full-year earnings report.