Higher transmission cost brings down Tiwai Point Smelter's profit more than half

Tiwai Point smelter at Bluff, owned by Rio Tinto’s New Zealand Aluminium Smelters (NZAS) has slashed its underlying profit by more than 50% to $25 million, partially due to higher transmission costs.

This latest step by Rio Tinto has reopened the concerns about the smelter’s future as the decision will be facing tough negotiations ahead between Meridian Energy, the Electricity Authority, and even the Government.

Chief executive of NZAS, Gretta Stephens said despite a record production in 2016, the smelter's underlying profit declined to $25million in 2016 from $54million in 2015.

''When it comes to transmission charges, we believe you should pay for what you use.”

''This isn't what is happening now, so we're committed to working with the Electricity Authority and Transpower to achieve a more sustainable method of pricing transmission services,'' Ms Stephens said in a statement.

NZAS broke its hot metal production record in 2016, producing 338,556 tonnes of aluminium from its three P69 Reduction Lines, up more than 5000 tonnes on 2015. NZAS uses about 13% of the country's electricity and a notice of closure would leave excess electricity in the open market.

Ms Stephens added that the weaker New Zealand dollar softened the blow of low global aluminium prices, which had languished around $US1605 ($NZ2276) per tonne in 2016, a decrease of around $US60 per tonne on 2015's historically low prices.

According to her, the financial results had to be seen within the context of NZAS transmission costs which were $67million for the 2016 pricing year and this would increase to $72million for this year.

NZAS is well-equipped to supply low carbon aluminium to the growing market for lightweight automotive metal, but, the higher transmission cost makes the smelter products uncompetitive in the highly competitive global aluminium market.

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In August 2015, a power deal was struck between Rio Tinto and supplier Meridian Energy for 572MW of electricity until 2030 in order to allow its three potlines to remain fully operational. NZAS retains all its termination rights from the 2013 negotiations, which includes a 12-month notice of termination which came into force on January 1 this year.

Tiwai Point contributes about $525million to Southland's economy and 10.5% of the province's GDP, and offers about 3200 jobs.