Tiwai point smelter returns to profits but uncertainties linger

The Tiwai Point almunium smelter is back to running a profitable operation, though uncertainties about its outlook have left question marks over its intrinsic value, according to majority owner Rio Tinto.

The smelter "is currently profitable as a result of high regional and product premiums and operational cost improvements," Rio Tinto said in its 2014 annual report, confirming electricity supplier Meridian Energy's analysis last month that the plant should be running a cash surplus.

The smelter makes up part of Rio Tinto's Pacific Aluminium unit, which reversed some US$1 billion of earlier impairment charges in the 2014 financial year as aluminium prices turned around, and because of the repeal of Australia's carbon tax.

Rio Tinto's average realised price for primary metal products in the aluminium segment rose to US$2,395 per tonne in 2014 from US$2,249/tonne a year earlier.

However, that turnaround in the Pacific Aluminium unit's writedowns didn't extend to the New Zealand smelter, as "operational uncertainties indicate that the impairment losses previously recognised are yet to reverse."

In 2012, Rio Tinto's local holding company slashed the value of its 79 per cent stake in the New Zealand smelter to just $14.8 million from $606.9 million

The Tiwai Point smelter produced 327,000 tonnes of aluminium in calendar 2014, slightly up from 324,000 a year earlier, though still below full capacity of 365,000 tonnes of production.

The company renegotiated its contract with Meridian in 2013 when Rio Tinto threatened closure ahead of the electricity generator-retailer's initial public offering.

The revamped contracts kept the price it paid for power at pre-2013 levels, and gave the smelter's owner an option to terminate its contract on July 1 this year, with shutdown by the end of 2016, or a longer, staged rampdown.

Those negotiations also included a $30 million sweetener from the government to keep the smelter running, given its importance to the Southland economy.

New Zealand Aluminium Smelters, the entity running the facility, has been seeking alternative suppliers to Meridian in recent months as it mulls its options for continued operations at Bluff.

The smelter consumes about a seventh of the nation's electricity, meaning its closure would flood the market with supply and potentially put thermal generation, which has higher marginal costs, under pressure.

Copyright and Exemption Declaration :¢ÙAll articles, pictures and videos that are marked with "China Aluminum Network" on this website are copyright and belong to China Aluminium Network (www.alu.com.cn). When transshipment, any media, website or individual must list the source from "China Aluminium Network (www.alu.com.cn)". We seek legal actions against anyone that disobey this. ¢ÚArticles that marked as copy from others are for transferring more information to readers, do not represent or endorse their opinions or accuracy and reliability. When other media, website or individuals copy from our website, must keep the source. Anyone that changes the articles' sources will hold the responsibilities for copyright and law problems. We also seek legal actions against anyone that disobey this. ¢ÛIf any articles copied by our website concern the copyright and other problems, please contact us within one week.