Economist: Smelter closure impact would be 'far less pronounced'
Tuesday, 15 November 2022
An economist expects the aluminium smelter at Tiwai Point to stay open beyond the next power deal and says Invercargill is now in a better position to soak up job losses if it did close.
Infometrics economists Nick Brunsdon and Brad Olsen presented to Invercargill City councillors on Tuesday following a request from council staff.
One of the key elements the council staff wanted the economists to look at was the smelter and what impact it could have on Invercargill and the council when it closed.
The smelter’s owners Rio Tinto announced in 2020 it would start planning to wind down operations for the eventual closure in 2024.
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In February, Rio Tinto believed there was now a long-term future beyond its signalled 2024 closure date.
Infometrics estimate 700 people are employed directly by the smelter, with a further 1600 employed indirectly.
About 97% of those people live in Invercargill.
Brunsdon said the market had shifted on almost every front since the threat of closure was floated in 2020, which would potentially lessen the impact on Invercargill if such a large employer did close.
“Previously we were talking about the smelter potentially closing in the midst of a recession as big as the Great Depression. That’s we were in 2020, but things are quite different now.
“We’ve got a much tighter labour market, so if it were to close the effect would be far less pronounced.”
The estimate was it would take one to four years for the lost smelter jobs to be absorbed into the local economy if it was to close abruptly.
“But based on the way things are at the moment it might be one to two years because things are running that hot and many of those skill sets would be in keen demand.”
Brunsdon said Infometrics did not have a strong view either way but if he “had to pick something”, his view was the smelter would most likely stay open.
He said the “balance of power” had shifted to energy supplier Meridian, but aluminium prices were also strong.
“For the Tiwai Point smelter to continue operating beyond 2024, Rio Tinto will clearly need to stump up more for its electricity from Meridian, and may also need to make significant investment to enable flexibility in its electricity demand.
“At present, high aluminium prices mean that Rio Tinto can likely afford to offer more for its electricity and continue to operate Tiwai profitably.”