Tiwai Point aluminium smelter to close, 1000 jobs to go

Thursday, 9 July 2020

Southland residents discuss their concerns about the closure of the Tiwai Point aluminium smelter.

Rio Tinto has said it will close the Tiwai Point aluminium smelter.

The company said in an announcement on Thursday it would start planning for the eventual closure of New Zealand Aluminium Smelters (NZAS) following a strategic review which “showed the business is no longer viable given high energy costs and a challenging outlook for the aluminium industry”.

The closure would result in the direct loss of 1000 jobs, with 1600 jobs indirectly connected to the smelter also under threat, the company said.

Rio Tinto Aluminium chief executive Alf Barrios said the company recognised the closure would have a significant impact on the Southland community.

Finance Minister Grant Robertson said it was disappointing Rio Tinto chose to close the smelter, especially given the support New Zealand had shown the company, and how profitable it was globally.

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Tiwai Point aluminium smelter chief executive Stewart Hamilton discusses the closure of the smelter.

Since the smelter opened taxpayers had been subsidising Rio Tinto to keep it open, either directly or indirectly through cheaper power, and Emissions Trading Scheme allocations of over $48m per year, Roberston said.

Energy Minister Megan Woods said it was disappointing Rio Tinto decided to close one of the world’s lowest carbon aluminium smelters in favour of keeping open coal plants. But Rio Tinto’s decision “not to extend their generous power contract with Meridian” would have a positive impact on power prices, she said.

By shortly after 11am, investors had wiped more than $2.8 billion off the value of NZX-listed electricity companies.

Meridian shares were trading down 11 per cent at $4.69, valuing the business at $12b. Shares in Contact Energy were down about 12 per cent, Mercury down 5 per cent, Genesis Energy shares down 7 per cent and Trustpower's shares had fallen almost 3 per cent.

“It is not a decision we have made lightly and without significant careful consideration. It is very unfortunate we could not find a solution with our partners to secure a power price reduction aimed at making NZAS a financially viable business. We will therefore terminate the power contract and move to close the operation,” Barrios said.

Mining giant Rio Tinto owned 79 per cent of NZAS, with 20 per cent owned by Japan’s Sumitomo Chemical Company.

The smelter has consumed about 13 per cent of the country’s power generation.

Invercargill Mayor Sir Tim Shadbolt expressed his devastation for the community. Shadbolt said he was shattered by the news of the closure, ''just absolutely shattered”.

''Not just because of the jobs, that's the worst scenario, but it's the families, schools and small businesses that are dependent on the smelter.”

Meridian Energy confirmed in a statement to the NZX that Rio Tinto had given notice it would be terminating the smelter contract from August 31.

”Rio Tinto have indicated that at this date the wind-down of operations is expected to complete and the smelter will eventually close. Meridian is reviewing this decision and will engage with Rio Tinto to assist the smelter owners in an orderly exit from New Zealand.”

Robertson said the Government would support the Southland economy.

“This day has unfortunately been on the cards for some time now, but nevertheless the final decision is a blow to Southland and all those who work at the smelter,” he said.

A 25 per cent slump in aluminium prices over the last 18 months, increasing power costs, and over-capacity had affected the smelter. In February, it posted a $46 million loss due to volatile prices and power costs.

Invercargill Mayor Sir Tim Shadbolt talks about the closure of the Tiwai Point aluminium smelter.

Aluminium prices fell from US$1730 (NZ$2633) a tonne when Rio Tinto announced its strategic review in October to US$1451 in May, as a result of the coronavirus pandemic, but have since recovered somewhat to US$1634 per tonne.

Tiwai Aluminium smelter chief executive Stewart Hamilton said his priority was the staff affected by the closure.

“It’s been very difficult for the staff involved as those in the wider community.”

Staff were notified at 8am that NZAS would 'start to plan the wind down of operations by the end of 2021'. A statement by Rio Tinto to the ASX said the wind down of operations was expected to be completed by that date.

The decision was not taken lightly and was a very serious decision but fundamentally the smelter was losing money, he said.

The smelter’s electricity transmission costs had risen from $40m in 2008 to $65m last year.

The smelter sources most of its power from Meridian’s Manapouri hydro scheme. It consumed about 13 per cent of the country’s power generation.

The bridge leading to the Tiwai point Aluminium Smelter, near Invercargill. Power pylons run alongside the bridge, supplying Tiwai with electricity.

Rio Tinto has announced it has started planning for the wind-down of operations and the eventual closure of the Tiwai Point aluminum smelter.

Contact Energy chief executive Mike Fuge urged Rio Tinto to 'reconsider' its decision.

Fuge said the decision by Rio Tinto to give 14 months’ notice on the smelter's electricity contract with Meridian Energy was “very disappointing”.

'All commercial parties involved in dealing with NZAS, including Contact, had collectively delivered significant cost reductions for electricity,' Fuge said.

“We’re very disappointed to have played our part in delivering these savings for one of the greenest smelters in the world and to have such limited engagement from Rio Tinto,' he said.

'We urge Rio Tinto to seriously consider the offer for improved electricity supply and encourage them to consider what is right for Southland, for New Zealand and for their own global environmental commitments.”

As it stood, the 'sensible option' would now be for Contact to cancel construction of its $600m ‘shovel-ready’ Tauhara geothermal power station, he said.

Prime Minister Jacinda Ardern at the official re-opening of potline 4 at Tiwai Point Aluminium smelter in December, 2018.

“Tauhara remains a fantastic project, however it is prudent to press pause for now. We need to factor in the impact of Covid-19 and the potential exit of NZAS and get a clearer picture of demand.”

Mercury said it was 'relatively well placed' to respond to the decision to close the smelter, given all its renewable generation was in the North Island.

'Mercury is confident that the sector will adapt to the closure of the smelter, invest in new transmission and develop new electricity demand to rebalance New Zealand’s electricity system,' it said in a statement.

The Tiwai Point aluminium smelter in operation.

The smelter had been seeking about a one-third reduction in the price it pays for electricity, which was believed to be about 5 cents per kilowatt hour.

Although the closure of the smelter would be expected to reduce electricity prices, only a proportion of the electricity generated by Meridian's Manapouri hydro scheme could be readily redeployed to other users.

Transpower estimated last year it would cost $110m and take 'three summers' to upgrade the national grid to ensure power from the Manapouri hydro scheme in Fiordland could be made available to other electricity users in the South Island.

The completion of that project was approved on June 30. But Transpower also estimated it would take five to eight years and another $450m to fully 're-balance' the grid so any surplus power from Manapouri could also be efficiently distributed across the whole country.

The smelter appeared to have secured a lifeline in June, when the Electricity Authority relaxed the rules governing the way in which electricity users could claim discounts on their electricity transmissions charges.

Those changes could pave the way for the smelter to claim an annual reduction of perhaps tens of millions of dollars a year from national grid operator Transpower.

But Hamilton had immediately cautioned that the change did not appear to include any relief for the smelter in the short-term, as Transpower was not required to develop a detailed proposal on how discounts might be calculated before the end of June next year.

Rio Tinto's statement came as doubts continue to hover over the future of two of the other biggest power users in New Zealand.

Refining NZ was considering closing the Marsden Point oil refinery and instead importing refined fuel, which the First Union has warned could lead to the loss of 1000 jobs in Northland.

In August, NZ Steel warned that there was a 'very real risk' it might need to pull out of Auckland.

NZAS produced aluminium in the form of ingot, billet and rolling block. Most of the smelter’s alumina powder was imported from Australia, with 90 per cent of its product exported.

Tiwai Point used the electricity equivalent of 776,000 households.

The company’s website said it contributed $406m to the Southland economy, generated more than $600m in export earnings and spent about $418m a year.

The Tiwai Point smelter was built in the 1970s and has faced the threat of closure before.

NZAS has estimated it would cost about $256m to meet its obligations to clean up the site after decommissioning the smelter.

Woods said the Government expected Rio Tinto would meet its obligations for clean-up of the site and do the right thing on the dross.