Is a closure team heading to the Tiwai Point aluminium smelter – or is it a delegation designed to put downward pressure on its power prices?
A 25 percent slump in aluminium prices over the last 18 months, increasing power costs, and over-capacity which has seen smelters closed around the world are affecting the Bluff institution.
The smelter – which has already negotiated astoundingly low power prices on previous threats of shutting down – says it still has to pay too much for electricity transmission.
But is this just another bluff from owners Rio Tinto?
Dr Aaron Fox is an historian based in Southland, who did a thesis called The Power Game, looking at the integrated electro-industrial development consisting of the Manapōuri-Te Anau hydro-electric power station and the Tiwai Pt smelter.
He’s from Invercargill, and grew up as the smelter was built in the early 70s. “It was the biggest thing that hit Southland,” he says. “It was a fascinating time … my dad was involved with the construction and it was one of my earliest memories.”
The flipside to the development was the Save Manapōuri campaign, where locals protested at the damming and raising of the lake level to provide the power. Dr Fox describes Manapōuri’s 160 kilometre transmission line as a “giant umbilical cord” for the smelter.
New Zealand’s only aluminium smelter employs nearly 1000 people. Most of its alumina comes from Yarwun and Queensland, and 90 percent of its product is exported.
Smelting needs a lot of power – it uses electricity equivalent to 776,000 households, or 13 percent of all the power used in New Zealand. Tiwai is close to power generation, and the fact that it’s hydro power makes it the cleanest operating smelter in the world. It is one of only two smelters in the world producing ultra-high purity aluminium.
Its website says it contributes $406 million to the Southland economy, generates more than $600m in export earnings and spends around $418m a year.
There have been a lot of controversial pit stops in the smelter’s 50 year history, with closures and job losses threatened many times.
Dr Fox wasn’t surprised at this latest announcement that Tiwai wasn’t making a profit and the big bosses were coming in from overseas to have a look at the operation. He says looking at the aluminium industry, in an international context, this isn’t surprising at all.
“Aluminium is a cyclical industry,” he says. “It’s a boom and bust. And while only a small number of companies own the raw materials or the patent rights to actually producing aluminium, it’s always had this boom and bust cycle around five years. Undersupply, oversupply – it averages out quite nicely which is why the aluminium companies are still going.”
He says there are five stages in the production of aluminium and Tiwai performs the most expensive part, in which no company would be able to make a profit. That’s the process of turning alumina into the metal aluminium – by the application of copious amounts of electricity to burn off oxygen.
“There’s nothing profitable about that,” he says. “Tiwai on its own as a business – terrible business model. As part of a larger industry it’s a very necessary aspect of producing aluminium.”
Rio Tinto vertically integrates its operation – it owns all five stages of the process.
“I think from Rio Tinto’s point of view they’ve got two options. If it’s not economic for their overall productions, then they’ll need to look at shutting it. And they talked about doing this in 2001 … at that point the end date for Tiwai Point was going to be 2022. Money was even put aside for the site clean-up.
“I really don’t know if anything’s changed since then.
“The other thing is to look at Tiwai Point, as they’ve done over the years, and say ‘we need the best deal we can get out of the power we buy to make aluminium. So we need to keep the pressure on the government, or the State Owned Enterprise, or the companies that operate the power stations, to get the best deal we can’.”
Rio Tinto will announce the results of its review by March next year.