Tiwai closure talk puts power companies in a spin

Electricity company shares have dropped following reports that Tiwai Pt Aluminium Smelter major shareholder Rio Tinto wants to review its New Zealand operation, with the threat of closure.

Tiwai’s main power supplier Meridian has had its NZX stock fall by 42 cents (7.75% – $680 million) to $5.01, while Mercury went down 31c (5.7%) to $5.14, Contact Energy shares dropping 62c (7.3%) to $7.90 and Genesis Energy shares also declining against the possibility power prices could fall and surplus electricity become available.

That might be bad news for some but could help EV owners if electricity becomes cheaper and more plentiful.

The smelter uses some 13% of the country’s electricity output, the NZ Herald reporting news of the review has wiped nearly $1.5 billion off the value of New Zealand’s listed power companies on October 23.

New Zealand Aluminium Smelters (NZAS) won’t be getting a taxpayer funded bail-out to stay open though, energy minister Megan Woods warns.

Rio Tinto says it will conduct “a strategic review” of its interest in NZAS at Tiwai Point “to determine the operation’s ongoing viability and competitive position”.

“Under current market conditions and with high energy costs, we expect the short to medium outlook for the aluminium industry to be challenging and this asset to continue to be unprofitable. Rio Tinto intends to hold discussions with the Government of New Zealand and energy providers to explore options and identify economically viable solutions to find a pathway to profitability for the asset.”

Rio Tinto Aluminium chief executive Alf Barrios says the aluminium industry is facing significant headwinds with historically low prices due to an over-supplied market.

“This means that many aluminium providers are reviewing their positions.

“The strategic review will consider all options, including curtailment and closure and will be complete in the first quarter in 2020.”

NZAS is a joint venture between Rio Tinto (79.36%) and Sumitomo Chemical Company Ltd (20.64%) and employs around 1000 people.