Tuesday 4th June 2019
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The owner of New Zealand’s sole aluminium smelter says it has delivered a significantly lower profit for calendar 2018 and that it remains vulnerable to a volatile market this year.
Pacific Aluminium (New Zealand), which is 80 percent-owned by Rio Tinto with Sumitomo owning the rest, says the Tiwai Point smelter showed underlying earnings of $22 million for 2018, down from $53 million the previous year.
“The result reflects that during 2018, the operating environment became significantly more challenging,” the company says.
Aluminium prices on the London Metal Exchange averaged US$2,259 a metric tonne in the second quarter but then fell to US$1,971 in the final quarter.
The statutory result was a $186 million net loss, reflecting changes to its contract with Meridian Energy and an impairment charge, compared with a $93 million net profit the previous year.
“While the New Zealand dollar averaged 69 US cents, lower than 71 during the previous year, the increasing and volatile cost of raw materials throughout the year meant this provided little relief,” it says in a statement.
“The smaller profit doesn’t represent the efforts of the team here at Tiwai Point,” says Stew Hamilton, chief executive of the subsidiary operating the site, New Zealand Aluminium Smelters (NZAS).
“The smelter produced 340,111 tonnes of some of the lowest carbon aluminium in the world in 2018, an increase of 0.9 percent on the previous year, and I am very proud of that result,” Hamilton says.
“However, we are facing a very tough time right now with the LME down to US$1,761 per tonne and predicted ongoing volatility in the market,” he says.
“One of the hardest things for our team to cope with is the very high costs we face that are beyond our control.”
This includes paying “one of the highest transmission prices of any smelter in the world and our overall power cost is high by international standards. That makes it incredibly hard for NZAS to compete in the highly competitive aluminium market, no matter how efficient our team is.”
NZAS paid $66 million in transmission costs alone in 2018.
“We support a ‘user–pays’ approach to transmission costs and support reform of the way charges are currently allocated which sees NZAS pay a large share for the grid upgrades in the upper North Island,” Hamilton says.
The Electricity Authority is working on transmission pricing reform but had to scrap its work in 2017, just as it was about to announce its final decisions, because a Sydney-based consultant it had used made a number of errors such as placing the Stockton Mine, north of Westport, in the North Island and a possible power station in Rodney, north of Auckland, in the South Island.
The EA, which had been working on reform since April 2009, had to start again from scratch.
Hamilton says NZAS has paid $334 million in transmission costs over the past five years and spent slightly less than $2 billion on employee costs and local suppliers, including power costs.
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