Smelter's earnings cool as power decision looms

The Tiwai Point aluminium smelter made an underlying profit after tax of $54 million in the year to December 31. Photo / Supplied

The Tiwai Point aluminium smelter made an underlying profit after tax of $54 million in the year to December 31, just $2 million less than the previous year's profit, although only $4 million of that was made in the second half of the financial year.

Rio Tinto-controlled New Zealand Aluminium Smelters will decide by the end of July whether to sign a new electricity contract for 172 Megawatts of its total 572MW load at a higher price and warned in yesterday's statement it is "facing even tougher conditions in 2016" than last year.

The international benchmark price of aluminium averaged US$1661 a tonne last year, down 12 per cent on 2014, and was quoted on the London Metals Exchange yesterday at US$1550 a tonne.

Still, the reduced metal price was "offset by higher premiums and a weaker New Zealand dollar" which contributed to a $34 million improvement in metal revenues. Total production of 335,291 tonnes was 2.1 per cent higher than the previous year.

"Higher volumes, improved energy efficiency and reduced anode consumption has helped to offset the increased cost pressure in 2015 from weaker exchange rate and higher maintenance spend," the company said in notes to its statutory accounts.

While the smelter would be the largest beneficiary among industrial electricity users of proposed changes to national grid costs, NZAS says it still faces "one of the highest power and transmission prices of any smelter in the world outside China, making it harder to compete in the highly competitive aluminium market".

NZAS was to have decided before now whether to take up its 172MW tranche of electricity at a higher price than was negotiated in 2013, when the smelter played hardball with Meridian Energy for a cut to its prices just ahead of Meridian's partial privatisation, securing a $30 million government payment in the process. Meridian is the main supplier to the smelter, which uses around one-seventh of New Zealand's electricity.

However, delays to the Electricity Authority's final recommendations on grid charging saw the decision pushed out to July. The regulator had originally proposed grid reforms that could have saved NZAS as much as $60 million a year, but those were toned down.