Tanking aluminium prices don't bode well for Tiwai smelter

Tiwai Point aluminium smelter. Photo / Supplied

Aluminium prices hit their lowest level in more than a decade in April on slumping demand as Rio Tinto – majority-owner of the Tiwai Point smelter – continues to mull the future of the plant.

"Aluminium stocks are expected to reach record levels this year as demand has slumped – due primarily to fewer cars being produced," said ANZ Bank agriculture economist Susan Kilsby.

Aluminium prices fell 9.4 per cent on the month and are down 20.5 per cent on the year, according to the monthly ANZ commodity price index.

Rio Tinto is reviewing the future of the smelter which it says can't compete against global rivals that pay less for power.

Tiwai produced 353,293 tonnes of metal in 2019, just shy of the record 354,030 delivered in 2011.

The ANZ World Commodity Price Index fell a further 1.1 per cent in April and has fallen 9 per cent from a year ago. In local currency terms, the index fell 0.6 per cent in April and 0.9 per cent from a year ago due to the weaker New Zealand dollar.

The kiwi eased 0.4 per cent on a trade-weighted index basis in April.

Dairy prices fell 1.6 per cent in April and are now 10 per cent lower than a year ago while the meat and fibre index fell 0.6 per cent in April. Prices are now 19 per cent lower than when the markets for beef and lamb peaked five months ago.

Meat prices are expected to remain under pressure as consumer demand eases as global economic conditions worsen, said Kilsby.

Meat processing has slowed in many countries, which may result in some temporary shortages of meat but overall prices are expected to fall.

The horticulture index was unchanged again in April as new-season prices are yet to be released. However, preliminary data for kiwifruit exports shows solid prices with returns improving from markets such as Japan.

The forestry index was virtually unchanged in April, lifting just 0.1 per cent. The market for export logs was on hold through most of April, due to no harvesting or exporting under level 4 lockdown restrictions.

Activity has now resumed. However, sector returns remain highly dependent on economic growth in key markets, and they are all under pressure, Kilsby said.