The announcement of the impending closure of Rio Tinto’s aluminium smelter has caused disruption within the energy industry, within 13% of national energy demand looking to be exited from the market. Meridian Energy have confirmed that their energy contract with the company is being terminated on 31st August 2021, and Contact Energy have voiced their disappointment at the smelter’s closure.
New Zealand is not the only country to be facing upset regarding the aluminium industry, and here NZGA’s Ted Montague summarises the global effect:
The overcapacity crisis gripping the aluminium industry extends to other hydro-geothermal power systems around the world.
Iceland, another successful geothermal pioneer, also faces smelter closures, in a market where aluminium consumes over 70% of Iceland’s power. Rio Tinto has reduced the output of its Straumsvik smelter by 15% and claims the power price is too high to justify continued operation. Smelter prices are slightly more transparent in Iceland; the local press reports that the power price to the smelters ranges between US $24 and $30 per MWh (NZ $36 to $46), the variance results because the price is linked to various indexes.
The underlying market tension causing the rout in aluminium prices seems to be the transition of China from the world’s largest importer to a net exporter. Under the policy of “self sufficiency” China has heavily invested in new smelter capacity (mainly fuelled by coal-fired power) since the Global Financial Crisis in 2009. With the 8% fall in demand due to COVID-19, the world industry has 4 million tonnes of excess smelter capacity. According to the industry magazine Aluminium Insider, most of the capacity reductions will likely come from the OEDC where aluminium is predominantly smelted using hydro power. The permanent loss of this capacity from the industry will materially increase the carbon emissions from this useful metal.