Rio Tinto says it is going to close its New Zealand aluminium smelter at Tiwai Point in Southland with about 1000 jobs now on the line and a further 1600 jobs indirectly affected.
In a statement on Thursday Rio Tinto said it had given notice to Meridian Energy it was cancelling its power contract as of August next year.
This is the statement from the company:
Rio Tinto will start planning for the wind-down of operations and the eventual closure of New Zealand Aluminium Smelters (NZAS) following the conclusion of its strategic review which has shown the business is no longer viable given high energy costs and a challenging outlook for the Aluminum industry.
As a result, NZAS has given Meridian Energy notice to terminate the power contract, which will end in August 2021, when the wind-down of operations is expected to complete.
The strategic review concluded that the smelter, which has made Rio Tinto an underlying loss of NZ$46m in 2019, is not economically viable due to energy costs that are some of the highest in the industry globally, coupled with a challenging short to medium term aluminum outlook. Extensive discussions with a wide range of interested parties have failed to secure a power contract that will enable the operation to become both competitive and profitable.
During the next 14 months, NZAS and Rio Tinto will work closely with partners as detailed planning is undertaken to wind-down operations, and eventually close the smelter.
Rio Tinto Aluminium chief executive Alf Barrios said “We recognise the decision to wind-down operations at NZAS will have a significant impact on employees, the community and our customers.
“It is not a decision we have made lightly and without significant careful consideration. It is very unfortunate we could not find a solution with our partners to secure a power price reduction aimed at making NZAS a financially viable business. We will therefore terminate the power contract and move to close the operation.
“We are committed to working with our partners as we progress through detailed planning towards closure and we will do all we can together with the government to find ways to support the Southland community.”
NZAS is a joint venture between Rio Tinto (79.36%) and Sumitomo Chemical Company Limited (20.64%). It employs around 1000 people directly and creates a further 1600 indirect jobs in Southland.
Meridian Energy released this statement:
Meridian Energy received notice this morning that Rio Tinto, global mining giant and owner of the Tiwai Point Aluminium Smelter, has given 12-months’ notice terminating the contract on and from 31 August 2021 and will be leaving Southland.
Meridian Chief Executive, Neal Barclay says, “It is disappointing for many and we acknowledge this news will be a huge blow to the Smelter workforce and the Southland community.”
“We have worked hard to provide solutions that we believe were of lasting value to the Smelter and acceptable to our shareholders. Ultimately Rio Tinto has arrived at a different conclusion and has decided to terminate their contract with us.”
“As a company we have always known an exit is a possibility and we have planned for it. An exit does provide our country with a unique opportunity to accelerate decarbonisation, making way for new growth opportunities across numerous sectors."
“At this time we don’t have any further information about Rio Tinto’s decision but this decision does give the industry clarity on its future,” adds Barclay.
Meridian will now take time to engage with the smelter owners and work with them on an orderly exit.
125 Comments
Meridian were recently caught spilling water from their dams to keep the generation costs high in the South Island. Would have to imagine that was at least a factor in this decision - one of your key suppliers is caught actively ripping you (and everyone else) off.
That's not the reason that happened.
That was done because the National government wanted to privatise state assets to help pay for their tax cuts for the rich but had made an election promise of no state asset sales in their first term. They required Meridian to sell Tekapo to Genesis, and then they required Meridian to pay all of the proceeds of the sale to the government as a special one-off dividend. I believe Genesis had to raise a loan to buy Tekapo, so this let National get money out of the SOEs without directly forcing them to borrow and give the money to them which would be unseemly.
Reports at the time said that it was more efficient for Meridian to operate the whole string of dams on that river and that selling one of them to Genesis would create inefficiencies because now the two companies would have to cooperate over river levels to maximise power production and what is in the best interests of one of the generators may not align with the other one. National of course don't care about inefficiencies in the market, they only care about policies they can use to get elected (like tax cuts).
Just imagine what stupidity does to those who can screw over the entire South Island and what repercussions the "Taxpayer" will face for both supporting Meridian and keeping thousands in Work.
Work and income is a mandatory need. Nothing is free in this great world of ours. But taxing us all beyond the norm and screwing us financially via exorbitant electric prices will raise a chill throughout the entire Country.
Maybe we should buy the smelter for 1$ and keep the pot boiling and build our future houses out of Aluminium and Charge Meridian for complicity in fraud and not the other way around.
This is not a free world, but it could have been a lot cheaper.
Rotting, cold houses, over inflated fund-a-mentals, poor use of resources, taxpayers money etc, ripped off by Aussie Banks, Electricity Co's, duplicitous Politicians and lax care of Taxpayers being screwed royally and daily over the years is not what I came to this beautiful country of the long dark cloud for.
Shame on you all, open your eyes.... We should lock up those who do wrong and look after those who do right. Work is to be applauded, fraud, not so much. Taxpayers money is there for the good of mankind, not to keep any Politicians in the lap of luxury....nor crooks in positions...of "Power"......... Plus GST.
You do lose some power over distance though, don't you? Might be better to lure more people to the South via other inducements.
Set up a sovereign NZ data centre to reduce cloud computing costs in the face of currency and other risks on the horizon. Give companies tax breaks for the more staff they employ in new economic zones. Just spit-balling.
You do lose some power over distance though, don't you?
Yes, but it's less than 10% I believe. Depends on the distance, and of course longer distances can use more expensive infrastructure to reduce losses to acceptable levels.
It's far more efficient than hydrogen though, which is my maint point.
Set up a sovereign NZ data centre to reduce cloud computing costs in the face of currency and other risks on the horizon. Give companies tax breaks for the more staff they employ in new economic zones. Just spit-balling.
Microsoft are going to set up a data centre but I don't believe there was any information about where in the country it was going. Perhaps the government expected Rio Tinto to pull this trigger and so were keeping the MS datacentre as the ace up their sleeve to say "look, we have a plan for southland's economy", although data centres won't provide nearly as much employment as the smelter does.
I'm not disputing Hydrogen powered cars are available.. what I'm saying is NZ doesn't have the infrastructure to use them, and won't have for many years. GV has a good point above too. The biggest issue at the moment is transmission - both up the length of the South Island and across Cook Strait. Those "choke points" will take many years to rectify.
It takes 3 times the electricity to move a hydrogen car the same distance as an electric car.
https://insideevs.com/news/332584/efficiency-compared-battery-electric-…
With batteries improving rapidly, hydrogen use cases are diminishing. Even planes, oil tankers, long-range trucking are all moving towards electric as improvements allow. By the time the hydrogen infrastructure is built (at great cost), it will no longer be needed. For cars, Tesla is already eating the fuel cell vehicles lunches:
https://insideevs.com/reviews/370654/tesla-model-3-vs-toyota-mirai/
We would be better off persuading Elon to build a new Tesla Gigafactory in Southland than start producing hydrogen.
If electricy and hydrogen were both starting from the same point, with no existing distribution infrastructure, hydrogen would be a lot more competitive. But that simply isn't the case - large electricity networks already exist everywhere in the world. It makes hydrogen a non-starter for general private transportation and most business uses also.
Each hydrogen filling station costs about $2m to build as they need infrastructure to pressurise and cool hydrogen onsite. Even then, they can only fill about one car per 20 minutes as the act of fuelling increasing the temperature which needs to be brought down again before the next fill up.
Only if you are driving more than 180km per day, Not many commutes in NZ more than 90km. If you are one of the minorities, you can get a more powerful charger installed at home - don't worry, the extra kms you do will easily pay for its cost.
I charge my 60km range electric vehicle once every week. It has 2 wheels and it costs $6/year in electricity.
Hyundai, Toyota and Honda are the frontrunners in production: https://www.digitaltrends.com/cars/hydrogen-cars-for-sale/
Build Aluminium based cars run on Hydrogen and export the principle worldwide....only California running Hydrogen based cars at moment..., but cleaner than other fuels, maybe fix this Polluted World in the process....we could actually do some good......Export for a change, not import C_ _P.
Agreed but there are limitations over its usefulness to businesses outside of NZ.
Ping times from Bluff to (anything above 50ms makes multi-call applications too slow)
- Auckland 19ms
- Sydney 44ms (note that Sydney is 25ms ping from Auckland so will be a direct competitor)
- Singapore 137ms
- Hong Kong 167ms
- Los Angeles 177ms
we already have ports of auckland looking into hydrogen as well as other companies, maybe the country should seriously look at setting it up down there, you have plenty of water
https://www.thinkgeoenergy.com/hydrogen-production-facility-to-be-set-u…
Hydrogen maybe for long-haul widebody jets but battery development will make electric viable for our NZ national travel needs
https://eandt.theiet.org/content/articles/2020/01/easyjet-partner-takes…
It was inevitable, with middle eastern wholesale electricity (fed by gas and PV) as little as USD$0.02/kWh, NZ can't compete. There is no industry that can work better in Invercargill than elsewhere (other than some farming, fishing and tourism), and it's a cold, geographically remote climate, so the working population will inevitably leave for nicer locales.
NZ could probably make good use of a large PV and Battery producer - big enough to make us nationally self sufficient, as the tech is pretty mature and would help support and grow our industrial manufacturing base.
that's the point - A lot more people would buy an EV if they could be charged for free anywhere in NZ.
Alternatively, use the Manapouri power for the chargers and charge current rates - the difference can be used to rebate the EVs so they are cheaper to buy (without stopping NZ First loons buying their ICE vehicles).
https://www.nzx.com/instruments/MEL Yesterdays close looked very happy. No leaks..
And Meridian of course have just completed their 2020 share buyback scheme.
Sell NZ energy producers buy Rio.
Also from a share price perspective, this will also hit the shareholders/kiwisavers as they will have to cut the dividend and of course we can see the share price going down. This is hard as from my experience, a lot of 'older' people buy gentailers for dividend income and this is traditionally seen as a 'safe' utility asset
How are we going to replace the billion in exports that it produced? We already have a terrible balance of trade, and this just makes it worse. We can't afford to keep on losing export earners/substitutes like oil and gas, mining and smelting, because it just increases the pace at which foreign interests take ownership of NZ.
I sense a mantra-chanter, hurt.
But the comment deserves the reply: Bollocks.
We need to value things properly. In the process of doing so, 'jobs', 'investment' and a few other givens, will be up for examination. Time we asked the question - hello media? Hello? Nobody home,......
Yes
Generated Power Flow this morning was 566 MW South Island to North Island
https://www.em6live.co.nz/PlanningRegion.aspx?planningregion=uni
Sacrifice 1000 jobs in Bluff to give the North Island slightly cheaper power
Power Flow = 3rd screen in live slide show
Rio Tinto certainly has a history of that, but Meridian has been preparing for this moment for a long time now with their renewable energy strategies, and current govt has publicly stated their loss of patience.
A blow for Southland at present, but perhaps a better outcome for the rest of the country in the long term. Another good reason to have active development strategies in the regions.
They’ve cried wolf many times before and end up staying. The last National government gave them a $32 million subsidy to help with their electricity costs. Just delaying the inevitable. They sound serious this time. Invercargill and Southland should have been preparing for the day they close decades ago.
This will be devistating to the community & economy of Invercargill where most will be affected.These jobs direct & indirectly affected are all high paying due to the nature of work-24/7 operation shift work,hazardous material.Many,many families will be affected due to loss of jobs,buisness & disposable income which flows through the Southland Economy.
Th Worst timing in the current environment. Pressure well and truly on the government to come out with some meaningful job creation. Stop the politics and come out with some long term plan that the business community can plan around, and stop the drip feeding to the media, as the longer you do this the more jobs are lost.
Job creation?
Spare me.
You don't rattle on about communism too, do you? We need to be so far past that kind of comment. All Tiwai was, was a processor of parts of a finite planet. They were the best-remaining option(s) at the time, but processing removes them from the list. At some entirely predictable stage, the betting made at earlier stages (on their continuance) were going to be left stranded. Is it so hard to grasp? Those who hold mortgages (and, more pertinently, those who issued them!) based on the assumption that a finite resource extraction would/could continue indefinitely, have found their nag came up lame in the home straight. As will more and more. Time we constructed a steady state economy; one which ( by logical deduction) is devoid of interest.
Actually, I DO cvare about lives.
I just understand the difference between life-supporting habitat(s) - up to and including the whole planet - and short-term 'making money'; a totally blind-to-its-repercussions token-counting nonsense.
They''ll be reverting to small-scale food-production in Southland, probably within a decade. Some will be ahead of the curve.....
Dont get too excited
Rio Tinto not alone
Check out prices paid by light industrial and heavy industrial users
Figure 3 page 4
Heavy subsidies
http://www.geoffbertram.com/fileadmin/publications/How%20neoliberalism%…
If Rio Tinto isn't going to be using the power the first change that needs to happen, is the mana of the Waiau river should be returned. The river community has been asking for 3% more water to be returned to maintain the ecology of the river, but it has fallen on deaf ears - Green Party where were you? Approximately 95% of the river flow is taken out and dumped in to a marine environment - not returned to the river. The Waiau was the 2nd largest river in NZ by flow after the Mata-Au (Clutha) prior to Manapouri being built.
https://www.stuff.co.nz/environment/121937082/rivercare-group-fight-to-…
Ever since I was a kid I've been interested in hydro projects and think they're awesome. But I've always had a knot in my stomach over the obvious destruction and change of ecosystem. Manapouri was always the ultimate with a really great piece of engineering creating a equally great ecological change. Maybe now is a good time to redirect that tiny 3% and make a small difference.
Interestingly the announcement comes just days after this:The Environmental Defence Society has filed Environment Court proceedings against New Zealand Aluminium Smelters over the 10,000 tonnes of so-called ouvea premix dumped in the small Southland town in 2014.
https://www.rnz.co.nz/news/national/420634/mataura-ouvea-premix-toxic-w…
Hey David, did Rio Tinto pay for identical leading articles to be plastered over Interest.co.nz, Stuff, NZHerald in different journalists names at the exact same time, or is this merely coincidental that the substance of this one article is without any critical analysis of Rio Tinto's behaviour here?
It would be great to have some quality analysis of what Rio Tinto are doing here, including their engagement in transfer pricing to the parent company rather than a blanket statement of "$46m loss", detailing of the history of this strategy that Rio Tinto takes in election years to get their power price subsidised, and perhaps a look at their behaviour in regards to dumping toxic dross in southland with bad faith negotiations to avoid cleaning it up. We've all got to pay the bills, but let's not let Rio Tinto lead NZ into paying their power bill by our leading journalists playing into their hands
Fonterra product their own electricity. Why not a subsidy to set up a new generator which employs people and makes for a long term future for the plant ?
Either that or we slap an appropriate sized tariff on imports and level the playing field re cost of production.
Don't worry the Jobs for Nature fund will save us all.$1.1 billion package is designed to create a total of 11,000 environmental jobs in our regions. That's 100 grand a job and light on detail about how long each job will last and how many will be in Wellington. For all its wrongs. Tiwai employs 1000 people directly. Each of them earning at least 80 grand a year. That's 80 million dollars a year. The 1600 indirect jobs is probably another 96 million. That would generate 35 million per year in PAYE alone. They take Alumina from Australia. Bring it all the way to Bluff and turn it into Aluminium using cheap power from a hydro station that was designed and located nearby for that purpose. Then the vast majority of the finished aluminium is exported to Japan. Who loses more if they close down?
Closing Tiwai will be ultimately worse for the planet as the aluminium will need to be produced someone else in the world using a higher-emissions energy source, likely coal.
If we are able to price in the externality of fossil fuel emissions, it would probably prove viable again.
Yep, this is why I suggest making our own market of "green aluminium" at a higher price point. Consumers are demanding it, it sounds like we now have the expertise in NZ to make it, without a huge MNC playing games with peoples lives.
Printing money is in vogue. No reason to use the oppourtunity to create our own high value products.
Tiwai makes some of the highest purity Ali in the world. Ali is a raw material i.e a commodity. Calling it "green" doesn't affect the price one iota. As said elsewhere here, it's still possible Rio are trying to play their ultimate ace. The TPR has been undertaken, giving them about 20mil saving but not immediately. By moving that forward by 12 months and wringing out a yet more favourable electricity price they may well stay. Watch for Dr Woods to get involved, she may have some singing still to do. Especially with an election pending.
You are thinking current market where one commodity = the same commodity. Not all commodities work like that, do people pay the same price for organic milk as opposed to non organic? No? Why? Why do you think A2 milk fetches higher prices? A2 wasn't successful right?
The point is differentiation in commodities is totally possible. Just because it's not happening now, doesn't mean to say it cannot in the future. If we start producing green aluminium then we can approach companies like Tesla to suggest they source their aluminium from us. Yeah it's more expensive, but it's green credentials are a massive point of difference for their end consumers.
That's the path NZ needs to follow with our commodities. Premium commodities. We will NEVER be able to compete with volume and scale, so we only ever be able to compete with a higher quality product. If you can't see this from the Fonterra vs A2 and organic companies or the utter failure of our forestry companies to fetch decent prices (basically they are price takers), then I suggest you look harder.
Blobbles I suggest perhaps YOU need to look harder. A2 is a different product to Fonterra's and is doing well because many (if not most) Asians are actually A1 intolerant, it's a health factor. Fonterra's factories can mostly only produce WMP not nutriceuticals.
Organics sell for more because some in the consumer world are convinced it's better quality (erroneously) or it's a philosophical buying choice, also Organics are a niche product NOT a commodity.
Our forestry companies sell unprocessed logs for two reasons, 1: China (and others) won't purchase sawn timber and 2: Most of them are offshore owned forests in the first place. All our Pulp & Paper companies are also foreign owned. Forest products are priced by the world market and NZ is a bit player in that market.
You are getting caught up in the details, the important part is A2 and organics are DIFFERENTIATED products that fetch higher prices. They are considered (rightly or wrongly) superior products than the standard commodity. Pretending that's not happening is obtuse.
Yeah, we have sold all our processing of logs, become uninventive and unsupportive of companies that want to create quality products at home. And it's got us nowhere. That's the whole problem. It's why we need niche, high quality products, not just be price takers of commodities.
Suggesting that we can't make green aluminium and differentiate the product is also obtuse. Rio have literally been selling green aluminium at a higher price point with the ELYSIS technology, which Apple picked up. https://www.bloomberg.com/news/articles/2019-10-29/green-aluminum-comin…. Apparently that's not possible though huh?
It's like you are looking in the rear view mirror to decide what's possible in the future. Grow some innovation kahuna's and think outside the square.
Well, Bloomberg use a lot of "might, may, potentially" in that article. You also seem to be missing one big point in the green Ali theory- where does the Bauxite come from? Rio?.. haha good luck with that. The detail I'm"getting caught up in" is that neither product is a commodity. NZ will always rely on commodity production because it's too small a market for true innovation. There isn't the scale for early startups to survive, that's why they disappear offshore.
I think we just have to agree to disagree on this issue.
A willing customer who want's to buy green aluminium, that's all that is needed. Alcoa and BHP are also potential suppliers of bauxite out of Aus, it's not just Rio. Yes, the mining side isn't going to be green, but you could offset the carbon by planting trees in NZ as well.
Early startups don't have to rely on the NZ market for customers, even to start with. There are many successful IT companies proving this. And it's not limited to IT, A2 milk is one that relied on Aus customers, then Asian for it's customers. Still NZ based.
We already have high quality export goods in different commodities. See kiwifruit/apples/seafood. Yes, these industries need productivity improvements, but there is really nothing stopping NZ from innovating. Claiming that we can't "because we are too small" in the modern globalised world is not backed up by evidence.
Print some money, nationalise it, sell the aluminium as "green aluminium" going forward. Make our own market based on the green credentials of the company. Essentially a premium product.
NZ should be looking at doing this for lot's of things connected to our electricity network. Leverage our actual green credentials!
I wonder if these guys would be interested in another smelter. Going cheap. They are based in Australia with their own Bauxite mine and alumina refinery. https://www.south32.net/our-business/australia/worsley-alumina
Surely we can make them a sweet deal. Show Rio Tinto some leverage can be applied in reverse.
Sounds like a Plan.
But what we could do with all the "Talent" herein is get some total suggestions to actually produce money making ideas, other than, or possibly including Housing materials to obviate the need for pricey imports. You rich pri...sorry people could all donate a miserly sum collectively and collaborate in creating a money making scheme to raise the roof, over every ones heads and build an empire worth having...In sunny NZ. Put a smile on investors faces, not get screwed by these other Companies, supported by our Tax Payers bleedin money.
I would donate 100K for a profitable enterprise, in the long run, if NZ could agree in building enterprises, not selling each other, over priced Houses, with borrowed money, thereby avoiding the need for Aussie Banks to take the profits Offshore.
We could actually use KiwiBank if necessary and Kiwi Build for our own benefits in later life.
It might be a team effort, employing people, instead of screwing them...tax wise and otherwise. Maybe the Government can give us a Handout in the short term, for long term benefits of all New Zealanders, not export our dosh overseas....and pay interest on the bleedin stuff.
Just a thought...there are some brains here......but we could argue until the cows come home....unless decent ideas are suggested and listened to by our ...........Peers. (Some hopes....exclude Shane and Able....to chuck away money.....up North...when South is in greater peril).
Rio Tinto have never had any shame, anywhere in the world.
This is a blatant double bluff just before an election, so only three outcomes from this, 1: the labour government will fold and underwrite them staying, to save jobs and get re-elected, or 2: the national government will promise to do the same in order to bolster their chances.
And 3: only if neither of these things happen will Rio Tinto then miraculously find something that has happened elsewhere in the world that will adjust their thinking and they will stay open anyway.
Death by 30 years of government incompetence? Is this the logical result of running the economy to favour immigration and capital inflow into housing over profitable, productive enterprise?
If they were profitable they would stay. If electricity were cheaper we would all be better off. The profit haters will be happy and we will all be poorer together.
This is great news for New Zealand - we are one key step closer to not having to burn Coal and Gas to make Electricity like a pack of dimwits... Excess generation in the South Island (until the minor transmission upgrades are done and which should have been done years ago) can potentially be used for New Industries in the SI... The evil Rio Tinto are leaving our wonderful country - best news ever.....
Surplus of energy should lead to lower prices ?
Yeah right
Like the fact we have a surplus of fish , yet its still one of our most expensive forms of protein ?
Or milk that is more expensive here than in a milk-poor country like Aussie ?
Or where the price of crude oil drops from US$100pbl to US $40 pbl but the NZ retail price goes up ?
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