New Zealand's biggest power user, the aluminium smelter at Bluff, has cut production by 15 per cent as world aluminium prices slump and the company faces pressure from a high New Zealand dollar.
International commodity prices across the board have been hit hard by the ongoing European sovereign debt crisis.
The smelter company posted a return to profit in the past financial year to the end of 2011, from a loss in the year before, but only because of a one-off gain.
The smelter was put up for sale by Australian miner Rio Tinto Alcan last year, but world aluminium prices have slumped 29 per cent in the past 12 months and Rio Tinto says it is in no rush to sell. The smelter is a significant exporter and employs about 800 people.
New Zealand Aluminium Smelters acting general manager Paula Checketts said NZAS was facing tough market conditions as a result of low aluminium prices and the pressures from the exchange rate against the US dollar.
The New Zealand dollar was trading above US80c yesterday, well above a recent trough of US75c. The dollar peaked above US88c in August last year.
"NZAS is leaving no stone unturned as we look for opportunities to improve and sustain our business position," Checketts said.
One of the smelter's lines has been out of action since April, cutting production capacity by about 15 per cent.
"The decision to remove Line 4 was taken due to the deterioration of market conditions, including the uncertainty around electricity market pricing, the high exchange rate and low metal prices," Checketts said.
"We are closely monitoring this situation and restart options will be considered when economically viable."
Rio Tinto is selling 13 aluminium units worldwide, including refineries and smelters in Australia, and the Bluff smelter could be worth hundreds of millions of dollars. Rio Tinto has said it is in no rush to sell the businesses put up for sale last year and is prepared to wait to get the best value for any asset sale.
Rio Tinto Alcan NZ holds 79.36 per cent of NZAS, with the balance held by Japanese firm Sumitomo, which is understood to have right of first refusal to buy the balance from Rio Tinto.
Last month, world aluminium prices fell another 6 per cent as the European debt crisis continued to knock world commodity prices. Aluminium hit a recent low of US$1800 (NZ$2255) a tonne but has recovered slightly to US$1900 in recent days.
The price remains well below the 12-month peak of US$2600 a tonne. The 2011 average aluminium price was US$2395 per tonne, an increase of 10 per cent on 2010.
The latest Companies Office report for New Zealand Aluminium Smelters shows the Bluff smelter's revenues were up about $55 million in 2011 to $704m.
NZAS posted a bottom line profit of $46m from the previous year's $22m loss.
However, the profit included a one-off gain of almost $66m, largely reflecting the revaluation of derivatives at fair value – in other words, a paper gain. It also recorded a $6.3m gain on Emissions Trading Scheme units granted in the year.
Excluding the one-off gains, NZAS would have posted a small $8m loss before tax.
The NZAS report also shows a large increase in provisions for any potential closure of the smelter and rehabilitation of the site.
- © Fairfax NZ News
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