Australian aluminium smelters 'not sustainable’ due to high power costs, Rio Tinto says

Ben Butler
Photograph: APPLE/PR IMAGE

Mining giant Rio Tinto says its Australian Aluminium smelters, which employ more than 2,600 workers, are not sustainable at current power prices.

The company runs three smelters in Australia, which are under financial pressure due to the high price of electricity, which makes up about a third of their costs, and the low price of aluminium due to a flood of cheap supply coming from Asian competitors.

The resources minister, Matt Canavan, has recently championed the industry, saying Australia was “one of the best aluminium producers in the world” and claiming it needed a continued supply of “cheap baseload” electricity from coal.

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“If we turn our back on coal, you turn out the lights on aluminium, it’s as simple as that,” he told ABC Radio last week.

However, speaking in London on Thursday night, the chief executive of Rio Tinto’s aluminium division, Alf Barrios, issued a blunt warning that current prices from coal-fired power were too high.

He said this was despite “fantastic work” done by the team at the Australian smelter division, Pacific, to improve the performance of the plants.

Related: Australia's aluminium sector is on life support. It can and should be saved | Simon Holmes à Court

“However power accounts for about a third of the global cost of the smelters and the smelters at Pacific do lack internationally competitive energy prices, which undermines the viability of these assets,” he said.

“We are working very closely with the power suppliers and the governments to find a solution to this challenge.

“I’m not going to speculate on the outcome but clearly the current situation is not sustainable.”

The warning comes after Rio Tinto boss Jean-Sebastian Jacques warned in August that Australian smelters were “on thin ice” and follows the company flagging last week that it might close its New Zealand smelter.

Barrios was speaking to reporters ahead of a quarterly update to investors that listed “low-carbon technology” as a priority for its aluminium business.

The company’s head of economics, Vivek Tulpule, said the profitability of aluminium was “challenged by the quick and cheap expansion of supply to meet growth in demand”.

“This underlines the value of our position in Canada with operating costs in the bottom decile of the cost curve supported by hydro power which will become increasingly important in a carbon-constrained world,” he said.

The company is also exploring making greenhouse gas-free aluminium as part of a wider project to reduce its emissions.