* Rio Tinto smelter must stand on its own feet after
rejecting subsidy offer-NZ
* Rio believes it can reach a electricity price cut with
local power company
* NZ electricity supply glut looms if smelter shuts
WELLINGTON/SYDNEY, April 2 Rio Tinto's
loss-making aluminium smelter in New Zealand, which wants a
government break on its electricity bill to stay afloat, must
learn to "stand on its own two feet," New Zealand Prime Minister
John Key said after the firm rejected a short-term subsidy
The 350,000-tonnes-per-year smelter in Tiwai Point in
southern New Zealand is a victim of dire market conditions
caused by weak demand and high Chinese production that's sent
world aluminium prices into free fall since mid-February.
Commodities analysts say it could be years before conditions
for producers improve and only after hundreds of thousands of
tonnes of excess capacity is eliminated.
The New Zealand smelter falls under the recently formed
Pacific Aluminium unit of Rio Tinto, designed to bundle 13
underperforming aluminium assets for closure, sale or spin off
into a separate entity for an in-specie distribution to Rio
Rio Tinto took an $11 billion writedown in 2012
because of losses in aluminium.
Key said Rio Tinto rejected the government's offer for help
for the Tiwai smelter because the company was seeking a longer
term price break than the government subsidy would provide.
"We have no interest in a long-term subsidy. If it can't
stand on its own two feet, it shouldn't be there," Key told a
New Zealand television network.
Pacific Aluminium has been holding talks directly with the
state-owned electric company that supplies the smelter, Meridian
Ltd, and said it believed a new deal could eventually be struck.
"We are of the view that a commercial agreement can be
reached in relation to the NZAS (New Zealand Aluminium Smelters
Ltd) electricity supply contract," Pacific Aluminium said in a
statement emailed to Reuters."Our electricity contract
negotiations with Meridian have progressed more in the past two
weeks than in the previous nine months."
The 41-year-old smelter at the bottom of the South Island is
the country's biggest power consumer, using around 15 percent of
national output, and exports around NZ$1 billion ($837 million)
worth of aluminium a year.
London Metal Exchange three-month aluminium prices
stood at $1,900 a tonne on Tuesday, down 13 percent from its
2013 peak of $2,174 on Feb. 15.
A 17-year contract was signed by the smelter in 2007 and
came into effect in January.
Meridian said last week there was a major gap between the two
sides, and it doubted a new agreement could be reached.
Rio countered that they believed a deal was still possible.
The company has previously raised the prospect the plant could
Last month, Pacific Aluminium's Gove alumina refinery in
Australia narrowly averted closure with the loss of 1,400 jobs
after reaching an 11th-hour deal over cheap gas supplies for 10
"We know Rio can be a ruthless negotiator, but it's
important the government remains involved in the smelter's
negotiations with Meridian," Ged O'Connell, assistant secretary
of the Engineering, Printing and Manufacturing Union, said.
"Whether the Government likes it or not, these negotiations
are political and that means the buck stops with the Prime
Minister," O'Connell said.
Power suppliers fear if the smelter closes it would create a
glut of electricity and drive down power prices nationwide.
That in turn could jeopardise Key's plans to partially
privatise Meridian and two other state-owned power companies:
Mighty River Power Ltd and Genesis Energy, which is slated over
the next three years.