Tiwai Point aluminium smelter set to stay open 'long term', says broker

The Tiwai Point aluminium smelter is set to remain open but will need to pay more for its power, analyst Forsyth Barr says.

The smelter, which is majority-owned by mining giant Rio Tinto, has been in negotiations with electricity generators over the terms of a new power supply contract that it would need to put in place by the end of 2024, in order to avoid closure.

Forsyth Barr said it expected the smelter would stay open until 2039 and set out the terms of the power contract it expected would be agreed in a high level of detail on Monday.

The broker said it assumed the smelter would pay 4.7 cents a kilowatt hour for power when the price of aluminium was $2600 a tonne or lower, rising by 0.2c/kWh for every $100 increase in price of aluminium above that level.

READ MORE: * Meridian says if Tiwai smelter stays, it should be for at least another 15 years * Rio Tinto and Meridian square up for another round of brinkmanship at Bluff * Aluminium smelter may not close in 2024, briefing prepared for Ardern shows

That would mean the smelter would pay 7.3c/kWh at the current aluminium price, it said.

It is currently understood to be paying about 3.5c/kWh under the terms of an agreement it negotiated from a position of advantage in 2021.

For comparison, electricity for supply between 2024 and 2026 was trading at an average of between 15c/kWh and 20c/kWh on the futures market in October.

Forsyth Barr's report said it assumed Meridian would supply about 320 megawatts, down from about 470MW now, while Contact would supply about 150MW, and Mercury about 80MW.

It said the notice period the smelter would need to give before closing would be extended from 12 months to three years, but estimated it would envisage the smelter staying open until 2039.

The smelter would get extra incentives to reduce production in "dry years" when hydro power was in short supply, it also said.

Forsyth Barr described all those statements as assumptions.

Senior analyst Andrew Harvey-Green, who co-authored the report, said he had no inside information.

The report was detailed "because that's the level of detail I get into when analysing the sector", he said.

Harvey-Green said he did not believe "anything is imminent".

Meridian would not comment on the detail of Forsyth Barr's report, but made clear no final agreement had been reached.

"As we’ve announced previously, we are in discussions with New Zealand Aluminium Smelter. Those discussions are ongoing," a spokesperson said.

"As soon as there is anything further to announce we will do so."

New Zealand Aluminium Smelter, which employs about 1000 staff and contractors, said in a statement that it was working through "a series of options with a range of parties" to explore how it could secure the future of the smelter.

"As these discussions are commercial in nature we are unable to comment further," it said.

Assuming Forsyth Barr's predictions prove well-founded, a power contract would have another hurdle to clear.

The Electricity Authority gave itself the power of veto over a contract between the smelter and generators in August.

That was after previously assessing the smelter's existing cheap supply contract was raising households’ annual bills by an average of about $200 a year.