(Reuters) - Global miner Rio Tinto Ltd on Wednesday flagged a possible pullback or closure of New Zealand's Aluminum Smelter (NZAS), citing weakness in the aluminum market and high energy costs.
The miner said it will conduct a strategic review of the South Island-based site, which will conclude in the first quarter of 2020. The site, about 20% owned by Japan's Sumitomo Chemical Co Ltd, employs about 1,000 people.
"We expect the short to medium outlook for the aluminum industry to be challenging and this asset to continue to be unprofitable," the miner said in a statement.
The move comes a week after Rio downplayed its annual aluminum production guidance and flagged challenging conditions in the industry. Rio's production of the metal dropped 3% in the September quarter.
"The aluminum industry is currently facing significant headwinds with historically low prices due to an over-supplied market. This means that many aluminum providers are reviewing their positions," said Rio Tinto Aluminum chief executive Alf Barrios.
Separately, New Zealand's Meridian Energy Ltd, which supplies electricity to the site, noted Rio's review and said its supply contract runs to 2030.
"NZAS officials have advised us that the economics of the smelter have been challenged due to volatile international prices for aluminum, relatively high energy and transmission
costs and an upcoming refurbishment bill to keep one of the potlines operational," Meridian chief executive Neal Barclay said.
Meridian and NZAS had entered their current contract in 2013, following a renegotiation that had seen the two agreeing to lower electricity prices.
New Zealand's only aluminum smelter currently uses about 5,011 gigawatt hours of electricity per year, equal to roughly 776,000 households, and produces 340,000 tonnes of high-grade aluminum annually.
(Reporting by Ambar Warrick in Bengaluru; Editing by Leslie Adler, Chris Reese and Lincoln Feast.)