Outlook for Tiwai smelter looks brighter as aluminium prices surge

As  rising   inflation  unsettles  domestic  businesses, New Zealand’s  export   economy  – in contrast – is on   a  roll.  It  faces  its  own  problems, particularly  with rising shipping charges, and  delays  in  reaching markets.  But, as  Point  of  Order  noted yesterday,  the  dairy  industry  is  winning  record prices in global markets, and other  food  exports  are also  in  strong  demand.

Another  stand-out    is  aluminium,  which  last year spiked  up 62% to $US2934 to October . In recent weeks  it has  strengthened again, topping $US3000.

At  this  level Rio Tinto, owner  of  the  smelter  at  Tiwai Point,  will  be having  second  thoughts about closing  it.  The  smelter,  which  employs  about  600 workers  (plus  another 2000  indirectly), extended  its  electricity contract for  power from Meridian’s  Manapouri’s  generators (said  to be  the  cheapest  electricity in smelting alumina in the  world)  only to 2024.

If  Rio  Tinto  “walks”, many  of  its  competitors  might  step  in, if  aluminium prices remain  anywhere near  this  elevated  level.

As   for  the  rest  of how  the export economy is  tracking, let’s look  at the  report of ANZ Bank analyst Susan  Kilsby  on   the  ANZ World Commodity Price Index.

The index climbed 1% in January to hit  a new record high.  Dairy and a strong lift in aluminium prices pushed up the index

In local currency terms,  the index gained  1.9%  to extend its record high, helped along by a 0.8% reduction in the trade weighted index (TWI).

Global shipping costs for container ships rose again due to an increase in delays at the ports.

Port throughput has slowed as temporary shutdowns at some Chinese ports because of fears of COVID outbreaks which potentially could disrupt the Beijing Winter Olympics. Activity tends to slow at this time of the year due to celebration n of  Chinese New Year.  Kilsby  says.

Dairy prices gained 2.5% m/m in January, as markets become increasingly aware there is not a lot of extra milk being produced anywhere in the world. Output in NZ shrank  considerably in December and this trend is expected to persist through most of the second half of the season.

The lower output has been extremely supportive of milk powder prices,which surged at recent Global Dairy Trade events.

The meat and fibre index fell 2.3% m/m  in January as lamb and wool prices both eased. Lamb and beef prices are still at very high levels and again it is the lack of global supply that is supporting the price of these meats. Demand continues to grow but supply is constrained.

Australia is still in rebuild mode so has a lot less stock available for slaughter and beef supply to parts of Asia has been curtailed because of outbreaks of disease in cattle resulting in beef imports from certain countries being banned.

Kilsby  notes the horticulture index lifted 2.6% m/m in January. Very early new-season apples are just starting to hit the shelves in local supermarkets, but  are yet to reach  export markets hence export prices still reflect old-season fruit.

Summer fruits have been selling well,with a much improved season for cherries. Labour issues continue to be a major worry for orchardists and it is highly likely some of this season’s crops will not be picked.

The forestry index slipped 0.3% m/m in January to continue its recent decline. Log prices have fallen 20%  since the middle of 2021. 

Export volumes are low at present due to the Chinese New Year holiday period, and a slowdown in the volume of logs being felled in NZ. There is some expectation for log prices to improve once construction activity and therefore demand for logs picks up again following Chinese New Year.

Aluminium prices lifted a whopping 10.7% m/m in January.

The price of most metals is rising rapidly as the world looks to decarbonise. Supplies of aluminium are now very low as Chinese production has slowed and output in Europe has been curbed by excessively high electricity prices. European stocks are now at the lowest level in 15 years. 

2 thoughts on “Outlook for Tiwai smelter looks brighter as aluminium prices surge

  1. One can argue whether the price Rio pay for electricity is too cheap or not – the reality is Rio’s Bluff operation is not shutting down anytime soon. Its positive economic impact (it is green aluminium after all) dwarfs any potential H2 start-up (which will want cheap electricity too…). The greatest benefit is the avoided capital expense in re-routing Manapouri electricity to the North Island. Also another cheap plank for the government to count domestic carbon reductions has just got knocked out – good. Now if we are honest we should acknowledge that the Aluminium was going to be smelted somewhere – those EV’s need it ….

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    1. I’m afraid green Al awaits the outcome of https://www.elysis.com/en, but only a couple of electricity companies including the power supplier would try and promote a competing use in H2 to reduce Rio’s negotiating position. They’d be better off with data centres.

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