Rio Tinto’s Boyne Smelters (BSL) is set to announce a round of job cuts after it revealed plans to reduce production.
The aluminium smelter in Gladstone, Queensland is cutting back on production as a result of high electricity prices.
It plans to reduce production by eight per cent through progressively decreasing up to 80MW of power from its production circuit. The production cutback will slash up to $110 million worth of aluminium production The Australian reports – a loss of about 45,000 tonnes of aluminium production for 2017.
Approximately 85 per cent of BSL’s electricity comes from its contract with Gladstone Power Station; the other 15 per cent from the spot market. Spot electricity prices shot up to between $12-$14,000MWh over the weekend, from its $66.80MWh average the weekend before.
“Due to sustained high pricing this year, almost three times higher than the 2016 average, BSL is unable to maintain full production,” the company said in a statement.
“As a result, the decision to activate a carefully managed curtailment has become necessary.”
BSL general manager Joe Rea said it was the second time in three years the company had significantly reduced production because of high electricity prices.
“BSL is paying more than 500 times more than what it costs to generate electricity,” he said.
“The decision to curtail production is a very difficult one. It takes months, not weeks, to bring the smelter back to a stable full capacity, and that can only happen if and when power prices become competitive.
“BSL has been unable to secure an internationally competitive price for our additional load. We are not prepared to lock into a contractual arrangement that would have us paying delivered energy prices comparable to the least competitive countries in the world outside of China.”
He added that it came at a time when current Australian price for aluminium is lower than its was during the global financial crisis.
However, Queensland’s state-owned power supply company Stanwell suggested the fault remained with Rio itself, which did not accept previous power contracts it was offered.
Stanwel CEO Richard Van Breda said, “If Boyne had accepted one of the many offers presented to it, not only would it have avoided the current volatility in spot prices but it would have been in a better financial position, as the contract prices offered are now at a significant discount to the spot market.”
Around 1000 people work at the operations, with more than half of the smelter’s economic benefit remaining in the Gladstone region.