Rio smelters feeling the heat

The outlook for Rio Tinto’s Australian aluminium smelters remains uncertain, with Rio boss Jean-Sebastien Jacques identifying the smelters’ carbon footprint as an additional barrier to keeping them open.
  1. The outlook for Rio Tinto’s Australian aluminium smelters remains uncertain, with Rio boss Jean-Sebastien Jacques identifying the smelters’ carbon footprint as an additional barrier to keeping them open.

    Under fresh targets released this week, Rio plans to reduce its carbon intensity by 30 per cent by 2030 and by 15 per cent in absolute terms.

    Rio’s 2019 climate change report makes it clear that will put additional pressure on its two Australian smelters that rely on coal-fired power generation, Boyne in Queensland and Tomago in NSW.

    “Repowering our aluminium assets and increasing the share of renewable electricity more broadly will be central to our decarbonisation strategy to 2030,” the report says.

    Both smelters are already under threat from high Australian power prices, according to Mr ¬Jacques, amid negotiations with state and federal governments and energy utilities over fresh long-term power contracts.

    Rio’s Pacific Aluminium division, which also includes smelters in Tasmania and New Zealand, slumped to a $US137m after-tax loss in 2019, according to the company’s annual financial statements, with fresh power deals necessary to save the assets from closure or sale.

    Mr Jacques told reporters at Rio’s August half-year results the smelters were “on thin ice”. On Wednesday night he said the situation was getting worse.

    “The ice is actually becoming slightly thinner. The situation is very challenging — there is no doubt about it. There are some discussions with different parties in NSW, in Tasmania and in Queensland,” he said.

    Pacific Aluminium was responsible for 10.8 million tonnes of carbon dioxide equivalent emissions in 2018, according to its climate report. Boyne and Tomago will have accounted for the majority of that total, given Bell Bay in Tasmania and Tiwai Point in New Zealand are powered by hydro-electricity.

    Both are also under threat of curtailment, closure or sale if cheaper energy deals cannot be agreed, but Mr Jacques said on Wednesday their carbon footprint at least spoke in their favour.

    He confirmed Rio’s desire to slash its carbon emissions would be an important part of its review of Tomago and Boyne, saying both would need more renewable energy in their power contracts if they were to remain in Rio’s portfolio.

    “They are currently mainly supplied from coal-fired power stations and therefore there are two questions … One is about the cost of power, because at the end of the day, if you are not profitable then there is no way forward,” he told analysts.

    “As a minimum, you need to be profitable and then you need to develop in partnership with the relevant suppliers and government a road map to be able to secure the right green energy over time.”

    His comments underline the growing gulf between the leaders of Australian industrial companies and the government of Prime Minister Scott Morrison, which has recently driven the national debate almost exclusively through the lens of extending the life of coal-fired generators, focusing on power availability and affordability.

    The Morrison government is backing a $4m feasibility study into the construction of a coal power station at Collinsville in north Queensland, and is said to be considering handing over $11m towards an upgrade of the Vales Point coal generator in the May budget.

    But like Rio, aluminium giant Alcoa has nominated carbon emissions as well as power prices as a key point in its review of its own smelter portfolio, with Victoria’s Portland smelter — also heavily reliant on coal-fired power — in the firing line in a review of its own operations.

    And BlueScope Steel boss Mark Vassella, while again decrying Australian energy costs, this week credited the company’s decision to contract a solar farm for 20 per cent of the energy powering its Port Kembla steel smelter for helping drive down the facility’s energy bills.

    Rio recently announced it would spend $US100m on solar and battery power for its Pilbara iron ore operations, and on Wednesday Mr Jacques said the mining giant would spend $US1bn on initiatives to reduce its carbon footprint over the next five years.

    The Rio boss said he believed there was a way forward for the Australian aluminium smelters, but it rested on finding “the right source of power, at the right cost”.

    “Time is of the essence. You see from the profitability of the asset, there is a real urgency to tackle them,” he said.

    Source: The Australian