The declining aluminium price prompted Rio Tinto to try to negotiate a better deal from Meridian for the smelter's power, which is sourced from Lake Manapouri and accounts for almost 15% of the country's output.
China's diminishing demand and global stockpiles, plus estimates of an oversupply of up to 20% during the next three years, are contributing to aluminium's 15% price decline during the past almost two years. The foundering negotiations have raised the spectre of Rio Tinto exiting the 42-year-old loss-making smelter over a five-year period, jeopardising 600 direct jobs and up to 2500-3000 indirect ones around Invercargill.
For the past 18 months, the smelter has been in a basket of five aluminium-related assets Rio Tinto has been marketing globally.
Craigs Investment partners broker Peter McIntyre said he expected aluminium supplies around the world to ''remain in surplus for the foreseeable future'' and inventories to continue to build.
''While this is an unsustainable situation, there's little obvious catalyst in the short term to change the metal-finance dynamic,'' he said.
During the past 12 months, aluminium had fallen 8.66%, or $US404 ($NZ481) a tonne, to $US1865 yesterday, but that followed a 6.48% decline for the same period a year earlier.
Craigs' research noted that while aluminium prices began the year with ''a considerable degree of optimism'', that had faded quickly in the face of waning global economic strength.
''We've been disappointed in the lack of demand strength from the global marketplace during the past quarter,'' Mr McIntyre said.
While global capacity is theoretically estimated to rise during each of the next three years, there is a flat 80%-82% utilisation rate estimated, which means production could be increased to 100% without needing to build new smelters.
''That's a theoretical oversupply of about 18%-20% until demand increases again,'' Mr McIntyre said.
Another issue is millions of tonnes of aluminium stockpiled by speculators waiting to sell forward or for future contracts at a higher price than the cost of the warehousing.
Forsyth Barr broker Peter Young said that aside from aluminium, prices for commodities such as steel, crude oil, copper and coal had been ''falling substantially'' since late last year.
''The lowering of the International Monetary Fund global growth outlook, and recent economic data, confirms that the path to recovery will be long and hard. In many areas of the world, we remain in a trade depression,'' he said.
While global industrial production was holding up ''reasonably well'', the headwinds to further recovery appeared to be increasing rather than abating. Europe's austerity policy was driving that region into economic depression, China was rebalancing towards a higher domestic consumption model, Japan was fighting a multi-year battle with deflation and the US had imposed fiscal cuts that would be challenging within its own falling price environment, he said.
