Predictions Tiwai Point aluminium smelter owner Rio Tinto
will benefit from rising prices. Photo by Allison Rudd.
The decision by Indonesia to implement its threatened ban
on unprocessed ore exports offers some hope for the beleaguered
Australian-based research house Morningstar said Indonesia
accounted for about 10% of global bauxite supply and a far
larger share of Chinese supply.
Rio Tinto, the owner of the Bluff aluminium smelter,
renegotiated its contract with Meridian Energy to receive
cheaper electricity in an effort to keep the smelter
operating. The aluminium smelter takes all of the power
generated from the Manapouri hydro generating station,
sometimes buying more from the national grid.
The smelter is still expected to start winding down
operations in 2016-17 but higher prices may give some
breathing room to the Southland economy. Morningstar analyst
Mark Taylor said Rio's bauxite volumes were a record 43
million tonnes in 2013, highlighting an ability to pick up
''We project aluminium will grow to one-fifth of Rio's
expanded operating earnings by 2015, up from recent near
Chief executive Sam Welsh was ''vigorously'' stripping out
operating and capital costs to improve profitability, Mr
That came at the cost of business diversification. Iron ore
contributed 82% of group first-half 2013 earnings, a figure
expected to increase to 86% in the second half.
At $A65.55 ($NZ69.43), Rio Tinto shares remained undervalued
at a 13% discount to fair value, he said.
''Rio's business remains in recovery mode after losing its
way under the former chief executive officer and the market
is yet to completely forgive missteps.
''We think the share price also mistakenly bets on a
continuation of unsustainable low aluminium and alumina
The ongoing dismantling of aluminium-linked contracts in
favour of spot, and declining Chinese bauxite
self-sufficiency, should realign prices in the aluminium
complex to longer-term sustainable levels.
Morningstar was forecasting prices of $US1.15 ($NZ1.38) a
pound for aluminium versus US80c per pound spot and $US450
per tonne for alumina versus $US335 spot.