The Tiwai Point aluminium smelter has posted an increased bottom line result, although underlying profits have fallen in the face of volatile prices and power costs.

New Zealand Aluminium Smelters (NZAS) made a net profit of $207 million in the 12 months to December, compared with a net loss of $18m the year earlier.

However, the firm’s underlying profit fell by more than two-thirds to $22m, largely because of the accounting writedown in the value of the hedges it uses to insure against power price volatility.

Chief executive Stew Hamilton said the Bluff-based smelter continued to face significant market challenges.

“We are facing a very tough time right now with the LME (London Metals Exchange price) down to US$1761 per tonne and predicted ongoing volatility in the market.”

He said the global price peaked at US$2259 a tonne in the middle of last year before it fell. Production was up marginally to 340,111 tonnes, even though the company re-opened a fourth production line last year.

The smelter is one of two in the world making high-quality aluminium used in specialist components.

But Hamilton also renewed the company’s long standing complaint about the high level of local power costs.

“We pay one of the highest transmission prices of any smelter in the world and our overall power cost is high by international standards. That makes it incredibly hard for NZAS to compete in the highly competitive aluminium market no matter how efficient our team is,” Hamilton said.

The smelter’s transmission costs last year totalled $66m, while raw material costs and the value of the New Zealand dollar also affected revenue.

Hamilton said even though changes to transmission prices are expected it will be three years before it will likely see any benefit, and in effect it continues to pay for improvements to the national grid in the North Island.

The company has in the past raised the prospect it would shut the smelter because of high power prices, and the previous National government gave it a $30m grant in 2013 to bridge the gap between what it was willing to pay and what its supplier Meridian wanted to charge it.

The smelter has an agreement to buy electricity until 2030. It uses about a seventh of New Zealand’s electricity, and previous talk of a shut down stoked fears the power market would be flooded with excess power, affecting future infrastructure investments.

The smelter is owned by global mining giant Rio Tinto, which has close to 80 percent with Japan’s Sumitomo Chemical Company holding the balance. It had been up for sale with a string of other plants around Australia. However, there has been no update on a possible sale for some time amid speculation that no group has been willing to pay the right price.

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