Everyone is fully aware of the importance of the Tiwai smelter to Southland and to New Zealand.
I have been castigated by some for appearing not to have done enough to keep the smelter here. Rest assured, I have been in constant contact with the smelter management and shareholding Ministers about what can be done. It is not a negotiation done via the media.
Last Monday, Yunnan Aluminium, a big Chinese producer, told the Shanghai stock exchange it was expecting to record a first quarter loss of up to NZ$14 million.
The same company wrote down significant losses in the last financial year.
Last month, Bloomberg reported that China’s state reserves manager signed agreements with six smelters to buy 300,000 metric tons of aluminium at a price four percent higher than the spot price in a bid to bolster local prices.
This is just one thing Tiwai’s owners, Pacific Aluminum, is up against. At the same time, Chinese aluminium production is hitting its own problems.
Lack of security of electricity supply, increasing electricity prices, and higher prices for raw materials such as bauxite are forcing Chinese producers to cut production by up to one-third. More than half of Chinese smelters are making losses, but the Chinese continue to try and add capacity even if it means running at a loss.
Worldwide aluminium prices will stay low until the Chinese smelters cut production, according to analysts.
What does this mean for Southland? Well, for one thing it illustrates what Pacific Aluminium is experiencing as a player in a global market.
China, despite what will be ongoing losses, wants to produce 35 million tonnes per year by 2015, up from 25 million last year.
Unless Chinese production collapses, it is always going to be a hard job for the Tiwai smelter to compete, even though we produce the highest quality aluminium in the world.
Southland has one major employer which is foreign owned and we have no influence over their company policy.
The new structure of Pacific Aluminum must be viable as a standalone entity If this can be achieved Southland can look forward to the continued presence of our biggest single industry player. Negotiations are continuing with the various parties.
Pacific Aluminum has never asked the Government for a subsidy
The Government is doing what it can. However, the various debates outlined above illustrate it is not an easy road to a solution.