100 jobs to go
Unpredictable and high power costs force Rio to cut costs
Wednesday 08 March 2017
The number of jobs expected to be lost over the next fortnight at the Boyne Smelter (BSL) in Gladstone has doubled as owner Rio Tinto slashes production to cope with spiralling power costs.
At full production, the BSL facility consumes around 12% of the state's power in the process of converting Alumina into Aluminium, and as such the bottom line is highly sensitive to the price of electricity.
While 85% of BSL’s power comes from the Gladstone Power Station (of which it owns 42.5% ) under long-term contracts, the remaining 15% of their needs have been purchased on the national power spot market since 2015.
However, BSL’s decision to buy on the spot market has ended up being a costly one with the price per megawatt rising from around $70 to nearly $14,000 in a single weekend in January.
With predictions that this sort of pricing could become an ongoing feature of the power spot market, BSL General Manager Joe Rea said they would be cutting production.
“This is the second time in three years we’ve had to curtail production on a large scale because of uncompetitive electricity prices,” he said in January.
“BSL is paying more than 500 times more than what it costs to generate electricity.
“The decision to curtail production is a very difficult one. It takes months, not weeks, to bring the smelter back to a stable full capacity, and that can only happen if and when power prices become competitive.
“It is an on-going concern for our business that the trajectory for wholesale electricity prices in Queensland is a significantly increasing trend - doubling since October 2014.”
However, in the last fortnight, Rio Tinto has announced the production cuts will be nearly double what was first thought, despite the fact that prices for aluminium have increased between 10 and 15% since the historic lows of 2016.
“Gladstone’s Boyne Smelters Ltd will be reducing production by 14 percent after failing to secure a competitively priced electricity contract,” a Rio spokesman said.
“There will be a significant number of jobs lost as a result.”
BSL management is meeting with its employees over the next fortnight to find ways of minimising the job losses, but with roughly 1000 people employed at the facility, a 14 percent production cut will correlate to around 100 job losses by the end of the month.