Rio Tinto bargains for cheaper power supply for its Iceland Aluminium smelter

Rio Tinto made public that it might have to shut down its aluminium smelter in Iceland (ISAL) if the country’s state-controlled energy supplier does not deliver a cheaper deal.

The warning again indicates the tough market aluminium producers around the world are facing, as the demand fades and prices drop.

Aluminium is usually referred to as solid electricity because of the large amounts of power required to transform its key ingredient, alumina, into refined metal. Approximately a third of smelter’s costs are power.

Alf Barrios, Head of Rio Tinto’s Aluminium business, said: “the company had worked intensively to improve the performance of the ISAL smelter but it was still unprofitable and could not complete in challenging market conditions due to its high power costs.”

Mr. Barrios added, “Rio Tinto will review options for the smelter, to find a solution for ISAL to become an economically viable business.”

“ISAL makes a significant contribution to Iceland’s economy and we will work closely with stakeholders who have a shared interest in a strong future for the smelter, including the government, Landsvirkjun, employees, unions, and the local community.”

Landsvirkjun is the national power company of Iceland and one of the largest producers of renewable energy in Europe. ISAL is its largest customer by revenue.

The aluminium industry has played an important role in the economy of Iceland, accounting for around a fifth of its export revenues. The country’s three smelters — which are operated by Alcoa, Century Aluminum and Rio Tinto —produces around 680,000 tonnes a year of the lightweight metal, which is used in everything from airplanes to beverage cans.

Rio was very near in selling to Norsk Hydro in 2018 for €345 million before the deal was scuppered by EU regulators

Both Alcoa and Century Aluminum are understood to have more favorable power deals than ISAL, which Rio came close to selling to Norsk Hydro in 2018 for €345m before the deal was sunk by EU regulators.

Rio is being one of the world’s biggest producers of aluminium. In a recent communication Rio Tinto’s CEO Jean-Sébastien Jacques described the aluminium market as really tough “I’ve not seen these sorts of conditions in a long, long time”.

ISAL’s production has already been reduced to 85% of the smelter’s capacity of 212,000 a year due to its lack of profitability. Around 500 people work at the site.

Rio said the review would be completed by the end of June and it had already started discussions with the government.