Aluminium price is about 10% lower than when Rio started their strategic review but our dollar has fallen by a similar amount. 50/50 call this one.
Printable View
Aluminium price is about 10% lower than when Rio started their strategic review but our dollar has fallen by a similar amount. 50/50 call this one.
Thanks guys. I'd like a new memory bank installed.
With everybody staying home and winter approaching, there may be more power the usual being used,may be good for the power companies
From em6live link posted, daily demand seems to be at the bottom of the expected band for the last couple of days. Sticking with my 5% drop predication at least while the lockdown is in effect.
RIO's costs/price ratio really hasn't change much but their competitive environment might have. They have lost bargaining power though, lots of businesses asking for bailouts now. Why favour RIO over say AIR NZ or all the small businesses?
Predict RIO will take slightly lower transmission fees, maybe negotiate a bit of cheaper power commercially, close a pot line perhaps and punt the decision down the road for another year.
Jaa , what a good summary and conclusion.
I can't recall, but understand remediation costs of the site etc are something like $250m - so pretty grunty if accurate. Also the smelter isn't 100% Rio - Sumitomo own 20% so they would have to be on the same page.
Must imagine that Rio would have tried to hawk their 80% over recent years??
Rio trying to screw down power prices in Iceland too
Sound familiar? Rio Tinto considers shutting Iceland smelter ...www.odt.co.nz › news › world › sound-familiar-rio-tinto-considers-sh...
Yes, they are, JT. But it's a legitimate tactic to try when the price of your product is under pressure.
Obviously. Tiwai is not alone.
China is over it and their Al will be in full production ,others restricted. Pretty tough for Tiwai.
Mr Robertson announced yesterday that infrastructure projects will be key to recovery, and that housing and clean energy are specifically being looked at. That should be good news for the energy and construction sectors, though what are the chances this government will use the situation to advance their ideology. Apart from 100% chance, that is.
One silver lining is that there will not be any money left over for the expensive uneconomic clean energy infrastructure. They will try and advance their ideology I agree, but they like all socialists will come to realise that other peoples money does run out eventually.
I wonder if the smelter announcement today to close number four pot line could be read as positive for the remaining three keeping going? One would think that if the decision was going to be close the lot then why bother with just announcing one? Thoughts of others appreciated
"The strategic review will consider all options, including curtailment and closure and will be complete in the first quarter in 2020."
The above from RIO's oct announcement, note first qtr of RIO ,not our power companies.Their first qtr results last year were released on 14th april so any time up until around then im surmising , for the announcement.
Yes, I agree. Whilst the announcement was typically useless from Rio, it does mean that the close down was not a foregone conclusion prior to the COVID outbreak. Closing potline 4 is pretty minor in the big scheme of things, 50MW out of 620 means the majority of load is still there. Totally understand that the current situation means extension of the timeframe but very poor form that they didn't provide anything apart from a throwaway "still in progress" comment, but we have come to expect that from RT!
Why would they? They have control of the timing and decision making.They are making the most of their bargaining position and going to the wire to screw down more savings from the power companies, NZ govt.As Mac says a legitimate tactic.
From memory, they've closed down one potline before. A sensible move when price/demand for one's product reduces.
It was only re-opened 15 months ago. Jacinda was there for the opening ceremony, wonder if she will be there for the closing ceremony.
https://www.stuff.co.nz/business/ind...s-tiwa-potline
Aluminium on a downtrend since 2018 from $2500 to a low today of $1530
Been pointed out to me that our $ has been too high for some years and Rio go quiet when $NZ is below 60c , like now.
Tiwai aside the gentailers are a few of the reliable divvy payers left. Could even these come under threat with the regulator/Govt forcing down power prices to help out people struggling to pay there bills especially with autumn /winter heading our way.?
Agreed. Nothing is safe in a depression. People are going to need to learn to live a simple life off whatever welfare they're entitled too and chew up as little capital as they can get away with.
https://www.stuff.co.nz/business/120...nz-in-lockdown
You'd think the free cash flows (of which the gentailers pay almost all of it out via dividends) of the entire sector would be hit... dividends already looking stretched for some gentailers, and probably now going to be under serious pressure to even maintain them at prior years levels... yet they are still priced (near) perfection in my view... MCY for example last year paid out $209m in dividends of its $237m free cash flow (over 89% of its free cash flow was paid out), and even after falling a firth since the heights of the mid 5's, is currently on a 3.7% yield... aka priced to pretty close to perfection... and if Free Cash Flow falls 10% this year, if MCY is to increase its dividend by a few percent, it will be paying out basically all its FCF (which surely is not prudent!). Time for the power sector to get a bit more realistically priced, eg go back to where it was around 2017.
Why are all the generators down so much??
aluminium prices at new lows in free fall at the moment , demand for aluminium in general and from NZ as its used in cars and aircraft is poor must be really weighing on rio mind.
As said peak dividends from power companies has been , maybe even lower dividends to come as demand is down for power usage and probably wont reach back to previous levels for quite some time , if rio stays they will cough up profits to them. they are expensive now on fundamentals against this negative environment.
Meridian have not even wiped out one year of share price appreciation... They were $3 start of 2019 ($4.20 currently). Were they incredibly undervalued then, or are they overvalued now?
Safer *relatively* yeah, but the current happenings will result in a measurable reduction in demand for power (people think that people in their homes using heatpumps makes a difference, but it doesn't, industry uses the vast bulk). Also big question mark in the short term on Tiwai
Yes, but if I'm not mistaken, the price that retail consumers pay per kwh will be quite a lot higher than the price that industrial and commercial consumers pay, so the overall revenue for the power co might not be so different. In any case, the lock down will only be a month (or two), then back to more normal demand patterns.
Tiwai? anyone's guess, but I expect the govt won't want another thousand jobs gone in the short term so will probably be highly motivated to reach an agreement
Plus the 2,260 jobs created indirectly.
Tiwai uses enough electricity to power 776,000 homes!
But doesn’t this aluminium stuff get exported? And what’s been happening to the kiwi dollar?
Maybe the power companies can come up with their own subsidy package to help Tiwai out :)
I wonder when the smelter owners will make the final decision to stay or go. Leaving their workers worrying about it for months is not the sign of a good employer.
Can't imagine that Covid-19 will help in achieving a "keep open" outcome...
Maybe next few days ,as i said their qrtly last year was on th e 16th april.
Meanwhile a perfect negative storm for Rio with the IRD after them now as well as 5 year low in All prices and their aus smelters also running at a loss
ATO escalates aluminium smelter dispute with Rio Tinto
Peter KerResources reporter
Apr 8, 2020 – 11.04am
The Australian Taxation Office has escalated its transfer pricing probe into Rio Tinto's aluminium division, further complicating talks between the miner and the federal government over a rescue package for Rio's three loss-making Australian smelters.
The Australian Financial Review revealed in February that a probe was underway into Rio's aluminium division, and Rio confirmed on Wednesday that the probe had escalated to a formal "amended assessment" in March.
The ATO believes Rio's Australian subsidiaries did not charge an appropriate price for the aluminium they sold to Rio's controversial Singapore marketing hub between 2010 and 2016.
The ATO has told Rio it must pay $86.1 million of unpaid taxes over the aluminium matter, which is separate to Rio's long-running $447 million dispute with the ATO over the transfer pricing of Australian iron ore.
Alcoa says Australia's power prices highest 'on the planet'
Rio said on Wednesday it would fight the ATO's aluminium claim, saying the issues in dispute were similar to those in the iron ore transfer pricing case.
''In March 2020, the ATO issued amended assessments to our company for the 2010 through 2016 calendar years in relation to the pricing of the sale of aluminium between Australia and our Singapore commercial centre," said Rio in a statement.
''We intend to object to the ATO assessments, which will give rise to an independent ATO review of the position.
''The amended assessments for both the iron ore and aluminium matters do not relate to any tax avoidance schemes as confirmed by the Australian Taxation Office, and no penalties have been levied by the Australian Taxation Office.
''We are committed to paying the right amount of tax due in all countries in which we operate, and consider the pricing of our iron ore and aluminium transactions to be in accordance with the OECD guidelines and Australian and Singapore domestic tax laws.''
The ATO has also launched a transfer pricing probe into the Australian bauxite, alumina and aluminium assets of US giant Alcoa and its local partner Alumina Limited.
As recently as February that probe had not yet escalated to become a formalised "amended assessment".
The timing of the ATO's probes is particularly inconvenient for the aluminium producers, who have approached state and federal governments over the past year seeking help to keep the loss-making aluminium smelters open.
Rio Tinto's Australasian smelters and refineries collectively lost $US137 million ($232 million) in 2019, and they appear unlikely to do better this year given aluminium prices have slumped since the coronavirus outbreak.
Rio operates smelters in Tasmania, Queensland, New South Wales and on the south island of New Zealand.
Loss-making smelters plead for exemption from virus shutdowns
Alcoa and Alumina Limited's Portland smelter in Victoria lost $US36.4 million before interest and tax in 2019, and has lost a total of $US136.9 million over the past three years, despite receiving more than $200 million in government support subsidies.
Rio's continuing fight against the ATO over the iron ore dispute is at odds with the approach taken by BHP, which settled with the ATO over an almost identical dispute in November 2018.
The aluminium revelations were included in Rio's "taxes paid" report, in which the miner said it paid $US4.24 billion ($6.91 billion) in corporate income tax in Australia in 2019.
Once royalties and payroll taxes were included, Rio said it paid $US6.21 billion ($10.12 billion) to Australian governments in the year.
London April the 8th
"The Report sets out our ambition to reach net zero greenhouse gas emissions by 2050. And our new targets to achieve a 30% reduction in emissions intensity, and a 15% reduction in absolute emissions, by 2030.
To deliver these targets, we will spend approximately $1 billion over five years on climate-related projects, and research and development.
As well as working hard to reduce our own emissions, we are also working in partnership with our customers and others to reduce greenhouse gas emissions throughout the mining and metals value chain, from mine to end- product.
Including ‘hard to abate’ sectors, such as aluminium smelting, steel-making and shipping, where there are currently no commercially viable pathways to decarbonisation."
Rio Tinto plc 2020 Shareholder Conference Call - Speech, Simon Thompsonpdf, 119.18 KB
And in the conference and call recording RIO LOOK to be taking environmental issues very seriously and are reducing their carbon footprint. They are optimistic about Aluminium long term with increasing uses in the car industry for one.They have adopted Climate action 100 plus with carbon reduction goal and new low carbon tech initiatives to become net zero steel and aluminium producers. This makes hydro power based Tiwai a valuable asset going forward ( especially with its high purity) as it will help with the environmental commitment for the company. also mentioning that with the chinese restructure of aluminium production will rebalnce the supply demand situ. Most of the questions were about environmental issues. Makes me more optimistic about Tiwai stayingfor the longer term.
Rio Tinto plc 2020 Shareholder Conference Call - Speech, Simon Thompsonpdf, 119.18 KB
Good info. I think this would support keeping Tiwai open long term, although shorter term I could see them reducing production to say 400MW (which I think is 2 pot lines) with the other two mothballed until world Al demand picks up again. Demand will surely take a few years to recover from the current situation?
Update from MEL. Some good info, including:
"COVID-19 lockdown has reduced weekly demand in April 2020 by around 16% compared to the same period last year"
https://www.nzx.com/announcements/351665
Does not matter down or not...what investors are looking now are the reliability of paying dividend as income n strong cash flow. So utilities will do good not to mention with winter approaching n winter grant to most people...
Does not matter...so long there is dividend..that will please the investors...almost all companies now will not pay a cent....
Ok..let talk the current situation here....
A lot of investors were in huge pile of cash ...most scares to get in stock market n saw fundamentals are not right yet. Then...they also sacre to put their money on the term deposit... because most had experienced that the banks went bust....leaving thier money unguaranteed.
So...most will get in utilities... energy....n Telco sectors
I would have thought this would have a big impact on dividends... especially, as I've already touched on earlier, almost all of them pay out around 90% of free cash flow in dividends... with the whole idea of paying huge premiums for these power co's being that they can grow their dividend at above the rate of inflation annually, year after year, it would be bad news if one was to come out with no dividend increase (Cents per share) on last year, and the really bad news would be if one was to come out with even just a slightly reduced dividend on the prior financial year, which I would imagine would send people running for the high hills, instead of paying near ridiculous valuations to get what is really a return not that much higher than a term deposit.
Not New Zealand banks, King, some finance companies did, many of their depositors were bailed out by the govt guarantee which, incidentally, the banks had also paid a levy for.Quote:
because most had experienced that the banks went bust....
Yes I understand .....but recent discussion on the forum.... people has heaps of cash but fear to put term deposit.
TJ...I am still confident they will pay dividend...maybe reduce dividend....because winter grant will keep income in...
Depends how sustained - if it's a month or two then gentailers might try to get short in the wholesale market and save fuel by not generating as much (be it coal, gas, water) for higher demand periods when wholesale prices are stronger. If indeed a gentailer is running short during these lockdown weeks and net buying power at low prices then it might actually bolster its retail margins, certainly on the domestic segment side anyway. Some gentailers may even have certain hedge contracts with large industrials that are for fixed quantities of consumption (not variable volume) and might be making easy money on those.
So I guess all I'm trying to say is that if demand is lower for a couple of months it isn't actually automatically doom and gloom depending on the portfolio of the gentailer.
Nice theory but looking at overnight spot prices I would say that not many gentailers are running short. Overnight prices of ~$90 is certainly not going to be sustainable for long if you are short, all gentailers would be able to cover their own load for less. The retailers (flick, electric kiwi etc) however, that is another story. Have a look at pricing here https://www.em6live.co.nz/ if you want to look at it live.
Not sure what you are on about with overnight prices of $90. The best predictor of prices would have to be the futures markets. They are coming down in anticipation of less demand in the future. https://www.asx.com.au/asx/markets/f...EA&type=FUTURE
Quarterly prices for September are $95 (Otahuhu) which indicates that the demand has dropped. Not long ago these were at $130 plus.
The June quarter is at $73 which really is at odds to the $90 night statement.
Yes, I picked a bad time to post. But looking back at the last week of pricing, they have ranged predominately between $60-150. I can assure you that absolutely no gentailers would be choosing to run short at those prices. The morning ramp up is all screwed up at the moment with people starting work/getting out of bed later so what would typically currently now be a morning peak is not and the traders/transpower are finding it very difficult to predict demand (hence a 50c price at 8am). However, the overall trend is for pricing to hold up reasonably well.
Yes the ASX prices have dropped but I'm not sure how that relates to my post? I was responding to the post I quoted mentioning gentailers running short now to save fuel for when prices recover. I am quite curious to understand how the current situation will effect longer term dividends of the big four gentailers. You would assume both loss of commercial/industrial load (high volume low margin) along with higher rates of default in both business and residential accounts will have a flow on effect to cash flow. But how much of an effect, who knows?
The morning peak prices have been screwed up for a long time, not just during the current Covid-19 situation. The morning ramp up is so fast that 30 minute offers cannot keep up, so generators offer their generation in such a way that they will be at their desired output by the end of the trading period. This means that at the start of each trading period there is much more generation offered at a particular price than is needed, so the wholesale price drops down to very low levels, often cents. 5 minutes later that generation that is dispatched is on line and the frequency keeping station is often at the bottom of its band. A further 5 minutes on and demand is starting to pick up towards the level where some of those low priced bands begin to fill up. By the end of the trading period demand is outstripping the available generation and prices rocket up. Just what the final price will be for TPs 15 - 19 is anybody's guess until well after the fact.
Now that Daylight saving is finished we are once again seeing a larger evening peak compared to the morning one. It is probably exaggerated at present due to less retail business being carried out. In the past as retail shops closed for the day the timing matched the increase in domestic load, that is not happening at the moment and hence we are seeing more pressure on the system for TPs 35 - 39 with associated higher prices.
The ASX is an indication going forward of what the internal transfer pricing within companies is going to be, but is really a very poor indicator of the future wholesale price.
It may be as you say a "poor indicator of the future wholesale price", but these are real contracts with many $millions on the line so it is still the best predictor out there of future wholesale price. Just like the exchange rate today, is the best predictor of the future exchange rate.
Rio Tinto Qrtly out, still no decision on Tiwai.Aluminium price actually up 2.7% in the last week after a 5 year decline, maybe blip.
"We announced strategic reviews of our interests in the Tiwai Point smelter in New Zealand in October 2019 and in the ISAL smelter in Iceland in February 2020. Work on these reviews is ongoing. This will determine the viability and competitive position of these operations and will consider all options, including curtailment and closure."
Rio Tinto releases first quarter production results
Yes, and those buying would love it if the wholesale price ends up higher than the ASX contracts, while those selling would love it if the price was lower. As you say, many millions on the line, yet the whole thing about futures trading is that it both a gamble and a form of insurance.
Youve been missed on these threads Jantar, welcome back. Any thoughts on the loomimg late Tiwai decision and the effects on our power companies.Im betting on Tiwai staying myself.
I won't comment on Tiwai as I was privy to some inside information on that in early March.
I have been very quiet on here for the past 3 months as I was working up to my retirement. I retired a touch earlier than I intended, just before the lockdown. Still keeping track of what's happening though.
Congrats and join the club:). Are you a holder of any power shares?.Im holding MEL my biggest and a few CEN, our Estate plenty of MEL and GNS.Not many reliable divvy payers left.Heres hoping these stay reliable income payers.
Agree it is both. But those setting the price are obviously insiders and have a stake in the game. So those prices to me are still the best indicator out there of future wholesale prices. Of course they are never correct because there are so many variables, weather being one of the larger ones. But I see the futures prices are coming down so there must be an expectation of lower demand all other things held constant. (or some very long term weather forecaster is predicting more rain next year :))
Cheers Jantar. Rio Tinto will be carbon neutral by 2050. heres a snippet from their climate and water seminar about new tech that could be retrofitted to Tiwai.
"The ELYSIS technology uses what are known as ‘inert anodes’ – replacing the traditional carbon anodes in the smelting process with proprietary materials.Currently when a carbon anode is consumed in the process of electrolysing alumina to aluminium, it releases greenhouse gases along with other by-products such as perfluorocarbons, carbon monoxide, sulphur dioxide and nitrogen oxides.
Using an ‘inert anode’ separates alumina into its two elements: aluminium and pure oxygen without the release of any greenhouse gasses in the smelting process
Due to the design of the anode, and the fact that it is not being consumed, this technology has the potential to reduce the operating costs of aluminium plants while increasing their production capacity.
https://www.sharetrader.co.nz/blob:h...a-920042ff5995https://www.sharetrader.co.nz/blob:h...8-4ceee3c5d1bf
Climate and water seminar – Script
21 April 2020 Page 19 of 28
The technology has been producing metal at research scale since 2009 and as Peter said the first batch of ELYSIS aluminium was purchased recently by Apple.
ELYSIS is now working to further develop and scale up the technology, so that it can be retrofitted into existing smelters or used for new ones."
Climate and Water Seminar 2020 - Speechpdf, 359.51 KB
ELYSIS aluminium with no production of greenhouse gases looks as if it will be in demand ,sell at premium prices and be approved by the greens(those with an element of commonsense).
I just hope this factor has entered into the negotiations about Tiwai transmission costs just as I hope visual impairment,destruction of habitat etc that alternative power lines are factored into the equation.
With Covid -19 and the need for employment it would be the ultimate folly to lose Tiwai.
In all cases retail sales are up. But the lockdown is extremely hard on industrial and commercial sales. These should pick up somewhat as we go into Level 3, and a lot more in Level 2. Overall, Q4 will likely see the biggest hit to all companies.
Meridian are likely to weather it the best, with Contact close behind. Genesis is likely to be the one to struggle the most.
Agreed - and how any of them will manage to maintain their dividends (market still valuing them as if they will increase dividend cents per share in my view), given the cash flow crunch coming (lasting several months before energy use is back to anything close to before), is beyond me.
I would think in this market, with the banks offering term deposits only a percent or two lower than what is being offered by some of the power co's, there would be no shifting of allocation, and rather a pull out all together (to cash)... especially given the power co's dividends are certainly under threat.
So generally accepted that the gentailers are bit of safe haven.
Yes they will get a demand hit, have Tiwai uncertainty, and electricity demand will broadly track down with the economy but pretty safe. Just wondering which is the cream of the crop.
I hold TPW and MEL but are the the best value at this time?
Which ones are cheap?
TPW P/E = 27.4
CEN P/E = 32.2
MCY P/E = 38.7
MEL P/E = 41
GEN P/E = 47.8
Dividends matter as everyone is doing some belt tightening:
CEN = 6.2%
GEN = 5.9%
TPW = 5.2%
MEL = 4%
MCY = 3.4%
None have terrible debt (TPW and GEN) are the worst so no need for stats.
I generally don't read to closely into analysts opinion but utilities I think they do a great job crunching the numbers. Just wondering about a way to display, decided on my brokers target price minus current price. So positive value is a discount to where they think it should be and negative value means current price is above the target.
TPW = -$1.38
GEN =-$.2
MCY =$.2
MEL = $.27
CEN =$1.54
Should I be thinking about adding a little CEN to my gentailer mix?
Don't forget the printers are running flat out at the RB producing money for them to buy up as many Government (and corporate ?) bonds as possible. That takes out a significant chunk of available investments, puts money into Robinson's war chest who is then going to hire a helicopter to drop it over our 2 isles (hopefully some to Stewart and Chatham Islands too).
No helicopter money for Chatham Islands as they're out of range for any helicopter to fly there :) This post just shows how bored I am. For goodness sake when are Rio going to make a decision on Tiwai Point ?
This from Chris Lee. Interesting snippet.
“Rio Tinto still describes Tiwai Point aluminium smelter as 'under review' even though they didn't deliver a decision within the time frame defined by them (to 31 March 2020).
What they have done though, in a formal release to the Australian Stock Exchange, is confirm that is maintaining its forecasts for production for alumina.
Presumably this reflects its current profitability because it plans to cut production of other minerals such as copper.“
looks like a lot of them are in big demand again
d day today probably explains why power companies been strong performers lately
Tiwai smelter may get break as decision day arrives on how to carve up Transpower's $1b annual bill
https://www.stuff.co.nz/business/121...1b-annual-bill
Pretty significant announcement. Update TPM methodology includes a provision for a "Prudent Discount Policy - important safeguard to stop customers exiting country because of inefficient high transmission costs". E.g. Tiwai will get special treatment.
Certainly not 100% sealed yet but I would say this materially increases the chances of it staying. Be interesting to see what power shares do on market open today.
Aluminium price up over 7% monthly helpful too.
Rio have given notice to wind down and close the smelter
Next year. good that its not all at once.
hopefully this will mean lower prices for other industrial users.