Rio Tinto, owner of Iceland’s oldest aluminium smelter at Straumsvik, has just announced that they will do a strategic review of their Icelandic smelter, as historically low aluminium prices and an “uneconomic energy costs” means they are making huge losses.
They say there is a possibility that the smelter will be closed. The Icelandic company running the smelter, usually known as ISAL, had already announced that production would be cut by 15% this year. Last year, the Straumsvik smelter made a loss of ISK 10 billion ($78.7 million).
Hördur Arnarson, CEO of Iceland’s national power company Landsvirkjun, says he doesn’t think that the price ISAL is paying for electricity is too high. Before he took over as CEO, Landsvirkjun were constantly making a loss, which was partly attributed to low prices to large users such as smelters. Over a period of time, each smelter then negotiated an electricity price for its operations – this was done for the Straumsvik smelter in 2010 – and Landsvirkjun’s finances improved.
Electricity prices for heavy industry are generally not publicized, although now both Rannveig Rist, CEO of ISAL, and Arnarson say they are willing to disclose the electricity price that ISAL has to pay. However, Rist says that compared to the other smelters in Iceland, ISAL pays the highest price for its electricity.
Compared to the price that ordinary customers pay, the large customers still get their electricity very cheaply. In an article in the Icelandic newspaper Fréttablaðið, energy specialist Ketill Sigurjonsson points out that Iceland entices companies that use a lot of energy to the country by promising low electricity prices and later – in this case in 2010 – increase the price. He says that an analysis by the CRU Group revealed that Iceland offers one of the world’s lowest power costs and that only in Canada are operating costs lower than in Iceland.
China has also become very important as an aluminium producer, and is now exporting the metal as well as using it in Chinese factories.
Around 500 people work at the Straumsvik smelter. One of the trade union representatives says that they began to get suspicious about what was about to happen when the parent company refused to agree to wage increases last month, even though these had been agreed by the ISAL wage negotiators and the Confederation of Icelandic Enterprise.
The review is expected to be complete during the first half of this year, and the future of the plant will be decided then.