The end for UK’s biggest energy user as Rio Tinto shuts Anglesey aluminium smelter

Rio Tinto, the mining group, is to shut its Anglesey aluminium smelter, the largest single energy user in the UK, with the possible loss of 500 jobs. The closure of the Welsh smelter comes as Rio looks to cut a further 14,000 jobs and reduce capital spending by $5 billion (?3.4 billion) because of a reduction in demand for metals. The Anglesey smelter, producing 145,000 tonnes of aluminium a year, is 51 per cent owned by Rio, with the balance owned by Kaiser Aluminum. Rio has been in discussions with the Government and electricity suppliers about agreeing long-term cheap electricity for the smelter before the decommissioning of the nearby Wylfa nuclear reactor. The miner said yesterday that it had failed to find a cheap supply of power and would therefore close the smelter in September. It is to consult workers about job losses. Aluminium smelting is one of the most energy-intensive industrial activities and can be carried out only with guaranteed supplies of cheap power, such as nuclear or hydro. David Bloor, managing director of the smelter, said: “The operation is dependent for its power on the nearby Wylfa nuclear power station, which is itself due for closure within the next few years. We are fully aware of the significant impact on the workforce and on the local community and will work with partners and stakeholders to develop other long-term options.” The closure of the smelter will be a blow to the economy of North Wales. Phil Fowlie, the leader of the Isle of Anglesey County Council, said: “It would simply be a catastrophe for Anglesey and signify a loss of millions of pounds to our economy.” Rio Tinto yesterday reported that its iron ore output fell by 18 per cent in the fourth quarter, against the same period last year, as Chinese demand for metal fell away. The drop in output was expected and comes after shutdowns of facilities at Rio Tinto’s Pilbara mining operations in Western Australia, but the company gave strong hints yesterday that the retrenchment programme announced in December may not be sufficient to weather the gathering storm. Rio’s takeover of Alcan in January 2007 has given the group increased exposure to aluminium just as demand for the metal collapses worldwide because of the slump in the construction and automobile industries. Rio, which last month announced that it would cut 5 per cent of its aluminium smelting capacity, said yesterday that more cuts were likely. The company said: “The group continues to review production rates at the higher-cost smelting units in light of current market weakness. This may lead to further production curtailments.” The price of aluminium has almost halved in three months and Barclays Capital analysts reckon that 60 per cent of global aluminium output is below its cost of production. Alcoa, the American company, recently announced an output cut of 18 per cent. Rio gave warning yesterday that fourth-quarter earnings of Rio Tinto Alcan would be hit by the fall in the aluminium price, with inventories written down to realisable values. On a pro forma basis, assuming continuing ownership of Alcan, Rio’s aluminium output rose by 2 per cent during the fourth quarter. Rio’s copper business is expected to be hit by the falling copper price, resulting in a drop in underlying earnings of $360 million in 2008’s second half.