Rio’s French Smelter At Dunkirk Under Threat Without New Power Deal

Rio Tinto’s endeavors to keep one of its French smelters open raises questions not just about the viability of this particular plant, but aluminum smelting in Europe in general.

The smelter in question, according to Reuters, serves as the largest aluminum plant in the European Union with a 2012 production of 286,600 metric tons. Positioned on the coast near Dunkirk in northern France, the plant uses the most electricity across any other entity in the country. It consumes 485 megawatts per hour, or half the output of one nuclear reactor at the nearby Gravelines site.

The problem for Rio involves the 25-year contract with the French utility EDF which expires at the end of 2016. At which point its electricity bill – said to be 23% of production costs – could rise as much as 80% from 2017, as contract prices catch up. To Rio’s credit they have invested in the plant in an attempt to reduce power consumption. The company spent 32 million euros renovating anode ovens which will improve efficiency in the future.

However, the plant desperately needs a new power contract that assures its future.

The energy plan for the Dunkirk plant involved the use of excess electricity from two nuclear reactors originally destined for Iran. Back in 1985, and as a result of the 1979 Islamic revolution, the French government put the two reactors in Gravelines in Northwest France. The French firm Pechiney started the aluminum smelter in 1991. Rio also owns another smelter in France, the 148,812 ton Saint-Jean-de-Maurienne plant in the French Alps, but attempts to sell that operation to Trimet don’t appear hopeful.

According to Dunkirk plant director Colin McGibbon, Dunkirk’s position next to a nuclear plant, the availability of a port and its proximity to its customers – 60% of its aluminum goes toward drink cans and 15% for car parts – makes the plant viable. The assumption however, laid atop the notion of lost cost power rates. And herein lies the rub – should high cost emission sensitive locations like western Europe even produce aluminum?

Most of the world’s aluminum plants sit next to hydro-electric dams, or close to Middle East oil fields where they use the waste gases. Even shale gas in the U.S. may provide opportunities for aluminum smelting again. But Rio’s two French plants consume nearly 6 terawatt hours (TWH) of electricity per year, compared with 6.5 TWH/year for all of France’s steel plants combined and about 9 TWH/year for the entire French railway system.

Nor does nuclear power come as cheap as it once did. We all have seen how Fukushima safety upgrades and replacement of aging plants have pushed up costs. Gravelines continues to invest some three billion euros in upgrading its six reactors. As Mr. Gibbon acknowledges, someone has to pay for this. With so many plants under threat of closure, most of Rio’s Pacific Aluminium Division loses money and billions have gone to write-downs – even currently profitable operations like Dunkirk remain under threat. And when you see the drain they place on the French power industry you can understand why.

by Stuart Burns