Market conditions have moved in favour of the power hungry aluminium smelter in Southland.

Two years after receiving a $30 million handout from taxpayers the Tiwai Point aluminium smelter is "squarely in the black", says an industry analyst.

The smelter, which employs more than 3000 people in Southland, had claimed its future was in doubt as it sought to cut the price of its electricity supplies through a contract with Meridian Energy.

In analysis published to clients in March, Woodward Partners head of research John Kidd said the smelter was now in a much stronger position than it was in 2013.

"Most external value drivers have moved firmly to the smelter's favour," he said, particularly prices for its high quality aluminium and the exchange rate against the US dollar.

He estimated the changes would lead to operating profits for the business of $157 million and $233m in 2014 and 2015 respectively.

The strengthening performance arrives as the smelter's owners, Rio Tinto Aluminium and Sumitomo, face crucial decisions on its future energy supplies.

Aluminium production requires huge amounts of electricity and the smelter uses about 14 per cent of New Zealand's total electricity generation.

After negotiation with Meridian in 2013, the smelter got a price cut on 572MW of supply from 2013 to 2016. But to keep the lower price after that the smelter must cut the amount supplied through the contract to 400MW.

It must make that decision by the end of 2015.

It also has an option to decide on July 1 whether to terminate the whole deal, triggering closure in 2017.

Kidd said the closure scenario was unlikely, particularly because it would mean site remediation costs of about $500m.

It was more probable that the smelter would cut its Meridian contract to 400MW and try to get a price deal on the extra 172MW from another power company, possibly Contact Energy.

"There is we think a strong and shared incentive across all suppliers to retain [the smelter] load in full," he said.

Without demand from Tiwai, wholesale electricity prices would were likely to drop significantly and reduce profit margins for the industry, "an outcome that the sector has a strong collective reason to want to avoid", Kidd said.

The smelter has said little about its financial condition in the lead-up to its July decision deadline, a silence Kidd attributed to a gagging clause in its $30m deal with the Government.

According to contract terms disclosed by New Zealand Aluminium Smelters (NZAS), the Rio Tinto/Sumitomo joint venture, it must repay the $30m Government handout in full if it announces a review of the smelter's viability before June 30 this year.

In April NZAS chairman Brian Cooper told Stuff that the smelter was paying some of the highest prices in the world for its electricity.

"No decision had been made about the future of the smelter, and we are doing everything we can to secure a long-term commercially competitive electricity price for the smelter," he said.

Although the smelter itself is a tolling operation, which simply charges Rio Tinto and Sumitomo for production costs and does not make a profit, it is effectively reliant on whether its owners can make a profit on the aluminium it produces.

Kidd said although those companies did report some financial results,"group structures are opaque and it is difficult to gauge where and to what extent transfer prices and margins are captured".

His analysis was based on modelling of the overall business.