The aluminium smelter slumped a large loss because of volatile prices and power costs.

This story was originally published on RNZ.co.nz and is republished with permission.

The Tiwai Point aluminium smelter has slumped to a large loss because of volatile prices and power costs.

Pacific Aluminium, controlled by Rio Tinto, made a loss of $313 million for the year ended December compared with the previous year's profit of $207m.

However, the underlying loss fell to $46m from the previous year's $22m profit, after accounting for hedges used to insure against power price volatility.

Chief executive Stew Hamilton said the smelter was hit by a 15 per cent fall in global prices, but most notably from high power and transmission costs.

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"No matter how hard or efficiently the team here works, we can't consistently off-set the high price of power and transmission charges we face," Hamilton said.

"This means we swing from delivering small profits to losses for our owners, making our financial viability uncertain."

He said the latest result showed why the smelter's future was under review. Among the options being considered are a cut back in production or closure.

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A review of power transmission prices has raised the prospect of a cut of $20m or more a year, but a final decision is still some time away.

The smelter's primary power supplier, Meridian, as well as Contact Energy have been talking to the smelter about lower prices.

"If we can secure an internationally competitive power arrangement that enables us to be consistently profitable and a transmission charge that more accurately reflects the service we receive, NZAS [the smelter] will be well placed to continue," Hamilton said.

The smelter is one of two in the world producing high quality aluminium used in cars and aircraft.

There have been suggestions that a closure of the smelter might cause a slide in power prices, but that has been queried by some electricity generators.

This story was originally published on RNZ.co.nz and is republished with permission.