The Australian Workers Union has struck a landmark pay deal at Rio Tinto's Tasmanian aluminium smelter, which sees workers forgoing fixed pay rises.

The deal at the Bell Bay site will see fixed annual wage increases replaced with a negotiated figure.

The union's national secretary, Paul Howes, says the agreement provides more certainty for workers during tough times in the aluminium sector.

Mr Howes says the workers still want pay rises, but they will be flexible with negotiations.

The union had previously campaigned hard for pay rises at the Bell Bay site, saying Tasmanian workers were paid significantly less than mainland colleagues for doing the same job.

But he says the union has to adapt its wages approach to help make plants more productive.

"We are not in the business of trading off our members' job security for wage increases," he said.

"Our principle is that we believe in the long term there shouldn't be a pay gap between Tasmanian workers and mainland workers, but in the short term we're not going to bargain for conditions that place wage increases in front of job security.

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"We recognise with the aluminium price being as low as it is at the moment, the Aussie dollar being as high as it is and recognising that Bell Bay has been through a pretty tough time over the last few, years we're not going to create inflexible conditions.

"When normal market conditions return for the aluminium sector, which they will eventually, of course we will be seeking those increases again, but in the short term we are not going to create a situation which would jeopardise the future of Bell Bay."

Day-by-day proposition

Spokesman Ray Mostogl says the global market for aluminium is at an unprecedented low and the company is under pressure.

"It's a day-by-day proposition, the price of aluminium's changed by $100 just in the last seven days," he said.

"So we still have to work hard, there are still costs that we need to bring down and that work is going on relentlessly."

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The deal comes as another aluminium producer, Alcoa, announces its closing its Geelong smelter with the loss of 500 jobs.

Alcoa has blamed weak global aluminium prices for the decision, saying the 50-year-old smelter has no prospect of becoming financially viable.

Mr Howes used a National Press Club address this month to call for a new "grand compact" between unions and businesses to end "industrial warfare" over workplace relations.

Mr Howes says the aluminium sector has gone from struggling to disastrous in the past 12 months.

He says unions may have to give more ground.

"I've said this before, we have to be pragmatic and we have to be flexible," he said.

"Our obligation is to our members' job security and to their future employment and sometimes that means slaying a few of those ideological cows and doing the right thing for the future of the entire country.

"And that is what we have done here at Bell Bay."

Mr Howes says the Bell Bay deal could be a model for other industries.

"It shows that the modern Australian union movement can be pragmatic and can be less dogmatic than maybe we have been in the past when it comes to doing the right thing by our economy."