The lights abruptly went out on New Zealand’s long-running stocks rally Wednesday. The reason: A global mining giant’s threat to pull the plug on the country’s biggest buyer of electricity.
The NZX-50 index had been among the world’s best-performing stock benchmarks this year, notching a 26% gain through Tuesday. But it fell 2.1%, close to a three-week low, after Rio Tinto PLC said its Tiwai Point smelter is unprofitable, citing high energy costs and historically low aluminum prices because of oversupply in the market.
The selloff illustrates how small stock markets can be especially vulnerable to big corporate decisions. Tiwai Point, which employs roughly 1,000 people and has been in operation for nearly half a century, is the single biggest user of electricity in New Zealand, where it accounts for roughly 14% of energy demand.
The possible closure risks creating a power-supply glut, which could drive down electricity prices and industry profits. Power generators bore the brunt of selling, with Meridian Energy Ltd. falling 8.7% on the potential loss of a customer that takes around 40% of its energy output.
Meridian is New Zealand’s largest listed company by market value. Other power companies also have contracts to supply Rio Tinto’s smelter, including Contact Energy Ltd. and Mercury NZ Ltd., which fell 9.7% and 8.4%, respectively.
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