Meridian Energy Ltd [NZX:MEL] has fallen by 13% in trading today, down to $4.57 at the time of writing.
Meridian is one of New Zealand’s largest electricity generators. It has a prominent presence in the renewable-energy market, operating a mix of hydro and wind power.
Meridian currently has a market cap of $13.20 billion.
Why has the [NZX:MEL] share price plunged?
Market sentiment has taken a turn for the bearish today. Rio Tinto [ASX: RIO] has just confirmed that it is discontinuing its aluminium-smelter plant at Tiwai Point.
Some key takeaways:
- Tiwai Point has historically been a power-hungry operation. It consumes around 12% of New Zealand’s total energy supply.
- In 2019, the smelter registered a $46 million loss. This was blamed on rising power and transmission charges.
- Today, Rio Tinto declared that ‘the business is no longer viable given high energy costs and a challenging outlook for the aluminium industry.’
- Meridian Energy is the largest supplier of energy to Tiwai Point. Its contract will now end on August 2021.
- 1000 jobs in Southland will be lost, with another 1600 jobs indirectly connected to the industry also at risk of being cut.
Where could [NZX:MEL] go from here?
Right now, the mood is grim in the power industry.
Meridian has taken a double-digit hit in share price. This knock-on effect has also impacted competitors like Contact and Mercury.
Given that Tiwai Point was such a big consumer of Kiwi power, excess supply may mean a slump in energy revenue.
The sentiment will be negative for the short- to medium-term.
If you’re looking for strategic research that goes beyond the New Zealand energy industry, we recommend our Lifetime Wealth Investor premium picks. We cover 15 to 20 of the best global ideas for income and growth.
Regards,
John Ling,
Analyst, Wealth Morning