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.
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Analyst, Wealth Morning