A spokesman for Alcoa, which owns 45 per cent of the smelter, also confirmed the company had made moves to terminate 20-year electricity hedge contracts with AGL Loy Yang that were about to kick in.

The hedge contracts were due to start on November 1 this year following the imminent expiry of a contract with the State Electricity Commission of Victoria on October 31.

"We're currently working to establish a new viable energy hedge agreement to help secure the future of the smelter,” the spokesman said.

"Basically what we're trying to do and what we've been saying for some time now is to wherever we can, take cost out of the business and reduce our costs here, to keep the smelter internationally competitive and to secure the long-term future."

Alcoa released a statement saying the termination of the contract would not affect its ability to operate the smelter or secure electricity supply to the smelter.

Due to the heavy power use of aluminium smelters, it is common practice to set up agreements that provide certainty over power supply and price.

The company has offered up to 20 voluntary redundancies to its workforce of about 540 staff in order to save money.

“We've spoken to the workforce about offering a small number of voluntary redundancies and that's all about trying to take costs out of the business, keep the smelter internationally competitive and to help ensure the viability of the smelter longer term,” the spokesman said.

About 2000 jobs are indirectly linked to the smelter.

The Alcoa spokesman said the international price of metal was low, and that it had not recovered since the 2008 global financial crisis.

The smelter is part-owned by Eastern Aluminium (10 per cent), CITC Nominees (22.5 per cent) and Marubeni Aluminium (22.5 per cent).

EARLIER: The future of the Portland aluminium smelter is in doubt with the power company that supplies the plant disclosing one of the plant's owners is to terminate a supply contract, with all supply contracts expected to be axed.

The move follows the decision of the Victoria government earlier this year to not extend subsidies provided to keep the plant in operation. A 20-year fixed subsidy expires in November.

​The moves follows speculation about the future of the plant for several years now, initially in the wake of the strong Australian dollar and more recently due to the price for the output from the plant.

​AGL, which supplies the big aluminium smelter with electricity from its Loy Yang A power plant in the Latrobe Valley, said it expects the other three owners will also move to terminate their agreements.

The plant is majority owned by a joint venture of Alcoa and Alumina, with China's CITIC and Japan's Marubeni Corp holding smaller shares.

"AGL expects the Portland facility to continue to operate, meaning physical demand for electricity from the smelter will continue," it said.

AGL said the contracts are so-called 'hedging contracts' which were due to take effect from November 2016. The contracts have a 12-month termination period so they will actually finish in 2017.

"As such, AGL continues to expect the contracts to contribute to earnings in [fiscal year]17," the power company said.

"Any potential earnings impact on AGL from FY18 onwards is currently limited by the strong futures market outlook for wholesale electricity prices."

AGL said it had already written down the value of the contracts in its accounts by $187 million in "anticipation of a termination event".

Analysts have been wary of the possible closure of both of the Portland smelters and also the Tomago plant near Newcastle due to the poor economics of the industry.

In 2014, Alcoa closed the Point Henry smelter which led to the closure last year of the Anglesea power plant.

Alcoa has been contacted for comment.

– Fairfax