In talks with Iceland government, power provider Aluminium...

• In talks with Iceland government, power provider
• Aluminium market oversupplied, auto demand weak
• Production already cut to 85% of capacity

(Adds details on the review, background on other closures)

Feb 12 (Reuters) - Rio Tinto (RIO) RIO.L on Wednesday said it may cut operations or shut down its aluminium smelter in Iceland, as it struggles to generate profits at the site because of tough conditions in the aluminium market and high power costs.

Rio said the Icelandic Aluminium Company (ISAL) smelter is expected to remain unprofitable in the short to medium term, and that production has already been reduced to 85% of the smelter's capacity.

"We have worked intensively to improve ISAL’s performance. However, it is currently unprofitable and cannot compete in the challenging market conditions due to its high power costs," Rio Tinto Aluminium Chief Executive Alf Barrios said in a statement.

Rio said it will complete a strategic review of the smelter in the first half of 2020 and continue talks with the Iceland government and power provider Landsvirkjun to explore options for a return to profitability.

Last year, the global miner initiated a similar review for New Zealand's Aluminium Smelter, which is expected to be completed in the first quarter of 2020.

The aluminium market is struggling with a lack of demand and a downturn in sales to the automotive sector.