Kentucky State lawmakers are set to decide whether to let the United States aluminum producer Century Aluminum Company buy power on the open market in its bid to save its money-losing smelter in the Bluegrass state from closure, Reuters reported on Sunday.
With metal prices low and production costs high, U S aluminum producers struggle with razor-thin margins. In its attempt to cope, Century has taken the dramatic step of pushing for legislation that would exempt smelters from a state law requiring consumers to take power from only one supplier.
“We’re losing money every month. What the bill would do is get me out from under that exclusive service contract,” said Michael Early, Century’s energy director, in testimony last month before Kentucky’s House Natural Resources and Environment Committee.
The bill could have bigger implications for the troubled U S aluminum industry, where high-cost electricity for aging plants has challenged many producers to seek ways to operate more efficiently, especially as benchmark aluminum prices have come down by more than 30 percent in less than two years.
Century’s drive for the legislative change coincides with Ormet Corporation’s filing for bankruptcy protection at its Ohio aluminum facility, crippled by high costs.
Reuters data shows US aluminum output has fallen by 20 per cent over the past decade to 2.03 million tonnes last year, and the number of smelters has dropped by more than 30 per cent to 10 plants over the same period.
At current aluminum prices, close to 4.3 million tonnes of production outside of China is unprofitable, according to Barclays base metals analyst Nick Snowdon. That is about 8 percent of global output.
The Kentucky situation may force aluminum makers who cannot lower their production costs in the United States to shift operations to other parts of the world, as some have done already.
Alcoa Incorporated, for example, cited high power costs when it permanently shut two potlines at its Rockdale, Texas smelter, and construction of its greenfield capacity is under way in the Middle East, where power is cheaper. Aluminum capacity in the Middle East has risen to over 3 million tonnes.
Century, majority owned by Glencore International, wants to bypass its existing energy provider, Big Rivers Electric Corp, and buy electricity on the spot market for its Hawesville, Kentucky, smelter. Wholesale prices are 25 per cent lower than the fixed rate set in its 15-year power contract.
When that deal was signed in 2009, however, spot energy prices were significantly higher. Power accounts for about 40 per cent of the Kentucky plant’s production costs, higher than the industry average of 30 per cent.
Without lower-priced power, the Monterey, California-based Century said it will shut the Hawesville plant in August.
The nearby Sebree aluminum smelter, owned by Rio Tinto Alcan, could also close unless it lowers its energy costs.