Alcoa's production slowdown latest in U.S. NW power woes
By Carole Vaporean
NEW YORK, Jan 4 (Reuters) - Alcoa Inc. (NYSE:AA - news) plans to reduce production at its Ferndale, Wash. smelter, becoming the last of five aluminum companies operating in the Pacific Northwest to succumb to soaring power costs that have already forced cutbacks equalling almost 20 percent of U.S. capacity.
A spokeswoman for leading global aluminum producer Alcoa told Reuters the company will reduce output at its 61-percent owned Intalco smelter in Ferndale, but did not provide specifics.
Ferndale's total capacity is around 275,000 tonnes a year and estimates vary on how much Alcoa will curtail. In a research report, BB&T Capital Markets projected that Alcoa would cut anywhere from 25,000 to 75,000 metric tonnes because of high electricity prices. Other estimates have been higher.
Total U.S. aluminum production capacity is approximately 4.3 million tonnes a year.
The slowdown is the latest in a year-long series of cuts that have nearly crippled the primary aluminum business in the U.S. Pacific Northwest region.
In June, Alcoa shut its 121,000 tonne-per-year smelter at Troutdale, Oregon, citing a need for major capital improvements. Analysts noted that high power costs may have been a deciding factor in Alcoa's move to mothball that plant.
Excluding Alcoa's latest cuts, Merrill Lynch senior metals mining analyst Daniel Roling estimates about 868,000 tonnes of production has been idled in the Pacific Northwest region, mainly because of the power crisis.
That number includes 50,000 tonnes that were curtailed at Alcan Aluminum's (Toronto:AL.TO - news) Kitimat smelter in British Columbia in December due to water conservation efforts.
Five U.S. aluminum companies operate in the Pacific Northwest region, which has about 38 percent, or 1.6 million tonnes, of U.S. aluminum capacity. The region comes under the operating domain of the Bonneville Power Administration (BPA).
The BPA is the quasi-federal agency based in Portland, Oregon that is the main supplier to most power users in the Northwest.
Of the five producers, privately-owned Vanalco was the hardest hit. After several severe output reductions last year, it caved in to exorbitant power costs on the open market.
The company finally said it would shut its doors at the end of 2000, eliminating about 115,000 tonnes of capacity.
The most recent cut came last week from privately-held Golden Northwest Aluminum Co. With its latest cuts, its Goldendale, Wash. plant will run only 27,000 of its 168,000 tonnes a year capacity.
The 82,000-tonne-capacity plant at Golden's The Dalles smelter in Oregon is completely shut until October 2001.
Kaiser Aluminum Corp. (NYSE:KLU - news) has idled all 273,000 tonnes of its Northwest capacity in Mead and Tacoma, Wash., and plans to keep those plants closed until its new contract with BPA takes effect in October. Even then, Kaiser will have only enough electricity to operate at 40-percent capacity.
Since September, Columbia Falls Aluminum, another private company, has curtailed 84,000 tonnes of the total 168,000 tonnes of annual capacity at its Montana smelter.
Most Northwest facilities have opted to maintain their production cuts until a new contract with BPA goes into effect in October.
Some have said they will try to re-start operations before then. But stopping a smelter can take weeks or months, with additional weeks needed to bring idled capacity back online.
Analysts are still forming their estimates for 2001 U.S. aluminum output, but many said they think much of the idled production will come back on line by the fourth quarter.
Given slower economic growth and a resulting decline in consumption in the U.S., there may not be as much pressure to bring all the capacity back on stream right away, said Morgan Stanley Dean Witter metals and mining analyst Wayne Atwell.
Atwell said some of the supply cutbacks, meanwhile, may be made up by the new 400,000 tonne-a-year Alcan facility in Alma, Quebec, that came on line in October. The company expects it will be in full production by the third quarter of 2001.