of
a broad global asset portfolio that insulates the company from regional
downturns like that gripping the Pacific Northwest, said Lloyd O'Carroll, an
analyst with BB&T Capital Markets.
"Beyond Alcoa, you can't say with
certainty that anything will run again" in the Northwest, he said.
"Hopefully, this is the worst of times. But things will not return to
the good old days."
Indeed, the aluminum industry appears in
turmoil.
At one time, 10 smelters operated, making
about 1.6 million metric tons of aluminum. But low metal prices, sharper
competition, industry consolidation, expensive upgrade requirements, rising
electricity prices and other reasons conspired to take a toll.
In the future, O'Carroll said, the Northwest
would be lucky to have 800,000 tons of aluminum production.
John Tumazos, an analyst with Prudential
Financial, said Chinese production is exceeding expectations. The
consequence may be plant closures in the Northwest.
In fact, he was surprised at Kaiser's
fortitude.
"I think the managers at Kaiser did a
hell of a job to keep from going bankrupt during the last 14 years," he
said.
While Kaiser does not have holdings in China,
Tumazos said the company holdings in Wales, Africa and Australia are the
most valuable assets. None were listed in Kaiser's bankruptcy filing.
Kaiser's assets in Washington state are less
valuable, he said.
It was widely believed that Kaiser tried to
sell Trentwood during the past couple years, but couldn't find a buyer.
Its Mead and Tacoma smelters were also for
sale, but there was little interest for the old smelters with a combined
book value of less than $160 million.
Tumazos issued a report on Chinese production
gains last month that created grief for aluminum company stock prices. His
research speculated that three dozen companies at work in 17 provinces had
China poised to become an exporter.
This, he said, may add to already high
inventories and drive prices further down.
"It seems credible and widespread,"
Tumazos wrote about Chinese aluminum.
Another analyst, who did not want to be
identified, discounted the threat posed by China.
The start of new capacity there will be
partly offset by the idling of old plants, he said.
China was a net importer of aluminum last
year, he said, and will continue to be an importer for the foreseeable
future.
He predicted no new smelters will be built in
the U.S. The fate of existing plants will depend on power prices, metal
prices and the value of the dollar, which puts U.S. aluminum at a
disadvantage in world markets, he said.
In the Northwest, smelters in Columbia Falls,
Mont., Longview, Wash., The Dalles, Ore., and Goldendale, Wash., that are
owned by independent operators are wild cards that can tip the already
delicate demand-supply balance, he added.
There is still too much aluminum in the
world, the analyst said. "The market does not need any more supply
right now."
That bodes ill for Golden Northwest Aluminum
Co., which runs the properties in Goldendale and The Dalles.
The company is scheduled to purchase power
from the Bonneville Power Administration beginning April 1.
If the company refuses the power, Bonneville
will resell it and charge Golden Northwest the difference between the
contract price and the amount fetched on the spot market. Called a
"take-or-pay" contract, it's designed to protect Bonneville from
the vagaries of the electricity market.
It's the same situation for McCook Metals.
The company purchased the Longview smelter in early 2001, then went
bankrupt. It issued more than 450 layoff notices earlier this month.
BPA spokesman Ed Mosey said Golden Northwest
and McCook are in constant talks with Bonneville officials.
"Frankly, the fact that we decided to
allow Kaiser to escape its take-or-pay obligation did not escape their
notice," Mosey said.
Last fall, Bonneville waived Kaiser's
contract obligations for a year.
On Tuesday, the agency was listed as an
unsecured creditor in Kaiser's bankruptcy filings. The federal agency is
owed more than $1 million -- 11th on the list.
O'Carroll said Golden Northwest needs a
similar take-or-pay waiver.
"It's a big issue. If (Bonneville)
literally forces it, what has it done but push these people into
bankruptcy," O'Carroll said. "Isn't there already enough of that?
I think what's going to happen is something will get renegotiated and the
take-or-pay goes away."
He said Golden Northwest has a reasonable
chance of restarting capacity and avoiding a similar fate to Kaiser and a
company called Vanalco.
Vanalco was the first Northwest aluminum
concern to seek bankruptcy protection. It owned the smelter in Vancouver.
Built in 1940, the smelter closed in June
2000, and about 600 workers lost their jobs.
Also in June 2000, Alcoa shuttered its
smelter in Troutdale, Ore., and laid off about 525 employees.
In Ferndale, however, Alcoa runs the region's
aluminum standout -- a modern smelter able to outproduce and better control
costs than its regional competitors.
And Alcoa's plant in Wenatchee is considered
one of the better smelters. It has a long-term power deal with the Chelan
Public Utility District.
Alcoa will restart metal-making on its own
terms -- unlike other smelters that are restlessly weighing a restart,
O'Carroll said.
