Some US aluminum plants may never reopen
NEW YORK, Nov 12 (Reuters) - Aluminum production cuts in the Pacific Northwest and Brazil resulting from a power shortage and energy rationing appear likely to remain in place at least through 2003, according to a recent BB&T Capital Markets report.
Indeed, aluminum analyst Lloyd O'Carroll, citing recent developments at Kaiser Aluminum Corp. (NYSE:KLU) and Golden Northwest Aluminum, said Friday that some U.S. Northwest smelters had slim chances of ever restarting production.
Aluminum companies have been grappling with high operating costs that continue to outstrip low metal prices, leading them this year to shut about 1.6 million tonnes of capacity, or about 38 percent of U.S. production.
O'Carroll said an agreement between Kaiser and the Bonneville Power Administration in October on details of a new contract ``almost guarantees no restart before Oct. 1, 2002'' at Kaiser's idled Mead and Tacoma smelters in Washington state.
Kaiser last month made a deal with the electricity supplier that relieves Kaiser from paying a penalty to BPA on unused power at those two smelters for one year.
It was ``very likely'' that there would be no production for Kaiser's two smelters beyond that, and ``some probability that the smelters would never run again,'' O'Carroll said in an update on aluminum market fundamentals.
Houston-based Kaiser last month announced it will not restart 273,000 tonnes of idled West Coast capacity before Dec. 31, as aluminum sagged at 28-month lows and cheap electricity for power-guzzling smelters remained scarce.
Meanwhile, news that Golden Northwest on Oct. 2 declared force majeure on a contract with Norsk Hydro A/S to convert alumina to metal at its Goldendale, Washington smelter may close the door on that plant restarting, O'Carroll said.
Golden Northwest had been contemplating resuming output in April, but with this announcement, ``restart is quite unlikely,'' said the analyst.
The company, which also has a smelter in The Dalles, Oregon, has been hit hard by a work stoppage after a breakdown in labor talks with union workers, an obligation to pay its workers during the curtailment, and less revenue this year.
Golden Northwest has said aluminum prices needed to rise to the mid-70 cents per pound range in order to cover operating costs.
Cash aluminum on the London Metal Exchange traded at $1,291 a tonne, or roughly 59 cents a pound, on Monday.
In the BB&T Capital report, O'Carroll also estimated that Brazilian aluminum output was down 25 percent from capacity in recent months after smelters in July announced curtailments of 15 percent to 25 percent, due to state-wide energy rationing.
Separately, the analyst reiterated his view that aluminum prices should begin to bounce back once poor demand improves in the second quarter of 2002.
``Our view remains that we still expect ugly demand for Q4 and probably Q1 before seeing an upturn in Q2. As long as demand improves while production cuts are still in place, aluminum prices should move meaningfully higher,'' he said.