Kaiser says restart not economical
Mead plant to close through October; power deal could be costly to company
John Stucke - Staff writer
Depressed metal prices will keep Kaiser Aluminum Corp.'s smelter at Mead closed at least through October as the financially struggling company searches for a profitable business plan.
"Unfortunately, continued declines in already-weak metal prices have forced us to make this decision," said CEO Ray Milchovich. "We have concluded that smelter restarts do not currently make economic sense for Kaiser."
Kaiser spokesman Scott Lamb said the company only is prepared to say Northwest aluminum smelters will be shut down through October.
If metal prices rise and raw material expenses dip, the company may be able to restart.
"We really prefer to watch and wait and look at the data," he said. "Among analysts there is wide divergence of views about where metal prices are going.
"Next year there may be an improvement."
The company's smelters in Mead and Tacoma have been idled since last year when Kaiser concluded it could earn more money selling its allocation of federal power than making metal. That option expires at the start of October.
The company's problems may be exacerbated by its new contract with the Bonneville Power Administration.
Under terms of the new deal, if Kaiser chooses a prolonged smelter shutdown, Bonneville will have to sell Kaiser's 251-megawatt allocation into the market.
The problem for Kaiser is this: If Bonneville can't break even on the sale, Kaiser will be forced to make up the shortfall.
On Friday, the market price for power stood at about $27 per megawatt hour. Bonneville needs about $37. If prices hold, Kaiser will have to make up the $10 difference.
"If we don't get our costs met from the resale, we'll charge Kaiser for the balance," said Bonneville spokesman Ed Mosey.
Other aluminum companies in the region struck deals with Bonneville to curtail operations until next spring.
Not so with Kaiser. The company and the federal agency have been at loggerheads concerning Kaiser's use of its $400 million in proceeds from the resale of federal power.
Now, with Kaiser facing the prospects of paying the balance for power it can't use, Mosey said, the agency has little inducement to help out.
"The market conditions are such that they aren't very conducive to negotiating," he said.
When power prices were still high, Kaiser wanted Bonneville to pay for the company's smelter shutdown. The sides couldn't reach agreement.
Now, with electricity prices dropping and low metal prices, bargaining positions favor Bonneville.
"What we're talking about here is using other ratepayers' money to pay Kaiser, and I don't think that would go over very well," Mosey said. "Understand that our position isn't that we're being arbitrary, but rather it's one of representing the interests of all the ratepayers."
Under the most extreme circumstances, Kaiser could void its contract with Bonneville. However, such a move would put the aluminum company at the mercy of market-based power, a risky position given the volatility of the past year.
Caught in the middle are Steelworkers and local management at Mead.
Several dozen Steelworkers were brought back to the smelter in early August to prepare for a possible restart.
With the option erased for at least a month, the company alerted recalled workers Thursday that layoffs were again imminent. Union members will draw about 75 percent of their pay while they are laid off during the smelter shutdown.
Unknown is the effect of this week's terrorist attacks in New York City and Washington, D.C., on the aluminum market.
Lamb said it's too early to tell whether the hijackings of four airplanes will cool the world's commercial airline business or spike aluminum-related defense spending.
The aluminum smelted at Mead is fed directly to the company's rolling mill at Trentwood, where workers make aluminum sheets for companies such as Boeing.