Thu October 11, 2012
What Will it Take to Make Western Kentucky Aluminum Smelters Profitable?
Over the past several months, there have been worries that two big aluminum smelters in western Kentucky will shut down. Rio Tinto-Alcan has a plant in Sebree (Webster County) and Century Aluminum has a plant in Hawesville (Hancock County).
The problem is that aluminum rates have been falling for the past few years. They bottomed out in July but still haven’t recovered very much. With the lower prices, energy-intensive aluminum plants are looking at ways to cut costs, and trying to negotiate cheaper electricity rates from utility companies.
That’s what’s happening in western Kentucky. Rio Tinto-Alcan and Century are asking Big Rivers Electric Corp. to give it a cheaper price, so the companies can continue to operate.
In August, Century filed to end its contract with Big Rivers, giving 12 months notice. In an Associated Press story, Century President and CEO Michael Bless said the electricity rate was the only factor where the smelter wasn’t competitive.
"The unavoidable truth is that the smelter is not economically viable with this power rate and under current market conditions," Bless said in a statement. "We need a power price that is reflective of the market, helps the plant weather these turbulent economic conditions and allows the plant to be competitive over the long term."
As the Evansville (Ind.) Courier-Press reported last week, a study commissioned by the Kentucky General Assembly suggests the smelters may not have any long-term viability, even if the power contracts are negotiated.
And it hasn’t been mentioned often in the Kentucky media, but a similar situation in West Virginia is pretty telling, too. In February 2009, Century curtailed operations at its plant in Ravenswood, West Virginia. The company has been negotiating with the West Virginia Public Service Commission and electric utility American Electric Power since then. That's three-and-a-half years worth of negotiations. As the Charleston Gazette reported Monday, despite a special rate and concessions, Century says it still isn’t enough to open the plant and be profitable.
What the smelters want—both in Kentucky and West Virginia—is an electricity rate tied to the price of aluminum. According to the study commissioned by the Kentucky General Assembly:
The study also says it would be unwise for Big Rivers to accede to the smelters' request that it tie its electricity costs to the world price for aluminum.
"It is reasonable for a firm that is in the aluminum business to face the risks of aluminum price uncertainty, but it is less reasonable for a utility that is in the electricity business to face such risks," it said.
So, we'll see what happens with Big Rivers and the aluminum companies. Century and Rio Tinto-Alcan maintain their plants are responsible for more than 3,000 jobs in the area, taking into account both direct and indirect employment.