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Power costs threaten Rio's Sebree smelter

Keywords: Tags  Rio Tinto Alcan, Sebree, Big Rivers Electric, Century Aluminum, Hawesville, aluminum, LME, power costs Suzy Waite


NEW YORK — Rio Tinto Alcan may shut its Sebree, Ky., aluminum smelter if it cannot secure lower power rates.

Shutting the smelter "is a possibility" if the company cannot find a solution for its power costs and make the facility profitable, a smelter spokesman told AMM, although this would be a "worst case scenario."

The company has already started to discuss ways to keep the smelter operating, including purchasing power off the spot market, the spokesman said.

The Montreal-based company gave its power provider, Big Rivers Electric Corp., 12 months’ notice Jan. 31 that it will terminate the power contract for the smelter, representatives for both parties told AMM. The notice came six months after Century Aluminum Co. gave Big Rivers Electric a 12-month power termination notice for its 250,000-tonne-per-year smelter in Hawesville, Ky. (amm.com, Aug. 20).

Rio Tinto Alcan decided to terminate the power contract because the utility proposed rate increases that would make Sebree "unsustainable," the company spokesman told AMM. The smelter employs around 500 people.

Big Rivers Electric confirmed that Rio Tinto Alcan’s overall power price will increase by around 16 percent, largely as a result of Century ending its own power contract in August 2013. "We have to plan for life without (Century). We had a rate filing on Jan. 15 that would force rates to increase, and the bulk of that is (due to) Century leaving the system," a spokesman for the power provider said.

Rio Tinto Alcan and Century Aluminum together consume 70 percent of Big Rivers’ power, so losing both would mean the utility eventually would have to idle some of its generating plants, the Big Rivers spokesman said.

"We’ll have to shut some plants. We don’t know which plants it will be. We just got notice last week, but we’re doing a cost analysis now and trying to figure out which ones we’ll idle," he said, adding that the plant shutdowns would be temporary.

Rio Tinto Alcan previously announced its intention to sell the Sebree smelter, along with 12 other global aluminum and alumina assets, as part of a cost-cutting initiative (amm.com, Oct. 17, 2011).

If no interested parties step forward, Rio Tinto Alcan could potentially purchase power off the spot market to keep Sebree running, the spokesman for the smelter said. Century Aluminum has said that it also is mulling using the spot market for Hawesville (amm.com, Nov. 14).

Power costs are a huge concern for domestic producers, whose profits have dwindled with the decline in the aluminum price.

Most analysts estimate aluminum smelters’ breakeven point at $2,100 per tonne. London Metal Exchange aluminum prices stayed under the $2,000-per-tonne mark for much of 2012, hitting a low of $1,849 per tonne on Aug. 27, but they have since rebounded. LME three-month aluminum ended the Feb. 4 official session at $2,118 per tonne.


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