Aluminum Holding Corp. is exploring reducing pension
contributions and selling non-essential assets as it grapples
with low London Metal Exchange aluminum prices and uncertainty
about Midwest premiums, company executives said.
Tenn.-based aluminum producers comments came in response
to analysts questions during a July 24 conference call
about how Noranda might respond should low aluminum prices
prove to be a sign of long-term weakness in commodity
Analysts also asked
how the company would respond should warehouse financing
arrangements unwind in reaction to proposed new LME rules. The
LME proposals aim to limit long waits for metal at warehouses,
and some market sources have argued that the proposed rules
could drive down Midwest premiums, which have benefitted
producers in the face of low LME tags (
amm.com, July 19).
"We have no plans to
shut down any of our major facilities," Noranda president and
chief executive officer Layle "Kip" Smith said, noting that the
company saw solid demand from its customers in the second
quarter, with previously forecast 1 to 2 percent growth for
2013 still a "viable estimate."
But if any shutdowns
become necessary, "the one that would probably come first ...
would be the primary plant," Smith said. The cost of shutting a
facility varies widely, with Norandas alumina operations
the most expensive followed by individual potlines, which can
cost as much as $10 million to $20 million to close and
restart, he said.
All of Norandas
primary aluminum is produced at its 263,000-tonne-per-year
smelter in New Madrid, Mo., according to Norandas
website. The companys alumina refinery in Gramercy, La.,
has a production capacity of 1.2 million metric tons per
customer contracts do not contain provisions that would prevent
the company from curtailing production, Smith said. In
addition, the company continues to look at other cost-saving
measures, including renegotiating contracts and turning to
suppliers "for sustainable support ... during this rough time,"
Noranda could also cut
back on maintenance spending if necessary, although the company
would prefer not to do so because the short-term gains of such
actions can be outweighed by long-term costs, Smith said. The
company is slowing the pace of spending on a rectifier upgrade
amm.com, Jan. 24) at its New Madrid smelter, among
other measures, he said.
A $45 million rod mill
expansion at New Madrid, which is expected to be in full
production in 2015, is still under way, as is a $10 million to
$15 million dredging project in Jamaica (
amm.com, April 11), chief financial officer Robert
Mahoney said. But Noranda is mulling reducing its pension fund
contributions for 1 to 2 years and selling "non-strategic
assets," such as "not indispensable" equipment that vendors
might be able to better operate, he said.
Smith stressed that
aluminum demand is the most important factor in driving prices
and that Noranda is in a good position because 98 percent of
its products are sold to U.S. customers in a recovering U.S.
market. In addition, Noranda continues to realize value-added
and fabrication premiums equal to those seen in the first
quarter and above those in 2012, he said.
"We continue to
believe in the long-term fundamentals of aluminum, especially
given our strategic position as a U.S. producer," Smith said.
"At the same time ... its clear that we currently face
challenging headwinds from an LME aluminum price
LME aluminum prices
have declined since mid-February and in the last five weeks
have traded in a range of 78 to 82 cents per pound, "among the
lowest levels observed since 2009," Smith said. About 40
percent of global aluminum capacity is operating at costs not
supported by current aluminum prices, he estimated.
On the premium front,
Noranda has no "proprietary view" on "tensions in the Midwest
premium" given that warehouse LME policies are only proposals
and that there "doesnt appear to be any consensus out
there" on their potential impact, Smith said. But the
companys business model includes receiving all premiums,
including Midwest, "on every single pound of material we
produce. ... so every time there is a move in the Midwest, that
is very, very important to us," he said.