CHICAGO If a deal between Century Aluminum Co. and its power suppliers in Kentucky is not approved by Aug. 19, the company may have to permanently close its smelter in Hawesville, Ky., a company official said.
The Hawesville smelter will stop operating on Aug. 20 if an agreement between Kenergy Corp., Big Rivers Electric Corp. and Chicago-based Century is not consummated, Sean Byrne, plant manager of the smelter, said in recent testimony to the Kentucky Public Service Commission (KPSC).
"The practical economic reality is that, if operations cease at the Hawesville smelter, it will, very likely, never reopen," Byrne said.
Thats because a shutdown of more than three hours "freezes" molten aluminum in the smelters potlines, making a $100-million investment necessary to restart the operation, Byrne explained. "In a globally competitive industry where margins are extremely thin, a capital investment of this magnitude is not recoverable," he said.
The Hawesville operation is Centurys largest U.S. plant with a rated production capacity of 244,000 tonnes annually and is the sole producer of high-purity aluminum in North America, with an average purity level of 99.9 percent, Byrne said. Electricity accounts for about 40 percent of the smelters aluminum production costs, he said.
Century gave Henderson, Ky.-based Big Rivers a 12-month power termination notice for the Hawesville smelter in August , 2012 (amm.com, Aug. 20). The company has said before that it would close the plant if it could not secure a better power deal, but a tentative deal has been reached by Century and its power suppliers (amm.com, June 12).
High-purity metal from Hawesville is used by the smelters largest customer, Southwire Co., as well as commercial aircraft, U.S. fighter jets and warships, and the International Space Station, Byrne said. The facility employs 671 people and together with Centurys smelter in Sebree, Ky., which it acquired from Rio Tinto Alcan (amm.com, April 29), makes Kentucky the No. 1 aluminum producer in the United States, he said.
While Century has applauded the pact, the Kentucky Industrial Utility Customers Inc. (KIUC) has expressed reservations. The association, whose members include Cleveland-based Aleris International Inc., contends that the Century power deal would see other large industrial users in the Big Rivers network facing rate increases of 72 percent in the coming months, according to another recent KPSC filing.
While not flatly against the deal, KIUC wants to see Century responsible in the future for paying back fixed costs incurred by Big Rivers to create generation capacity Century had required. "If worldwide prices for aluminum rebound ... (Century) will be able to and should contribute to the recovery of Big Rivers stranded fixed costs," the association said.
But Kentucky Attorney General Jack Conway thinks the Hawesville smelters problems should not be solved at the expense of other electricity consumers in western Kentucky, who would see their rates rise dramatically, according to a recent KPSC filing. The commission has repeatedly tried to resolve problems related to aluminum smelting in the state, "but despite these efforts ... the economic problem of sustaining the aluminum industry in Kentucky remains," Conway said.