CHICAGO Noranda Aluminum Holding Corp. is laying off workers at a North Carolina rolling mill and scaling back a planned expansion at its New Madrid, Mo., smelter as it looks to cut costs and conserve cash.
The moves come as the Franklin, Tenn.-based aluminum producer grapples with low London Metal Exchange aluminum prices, import competition and higher electricity costs, company executives said during an earnings conference call Oct. 30.
"Were not just sitting around waiting for the LME to get better," Noranda president and chief executive officer Layle K. "Kip" Smith said.
Noranda has "initiated a work force reduction" at is Salisbury, N.C., rolling mill in response to import competition on certain light-gauge foil products also made at the companys Newport, Ark., rolling mill, Smith said. The move, which should save the company about $4 million to $6 million per year, is necessary to "match production with demand."
Other changes include offsetting a drop in demand for extrusion billet and redraw rod by meeting market demand for high-purity metal, Smith said.
The Salisbury facility, which has an annual production capacity of about 95 million pounds, makes light-gauge sheet and foil products for the heating, ventilation and air conditioning (HVAC), flexible packaging and food container markets, according to Norandas website.
Smith did not disclose where the import pressure was coming from or specify the number of workers impacted by the cuts at the Salisbury plant. And he stressed that the light-gauge products facing import competition represented only part of Norandas overall stable of flat-rolled products. "We believe we will be able to replace the majority of the lost flexible packaging volume with other products within our portfolio," he said.
Noranda also has "significantly reduced" its spending on a project to boost capacity at its New Madrid smelter, Smith said, and the planned expansion likely will not be completed until 2016. "That project we anticipate would come on later than we originally forecast. But that would be commensurate with a return to a more cycle-average level LME," he said.
The company had announced plans to spend $38 million to boost metal production capacity at New Madrid by about 35 million pounds, with the project initially forecast to be completed by mid-2015, according to Norandas website.
But while Noranda may be slowing that project, it is pressing ahead with work on a new rod mill in New Madrid and expansion of its port in Jamaica, in part because they are expected to sport "largely LME-independent" returns, Smith said, noting that the rod mill expansion remains on track to be completed in early 2015 and the dredging project by late 2013 or early 2014.
Noranda is investing $45 million in New Madrid to build a facility to make redraw rod for electrical infrastructure applications (amm.com, July 29), and is spending $10 million to $15 million on the dredging project in Jamaica (amm.com, July 24), where it sources bauxite for its alumina refinery in Gramercy, La.
On the pricing front, Smith largely ducked a query about the potential impact of proposed changes to LME warehouse policies and possible knock-on impacts on Midwest premiums when an analyst asked whether 10- to 12-cent premiums were sustainable or whether premiums might fall as low as 5 cents per pound, where they have been in the past.
"We would not venture a forecast for the premium," Smith said. But Noranda views the premium as a "fundamental market" of North American demand. "When it comes to pricing, the end-user demand is really a primary driver as opposed to a secondary driver of how that number is arrived at. So to the extent that demand remains strong, we think that tends to provide support for where the premium is," he said.