CHICAGO Noranda Aluminum Holding Corp. is seeking a lower electricity rate in Missouri, without which it said it will need to cut 150 to 200 jobs or ultimately close its New Madrid smelter.
The Franklin, Tenn.-based aluminum producer has asked the Missouri Public Service Commission to approve a new rate of $30 per megawatt hour (MWh), roughly 27.7 percent less than the $41 to $42 per MWh the company now pays to St. Louis-based utility Ameren Corp., a Noranda spokesman told AMM.
"If we arent granted the requested reduction in an expedited manner, and if LME (London Metal Exchange) aluminum prices dont improve, we would have to look at more head count reduction at New Madrid," the spokesman said, estimating potential layoffs at between 150 and 200 employees. Thats the most Noranda thinks it could cut its work force at New Madrid without jeopardizing its ability to meet customers commitments, he added.
The company announced plans in December to slash 190 jobs (amm.com, Dec. 17), including approximately 70 to 75 at the 260,000-tonne per year New Madrid smelter.
But even such big cuts would only "allow the smelter to survive for a period of time" and wouldnt be enough to offset current high power costs, Noranda president and chief executive officer Layle K. "Kip" Smith said in testimony in a filing to the state Public Service Commission.
"Without the requested rate reduction, even with our planned reductions in other costs, the New Madrid Smelter would have insufficient liquidity and be subject to closure ... resulting in the loss of all jobs at the smelter," Smith said in the filing.
The lower proposed rate would reduce Norandas aluminum production costs by 8 cents per pound annually, the company said.
Noranda wants the rate to be approved quickly so that it will be in place by Aug. 1, the spokesman said, without disclosing whether other operations would be impacted by potential cuts at New Madrid.
Electricity accounts for about one-third of smelting costs, making cheaper power necessary due to the low aluminum prices, the spokesman said. "With prices being what theyve been for so long and concern about how quickly they are going to ramp up, it creates short-term and longer-term liquidity challenges," he added.
The cash aluminum contract ended the London Metal Exchanges official session Feb. 13 at $1,687 per tonne (76.5 cents per pound), a high for the month to date but down 19.2 percent from $2,087.50 per tonne (94.7 cents per pound) on the same date last year. Prices havent risen above $2,000 per tonne since Feb. 25, 2013, and have remained well below $1,800 per tonne in 2014 to date.
As aluminum prices have tumbled, rate cuts have been sought by aluminum producers in the United States (amm.com, Jan. 30) and Canada (amm.com, Oct. 30).
A lower rate for Noranda would be "revenue neutral" to Ameren and would increase those for other consumers by 1.8 percent, the company said. The proposal has received support from such groups as the Missouri Retailers Association, which includes large commercial consumers; and the Missouri Industrial Energy Consumers, whose members include big industrial companies, Noranda said.
Noranda is Amerens largest customer, consuming about 10 percent of the utilitys electricity output, the spokesman said. The company isnt proposing to leave Amerens system, he noted.
The New Madrid smelter purchases about as much power as the city of Springfield, Mo., and pays $20 million per year more for power than the average domestic smelter, according to Smith.
The New Madrid smelter employs about 900 of the 2,300 people working at Noranda, the company said. Part of the smelters production is converted into aluminum rod used to make electrical transmission products, with the balance sold to the companys customers as extrusion billet, foundry ingot and primary sow, according to the companys website.