Alcoa to Curb Aluminum Output in Spain as Energy Costs Soar

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Alcoa Corp. is set to halt primary aluminum production at its plant in Spain for two years, the latest casualty of soaring energy prices in Europe.

The curbs at Europe’s second-largest aluminum plant come after energy costs spiked to fresh records last week, putting heavy industries under increasing financial strain. Aluminium Dunkerque Industries France, the region’s top smelter of the metal, trimmed output earlier this month.

Alcoa welcomed a vote by a majority of workers at the San Ciprian plant in Galicia to back the proposal to stop output until the end of 2023, said a spokeswoman for the company. She said the plan offers a chance of a viable future to the troubled plant. Alcoa has been trying for years to close the operations, saying the smelter was “uncompetitive.”

The company said it expects fourth-quarter 2021 restructuring-related charges of $60 million, or 32 cents per share. It also committed to provide employees full wages and benefits during the 2-year curtailment of the smelter.

“This has been a challenging road for everyone involved,” Chief Executive Roy Harvey said in the statement released after the close of trading on Wednesday. “With this agreement, we now have a path to resolve the significant challenges that the facility has faced and can begin to build a stronger smelter in two years.”

The smelter will continue to supply strategic clients in the pharmaceutical and food industries by remelting aluminum, while maximizing billet production of 65,000 tons per year and producing more than 25,000 tons of aluminum slab. During the halt, Alcoa has agreed to keep paying workers and not to cut jobs. 

While aluminum prices have rallied more than 40% this year, profitability is being eroded by the far greater surge in power prices.

“What’s come to pass here is no surprise given where power prices in Europe are trading,” said Duncan Hobbs, a London-based metals analyst at Concord Resources. “It’s pretty clear that it’s not profitable to be making metal today at today’s spot power prices.”

Smelters usually secure the majority of their energy needs on a long-term basis, but spot prices can influence negotiations for electricity supply and prove expensive if smelters have short-term exposure.

Market concerns over energy supply are impacting the physical aluminum market. Cash-settled premiums for duty-paid aluminum in Europe were last at $330.83 per ton on the London Metal Exchange, an increase of about 19% since the start of December. That’s heaping more cost onto industries already feeling inflationary pressure, such as automakers and building companies.

“It’s being driven in part by this power supply situation and buyers starting to worry about being caught short, with the market being tight and the possibility of production being curtailed,” said Concord’s Hobbs.

Read: Europe’s Energy Crisis Is Taking Its Toll on Heavy Industries

Alcoa said it will invest $103 million to improve the plant’s viability, including the cost of restarting electrolysis tanks to recommence primary aluminum production in two years time. Aluminum smelters are typically slow to curb production as the costs of shutting down and restarting capacity are high.

Alcoa recently signed a pre-agreement with Greenalia SA to provide the plant with green energy for 10 years from 2024. 

Alcoa shares rose 0.7% on Wednesday to $59.63.

©2021 Bloomberg L.P.

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