Endangered Specie: US Aluminium Smelters

23 09 2009

I attended Habor Intelligence’s Aluminium Market and Price Outlook in Chicago in June this year. One of the speakers was consultant who gave a presentation aluminium output costs which led him to identify the most profitable production locations throughout the supply chain. One of his conclusions was that in the mid- to long-term vertically integrated production in the United States would become unprofitable due to rising power costs. The most viable scenario for North American production is to locate downstream processing operations in the US and to supply those with aluminium produced in Canada.

I have investigated the current state of smelting operations in the United States. So based on Light Metal Age review of smelters worldwide, I got a list of US smelters and associated capacity to which I added a little more meat (like the technology used by each smelter) and decided to do a little bit of research. Here are my conclusions.

74,4% of the nameplate capacity of US aluminium smelters takes place in facilities built in and before the 1960s. It’s also interesting to mention that there’s almost twice as much capacity coming from facilities built before the prohibition era than there is from facilities built after 1975. Only Alcoa’s Mt Holly smelter came in operation after that date which is consistent with US aluminium production peaked in the 1970s and declined at a steady rate ever since.

Old facilities do not mean that expansion and modernization plans have not taken place throughout the years. Yet, besides Alcoa’s plans for the modernization and expansion of its Massena smelters, the only other facility for which I could find news of a retrofit is the Columbia Falls aluminium smelter, a facility still relying on the Söderberg technology for a portion of its production. The retrofit dates back 1977.

As mentioned earlier, US smelters are vulnerable to rising energy costs. The unavailability of power and uncompetitive pricing were to blame for some smelters closing amid rising aluminium prices in the recent past. Considering the history of temporary shutdowns related to energy issues at the Wenatchee (Alcoa), Goldendale (Goldendale Aluminium which is owned by Glencore), Frederick (Alcoa-Eastalco) and Ferndale (Alcoa-Intalco) aluminium smelters, I assume that 23.9% of US nameplate capacity is vulnerable to rising power costs.

Smelters that I consider safe from energy concerns are those with long-term power agreements and independent power generation capacity. Those represent 29.8% of nameplate capacity. Due to Alcoa’s Wenatchee smelter securing a long-term power agreement starting 2012, the facility is included in both vulnerable and solid smelters. So long for comprehensive and mutually exclusive categories one can be both part of best and worst in class categories in a postmodern world! Jokes aside if the Wenatchee smelter is excluded from the vulnerable smelters, 18.7% of nameplate capacity can be considered adversely exposed to rising energy prices.

With the recent downturn one could also assess the vulnerability of US facilities with regards to cost competitiveness. US smelters have much higher production costs that most smelters with the exception of those located in China, Central and Eastern Europe. I got my hand on a graph from Morgan Stanley at the Harbour Intelligence conference that reported that for 1Q09 the production cost of aluminium in the US was of about 0.78$/lb (1712.13$ a metric tonne) versus a 0.63$/lb (1388.52$ a tonne) for Canadian smelters. At present about half of US smelting capacity is idled due to low prices LME prices and demand earlier this year. Even Century Aluminium ended up divesting its bauxite and alumina stakes, thus materializing the demise of integrated production in the US to some extent.

Another factor that is worth investigating is the energy efficiency and carbon intensity of smelting technologies in the US. In the context of the Waxman-Markey bill eventually regulating emissions from trade-exposed energy intensive industries after 2020 (that is if other competing countries like China also regulate their emissions). In this context, the old technologies relied on in the US will become an additional burden. I tried to get a hand on energy intensity for the smelting technologies in use but I have yet to find something relevant.

In sum, primary aluminium production in the US pretty much deserves to be labelled as old, fat and unfit. With vertically integrated production in the US likely to become less and less profitable relying on Canadian aluminium production is the sensible thing to do. The integration of the aluminium industry at the North American level is without a doubt well underway with the extruders gathered in a single North American trade association, and the US being Canada’s most import export destination for aluminium. The US should probably bet on the advantage that it has in recycling operations relative to Canada. In a context of GHG emissions being regulated this would give the United States a serious advantage as aluminium recycling consumes 5% the energy and 5% of the emissions that primary aluminium smelting produces.

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One response

24 02 2012
Armando De la Mora

Hello, I’m very interested in your study or whatever information you have on this topic of Aluminum Smelters.

If you have a list of Smelters, the information you have on the technology they use.

It would really be of a lot of help in a project I am currently working on.

Please, anything you have will be of a lot of use.

Thank you in advance.

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