Power deal threatens aluminium smelters

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Power deal threatens aluminium smelters By Gillian O'Connor Mining Correspondent Published: November 5 2000 17:50GMT | Last Updated: November 5 2000 17:51GMT

Last week's new five-year power deal between aluminium smelters in the north-west United States and the local Bonneville Power Administration is likely to lead to further capacity closures and higher metal prices, analysts warned.

The five companies operating in the area, Alcoa, Kaiser, Columbia Falls, Golden Northwest and Vanalco have already shut smelting capacity totalling more than 450,000 tonnes a year - equal to around 7 per cent of North American capacity - with the loss of more than 1,500 jobs, because of soaring free-market power prices.

When the new contract kicks in next October, analysts believe that up to one-third of the remaining 1.1m tonnes capacity in the area could also be closed unless free-market power prices collapse.

The smelters' problems are the indirect result of the deregulation of the US power industry.

Until 1996 they bought all their power from the BPA, a federal agency, but when a new five-year contract was negotiated, most decided to source at least some of their power from the free market.

Initially, shopping around paid off, but this year the free-market price trebled when utilities in Oregon and Washington state channelled power to California as the hot weather increased demand.

Gradually seven of the 10 local smelters implemented partial or full production cuts. Including earlier minor cuts, more than 500,000 tonnes of total capacity of more than 1.6m tonnes is now mothballed.

But the new five-year agreement with the BPA will make life even tougher for the smelters.

It cuts the quantity of power the BPA will provide from around 2,000 megawatts to just under 1,500 megawatts - roughly half the smelters' total needs. And it raises the price from around $22 per megawatt hour to around $26, although the deals vary slightly and final details have yet to be fixed.

Forward power prices range from around $112 for December this year down to around $45 for May next year. But unless they fall further by next October and look set to stay down, the smelters are likely to reduce production.

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-- Martin Thompson (mthom1927@aol.com), November 05, 2000


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