Kaiser's Decision to Temporarily Shut Down Smelters Affects Aluminum Prices

Kaiser Aluminum and Chemical Corp. (Houston, TX), the operating subsidiary of Kaiser Aluminum Corp. began to temporarily curtail the production of approximately 128,000 metric tons or primary aluminum capacity at its Tacoma, WA and Mead, WA smelters. This is the result of very high market prices being charged for electricity in the region. This measure will affect about 400 hourly employees at the two facilities.

The company plans to shut down the three potlines in operation at their 73,000-ton Tacoma smelter and 2 ½ potlines at the 200,000-ton Mead smelter. In addition, Kaiser has sold back to the market 100 megawatts of non-federal power that they have under contract through June 30, 2001. Kaiser hopes that the sale of this power will mitigate the impact of high energy prices in the second quarter of 2000 as well as the financial impact of the line curtailment.

In an effort to try to offset the impact of unforeseen power hikes of this magnitude – from US$30.00 per megawatt hour to more than $100.00 per megawatt hour – Kaiser is working with power supply marketer Bonneville Power Administration (BPA), with which the company has a competitive fixed-price contract running through September 30, 2001. This contract provides for the company's other Northwest power needs.

"We have to continue our dialogue on this issue with BPA, especially in light of its important and long-standing role as the marketer of cost-based federal power to the aluminum industry," said Kaiser Aluminum president and CEO Raymond J. Milchovich in a statement issued by the company. "We are hopeful that, between now and 2001, these discussions will result in a solution that will sustain the health of the Northwest aluminum industry and ensure that this is a short-term rather than a long-term problem." Milchovich expressed regret that the decision had to be made and that it negatively affected so many workers, their families, suppliers and the communities at large.

However, according to a Reuters' report issued shortly after the announcement, the aforementioned parties are not the only ones affected by Kaiser's decision. The price of aluminum rose sharply after the announcement. The report said that the three-month aluminum prices on the London Metal Exchange rose to $1566.50 per ton, up nearly $60.00 in one day. These prices were also affected by the decision of another Pacific Northwest smelter, Vanalco, Inc. of Vancouver, WA, that also opted to temporarily shut down four of its five potlines at its 115,000-ton per year primary smelter. This decision was also made due to the high costs of power in the Pacific Northwest of the United States.