Trade Resources Industry Views Alcoa Agrees to Deal to Keep New York Aluminum Smelter Open

Alcoa Agrees to Deal to Keep New York Aluminum Smelter Open

Alcoa has entered into a three-and-a-half-year agreement with New York state to increase the competitiveness of its Massena West smelter, previously been earmarked for shutdown, the US lightweight metals producer said Tuesday.

Earlier this month, the company announced plans to curtail the facility, which has 130,000 mt/year of smelting capacity, amid prevailing market conditions.

The agreement, which is retroactive to October 1 and runs through March 2019, provides various state incentives to Alcoa, and includes financial penalties if the company defaults or terminates the deal early.

The deal "gives Alcoa the opportunity to recommit to its future in Massena ... and bolster the viability of these facilities over the long term," said New York Governor Andrew Cuomo in a statement.Alcoa has entered into a three-and-a-half-year agreement with New York state to increase the competitiveness of its Massena West smelter, previously been earmarked for shutdown, the US lightweight metals producer said Tuesday.

Earlier this month, the company announced plans to curtail the facility, which has 130,000 mt/year of smelting capacity, amid prevailing market conditions.

The agreement, which is retroactive to October 1 and runs through March 2019, provides various state incentives to Alcoa, and includes financial penalties if the company defaults or terminates the deal early.

The deal "gives Alcoa the opportunity to recommit to its future in Massena ... and bolster the viability of these facilities over the long term," said New York Governor Andrew Cuomo in a statement.

"This agreement also protects the State's investments, ensuring that taxpayer dollars are spent wisely and that Alcoa lives up to its promises," he added.

"The agreement will help maintain hundreds of jobs in New York's North Country, improve the cost position of the smelter and support growth projects for the casthouse," Alcoa said in a statement.

"Today's agreement helps better position the smelter in light of prevailing market conditions, providing this facility a bridge to a stronger commodity market and maintaining jobs in the North Country," said CEO Klaus Kleinfeld. "We remain focused on ensuring our upstream business is well-positioned to succeed throughout the cycle."

The New York state government said in a statement Tuesday that the deal changes the current contract between Alcoa and the New York Power Authority. Under the terms of the agreement, will provide low-cost hydro power, which is already some of the lowest-cost electricity in the nation, it said.

"However, the state's low-cost power rate will be increased as the price of aluminum increases in the global metals exchange market," the state government added.

The agreement is subject to approval by the NYPA board of trustees, who are scheduled to meet December 17.

GOING FORWARD WITH OTHER CAPACITY CUTS

The deal also offers capital and operating expense support from Empire State Development totaling $38.8 million over 3.5 years, but stipulates up to $40 million in penalties should Alcoa breach or terminate the agreement; the amount of the penalty would gradually decline by the end of the term.

Alcoa's original plan to curtail operations at the smelter at the Massena West plant would have eliminated at least 487 jobs, leaving only around 217 positions for other functions at the plant, the state government said, adding that under Tuesday's agreement, Alcoa will be required to employ at least 600 full-time equivalent employees -- those working at least 35 hours a week -- throughout Massena West.

The company will also offer a voluntary retirement package to eligible employees.

With the US Midwest transaction aluminum price down 30% in the year to date, however, Alcoa said it will continue with its other previously announced curtailments of uncompetitive smelting and refining capacity.

Platts US MW Transaction premium assessment currently stands at 8.75 cents/lb plus LME cash, down from 24 cents/lb at the start of 2015.

Once the curtailments are complete, Alcoa's smelting capacity will be reduced by 373,000 mt, the company said, adding that the reductions "will further improve the cost position of the upstream business and ensure competitiveness in a lower pricing environment."

Alcoa added that it is on track to meet its 38th percentile target on the global aluminum cash cost curve in 2016.

Revised total restructuring-related charges in the fourth quarter of 2015 associated with actions announced at the start of November will be between $130 million and $150 million after tax, of which approximately 40% will be non-cash, the company said.

Source: http://www.platts.com/latest-news/metals/london/alcoa-agrees-to-deal-to-keep-new-york-aluminum-26288388
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Topics: Metallurgy