Alcoa smelter near Ferndale survives in tough economic conditions

THE BELLINGHAM HERALDNovember 3, 2013 

Even when things are going well, keeping an aluminum smelter operating in the U.S. is no easy task.

It's been a year since Alcoa Intalco Works signed a 10-year power supply deal and two years since management and employees reached a new labor contract, avoiding a potentially crippling strike. For years uncertainty about the power supply cast a shadow over Alcoa's future in Whatcom County.

Having those issues settled has allowed the facility west of Ferndale to focus on becoming more efficient, continuing some environmentally friendly initiatives and reaching out to strengthen relationships with employees, said plant manager Barry Hullett.

Aluminum manufacturing is strongly tied to global markets, however, and the current issues are leaving the remaining U.S. plants in a precarious position. Globally the market is in a strange situation where demand is increasing, but prices have hovered at multi-year lows. That's because the industry still has plenty of inventory left over from the global recession.

"This would normally be a prosperous time," said Hullett, referring to what would typically happen to prices given this type of growing demand.

As a result, Alcoa and other aluminum producers have cut output this year, hoping to eat into the extra inventory. It appears to be working: Alcoa's stock price recently jumped on speculation that aluminum prices will rise. Last week the stock price reached $9.56 a share, up from $7.72 in early September.

During this time the Intalco facility has remained at about 80 percent capacity, operating two-and-a-half of its three potlines, producing about 230,000 metric tons of aluminum per year.

While the possibility of rising prices would be good news for smelters, it's still a highly competitive market. New smelters are coming online outside of the U.S. that have lower overhead costs, including a major facility in Saudi Arabia that Alcoa is involved in through a joint venture. According to a recent article by Reuters, Alcoa is ramping up the facility as the company shifts some of its output to the Middle East, where power costs are lower, and shuts down higher-cost facilities in Europe and North America.

As these changes take place, Hullett said he intends for Intalco to be one of the survivors. Intalco doesn't have the highest costs among the smelters, but not the lowest costs, either. Hullett has asked his 604 employees to come up with suggestions on making the facility more efficient and has received good suggestions, including using wireless technology to help operate a crane.

"There's a good understanding here that the workers drive the efficiency," said Raina Clark, a spokeswoman for the company.

THE SUSTAINABILITY OF ALUMINUM

Aluminum smelters are known for using a lot of electricity. Intalco's deal with Bonneville Power Administration provides 300 average megawatts of power through September 2022.

Three hundred megawatts is equivalent to about one-fourth of the power supply at Seattle City Light.

Hullett points out that the aluminum products are known for being renewable: According to the Aluminum Association, 62 billion cans were recycled in the U.S. last year, or about 67 percent of the cans made in 2012. The energy saved is equal to 19 million barrels of oil, enough to fuel 1.7 million cars for a year.

Alcoa has increased the amount of value-added products it sells in order to add customers, from billets (shaped like logs and can be formed into items like bike frames) to Ferrari wheels.

Hullett said they've also worked hard to be a greener neighbor at the Intalco facility. Last month the company employees were working on a greening project on its property; workers also are volunteering with the Nooksack Salmon Enhancement Association on restoration work this month at Terrell Creek, near Intalco. The partnership between Intalco and NSEA has been about 10 years, said NSEA Executive Director Rachel Vasak.

"We work with a lot of different companies in the community, but the community engagement ethics they display is remarkable," she said.

WHAT'S NEXT

Hullett expects global aluminum inventory to remain high for the next three years, a period where he expects smelters, particularly in the U.S., to be in a survival mode.

Once that extra inventory has shrunk, he believes there will be an opportunity to grow because of the rise in demand in this country, which has about 10 operating smelters left.

"If we don't make (aluminum) here, it will be made elsewhere, and it doesn't make sense to me to make it on the other side of the world and have it shipped here."

Reach Business Editor Dave Gallagher at 360-715-2269 or dave.gallagher@bellinghamherald.com. Read his Business Blog at bellinghamherald.com/business-blog or follow him on Twitter at @bhamheraldbiz.

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