Global forces hurting chances for Intalco restart

As Alcoa’s Intalco Works near Ferndale moves closer to idling its aluminum smelting operations, global market forces continue to paint a bleak picture on the chances of restarting it anytime soon.

On Thursday, Nov. 19, Alcoa filed a Worker Adjustment and Retraining Notification that the company could lay off 465 employees at Ferndale and 415 in Wenatchee. The WARN filing means the company is giving 60 days notice before it can start laying off workers, putting the start time at Jan. 18. Around 118 employees are expected to be retained for the Ferndale casthouse operations, which focus on specialty products.

Alcoa said its decision to idle smelters, announced Nov. 2, was in response to global market conditions, including a 30 percent drop in the price of aluminum this year. The process to idle the Ferndale-area smelter is expected to be completed in early 2016.

Right now the union and the company are working with other agencies to develop programs to help the hundreds who will be laid off, said Glenn Farmer, business representative for the International Association of Machinists Local 2379 District 160.

This has a much different feel than the last major idling in 2001. At that time, the focus was the spike in energy prices, which was solved as Bonneville Power Administration and Alcoa hammered out a contract agreement. This upcoming idling is more about global market forces and Intalco’s ability to compete in a global market to determine if a restart is feasible, said Josh Wilund, a spokesman for Alcoa, during the Nov. 2 announcement.

One major factor is the price of aluminum, which remains low heading into December. China continues to flood the global market with supply, keeping prices low, according to a Nov. 10 article in The Wall Street Journal. The price of aluminum has steadily dropped since the Nov. 2 announcement; last week on the London Metal Exchange the price was around $1,450 a metric ton. At most U.S. smelters, the price of aluminum needs to be around $1,500 a ton just to break even, according to a Nov. 2 Bloomberg article.

Like any commodity in today’s global markets, aluminum can be hit with volatile price swings. A year ago, the price for a ton of aluminum was more than $2,000.

What makes Intalco particularly vulnerable to a weak price period is the fact that Washington smelters no longer have the least expensive energy to make aluminum, said Tom Roehl, a Western Washington University professor who teaches international business classes. While the current oversupply of aluminum has led to lower prices, this is also an energy story, he said. Companies will gravitate to places where energy — which is needed in huge amounts to run a smelter — is less expensive.

In 2012, Intalco signed a 10-year electric power supply contract with the Bonneville Power Administration. The contract calls for BPA to supply 300 average megawatts of power at an industrial rate of about $36 a megawatt. Three hundred megawatts is enough electricity to serve more than 200,000 Northwest homes.

“We were the low-cost supplier,” Roehl said, noting that Washington state benefited from hydroelectric power generated from area rivers. “But the industry has evolved, and it is no longer the case.”

China’s influence

The Wall Street Journal article notes that China’s aluminum exports are up 14.4 percent so far this year while U.S. smelters are cutting back on production.

In the past year the China economy has slowed, creating less demand there for aluminum. So the Chinese government is using illegal subsidies to keep things going, according to Will Dempster, executive director of China Trade Task Force. That organization is calling on the U.S. government and others to get China to stop these World Trade Organization violations. This is a charge that’s been made by some U.S. aluminum producers as well as the United Steelworkers Union.

“If we don’t, we face the end of America’s aluminum industry as we know it,” Dempster said.

Roehl said China’s aluminum industry fell into the classic trap when it comes to supply and demand — the feeling that the good times will go on forever, which leads to overbuilding and too much supply. He wouldn’t put all the blame on China, because many companies do this at some point. The U.S. real estate and stock market bubbles are examples of too many people expecting demand to keep rising.

China is also able to be a low-cost supplier of aluminum because it can use coal to power its smelters, according to a July 20 Reuters article.

Impact on local economy

Intalco’s average annual wage, including benefits and overtime, was about $105,000 in 2013, according to Alcoa.

The loss of 465 living-wage jobs for an undetermined amount of time will hurt other parts of the economy, such as retail. While the facility is curtailed, that means 465 families probably won’t be making big purchases, such as cars, furniture and appliances.

An economic report on Cherry Point put together a year ago by Hart Hodges of Western Washington University and Bill Beyers of University of Washington estimated the multiplier effect to be 3.26, meaning about three jobs in the rest of the county would be hurt for every job lost at Intalco.

The loss of those jobs also will make it difficult to attract other living-wage jobs into the community, Roehl said. When the Intalco facility was idled in 2001, the national economy was in terrible shape and there were indications that Intalco would restart, so workers remained in Whatcom County. Today the national economy is in better shape, resulting in more opportunities outside Whatcom County.

“(Whatcom County) needs more family-wage jobs, but it also needs qualified workers,” Roehl said, noting that if the Intalco workers leave it would reduce the skilled labor force that companies look for when evaluating areas.

Combined with other recent events including the Haggen bankruptcy and the closure of the CH2M Hill Bellingham office, the local economy has a fragile feeling to it, said Hodges, who is the director of Western Washington University’s Center for Economic and Business Research.

“I think the attitude is, ‘What’s next?’” Hodges said.

Much of the time the local economy is a mixed bag, with some industries improving at the same time others are slowing down. That’s the same situation here. Hodges pointed out that consumers have benefited from low gas prices throughout 2015 leading to stronger retail sales. But that has also meant tougher times in the oil industry, a factor in the closure of the CH2M Hill office and the loss of more than 100 jobs.

The job losses are coming at a time when Whatcom’s unemployment rate has been under 6 percent for much of 2015.

“There is usually a push-pull situation when it comes to the local economy,” Hodges said.

Roehl also noted the push-pull aspect of the economy in China as well, adding that while things are slowing in terms of making products, consumer purchases are up. So Whatcom County companies that sell products internationally, such as Ferndale’s Superfeet and Healthy Pet, may find some opportunities in China.

Restart chances

John Martin, vice president of operations for the U.S. and Brazil Alcoa, visited Intalco earlier this month after the announcement to meet with smelter employees. According to the union’s Facebook page, Martin indicated that Intalco had a better chance of restarting than other smelters if market conditions allow it.

Roehl said one advantage for Intalco is its ability to restart quickly, which it did in 2001.

A possible restart also could depend on how long aluminum prices remain low. If the idling of the smelter drags on for months, more of the experienced workers who shut down the smelter operations will move on to other jobs. Could it be feasible for Alcoa to restart the facility if the workers are gone?

A long idling is something many in the community hope doesn’t happen.

“We survived before (shutdowns) before, but not without pain,” said Gary Jensen, Ferndale’s mayor, after he first heard the announcement. “I hope people understand that we will not have as much disposable income in this community. It will affect Whatcom County.”

This story was originally published November 21, 2015 at 12:00 PM with the headline "Global forces hurting chances for Intalco restart."