Plant Closures, Electricity Rate Hikes and Contract Cancellations

Last year, metals producers far and wide had to make tough decisions over a range of issues from temporary plant closures to permanent shutdowns. In the wake of those decisions remain a series of less talked about but not necessarily any less controversial set of issues that have recently crept into the mainstream news headlines. For example, shipping company Ingram Barge recently filed a lawsuit against Century Aluminum for canceled contracts relating to the shipment of alumina and calcined coke from it’s now closed Ravenswood, West Virginia smelter. The suits cover contracts formulated in 2006 for the annual shipment of 360,000 tons of alumina from 2007 2010 and 77,000 tons of coke for shipments from 2008 -2010. Ingram claims Century only shipped 41,000 tons of aluminum and no coke.

The Ravenswood facility ceased to operate in early 2009. Century Aluminum is not the only producer to have broken prior commitments. We reported on a contract Corus reneged on last year. If this involved a bankruptcy, Ingram would likely stand in the cold with all of the other creditors. Though Century had a $40m profit in the third quarter, the company still reports a net loss of $182m through the third quarter. In addition, the company has not shown a profit since 2005. But the fact that the company remains a viable on-going concern means the case can proceed through the legal system.

Unfortunately, the Ravenswood plant shutdown has created an additional series of unintended consequences impacting other metals producers and even consumers. Appalachian Power Co has applied for a base rate increase on top of multiple previous increases since August according to this story from the Roanoke Times. According to the article, “Virginia law gives electric utilities an opportunity to recover reasonable and prudent costs and what is determined to be a fair profit. Century Aluminum, contributed $40m in revenue to Appalachian Power Company. Now Steel Dynamics Roanoke Bar Division has mobilized its lawyers to contest the rate hikes. But no matter what Steel Dynamics achieves or doesn’t achieve, “if any or all of the revenue loss associated with the aluminum plant is not recovered as a result of the current case, Appalachian could seek recovery in a future rate case. Ironically, the decision to close the Century Aluminum plant came in part due to the “relatively high operating cost at Ravenswood and the depressed global price for primary aluminum, according to the company’s SEC filings.

It looks like another company’s cost structure just went up as well¦

–Lisa Reisman

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