Winter Park, Florida 10/02/2016 - The closure of Noranda Aluminum's primary aluminium smelter in New Madrid, Missouri, shouldn't have a major impact on physical premiums because it was widely anticipated by the industry and its production can be replaced by imports, market participants told FastMarkets.
On Monday, Noranda filed for Chapter 11 bankruptcy and began a restructuring process. It also announced that it will close the last primary aluminium smelting potline (87,000 tonnes) at the New Madrid complex in March.
Earlier in January, Noranda idled two of its three aluminium smelting potlines the plant following an electrical supply circuit failure there. The smelter has a nameplate capacity of 263,000 tonnes of primary aluminium per year.
"This news might have an emotional impact but it’s not going to materially affect premiums. People knew that New Madrid was going to close sooner or later. It was already a high cost plant even before they had to take the two potlines down," a US-based aluminium trader said.
Additionally, the loss is P1020 supply will be mitigated by the fact that another wave of imports is making its way to the US from Europe as the arbitrage window between these two regions has widened dramatically over past several weeks.
The US Midwest delivered aluminium premium is holding at 9.0-9.25 cents per pound over the LME price or $198 per tonne, while the Rotterdam duty-unpaid premium eased this week to $85-95 per tonne, down nearly 20 percent from December.
The spread between DUP Rotterdam and the Midwest delivered premium this week blew out to $108 per tonne or 4.9 cents per pound, which more than covers the added costs to divert metal across the Atlantic Ocean and overshadows any support that Noranda shutdown might provide.
TOUGH TIMES FOR NORANDA
Noranda has struggled financially over the last several quarters because of low aluminium prices. It posted a net loss of $175.1 million in the third quarter compared with a loss of $3.9 million a year prior.
As part of the bankruptcy process, Noranada will receive up to $165 million in debtor-in-possession (DIP) financing so that it can stabilize its remaining upstream operations and sell its still profitable flat-rolled products businesses.
Noranda's downstream flat-rolled-products division, which consists of four mill facilities across Tennessee, North Carolina and Arkansas.
On the upstream-side, the New Madrid plant is supported by a vertically integrated bauxite mine in St Ann, Jamaica, and an alumina refinery in Gramercy, Louisiana; these continue to operate at full production.
(Editing by Archie Hunter)