London 13/01/2015 - Alcoa has secured sufficient energy supply to keep its Spanish aluminium smelters at La Coruña and Avilés open and has withdrawn the collective dismissal process for more than 800 employees, FastMarkets learned on Tuesday.
"We have secured sufficient interruptibility services to keep the plants operating in current market conditions," a spokesman said.
But the two plants will continue to operate at two-thirds of their capacity due to weak market conditions. According to Alcoa, they also remain "challenged and more vulnerable" to market volatility, including aluminum prices and currency exchange rates. Cost-cutting is therefore still a priority to ensure the continued viability of the plants.
"We will seek additional opportunities to save costs as the plants remain among the highest-cost smelters in the Alcoa system," the spokesman said.
The US producer will also seek a long-term competitive energy framework for the smelters, it said, as the deal for energy it secured late in December will only cover a 12-month period.
"They need a long-term solution for these plants - they can't run them under one-year energy contracts forever," a trade source told FastMarkets.
Alcoa started a formal consultation process for collective dismissal on December 1 last year after failing to secure enough cheap electricity through a government auction in November. But a second auction in December secured further subsidised energy for Alcoa, enabling the producer to keep the plants running.
According to a new energy reform passed in 2013, the government grants electricity rebates to large consumers via an auction mechanism for blocks of 90 megawatts (MW). Alcoa was seeking six blocks of 90 MW to be shared among its smelters in San Ciprian, La Coruña and Avilés but during the first auction on November 17 it had only managed to get three blocks for the most modern and productive smelter of San Ciprian.
As part of the new interruptibility service contract requirements, Alcoa will restart a small number of potlines at both La Coruña and Avilés to meet a February 5 deadline. Still, partial curtailment will remain in place due to weak market conditions.
"There is no basis for restarting full production," the spokesman said.
According to Spanish newspaper la Nueva Espana, Alcoa received energy price rebates worth 130 million euros for 2015, down from 150 million euros in 2014 and 190 million euos in 2013.
Avilés and La Coruña are loss-making plants with older technology and higher costs and therefore do not rank highly in Alcoa's global portfolio, sources told FastMarkets. The smelters are also unlikely to find a buyer, industry sources said.
Capacity is 110,000 tonnes per year of aluminium ingots and billets at La Coruña and 145,000 tonnes per year at Avilés. But the plants ran at two-thirds of capacity for most of last year.
The electricity bill at the plants accounts for 35 percent of expenditure, with the cost per tonne possibly increasing by 330 euros next year, El País reported, citing local Alcoa representatives.
Workers at both plants have staged repetitive strikes in December.
(Editing by Mark Shaw)