[May 10, 2013 / No. 1594]

Aluminum? Yeah, I Think We’ve Got Some of That Here Somewhere

News item: Aluminum producer Alcoa says it’s putting 11 percent of its worldwide smelting capacity up for review over the next 15 months, with possible outcomes being temporary curtailments or permanent shutdowns.

Your reaction is:

a) That’s serious news and we can only hope it doesn’t affect the Northwest, where aluminum is such a vital part and customer of the regional power grid, not to mention the contribution to local economies in the form of good-paying jobs.

b) Eh, this might have been big news 25 years ago, but aluminum isn’t nearly the influence it was then. Better to ask about the industry forecast for server farms.

c) Wait, we do aluminum around here? Where?

Well yes, c), we do still do aluminum around here, although b) is correct that its presence is greatly diminished.

A quick delve into the numbers is revealing. In fiscal year 2012, aluminum accounted for $108 million of Bonneville Power Administration’s $3.3 billion in revenue. In FY 1995, eight aluminum customers contributed $491 million of BPA’s revenues of just under $2.4 billion.

In summary: BPA’s total revenues over that period rose nearly 40 percent. Revenues from the aluminum sector fell 78 percent. The aluminum industry’s contribution to BPA revenues in FY 1995: about 21 percent. For FY 2012: just over 3 percent.

Even more emblematic of aluminum’s decline in the region is the industry’s place in public perception.

In the industry’s heyday, you could always get a good rumble started over aluminum’s significance. Not that people debated that it was a major economic force in the Northwest or a major component of the region’s power system; the point of contention was whether that significance justified what critics called preferential treatment for the industry.

Aluminum’s advocates argued that smelters and associated rolling mills delivered good-paying jobs, often in small and rural communities with little other industrial base to support them. The critics maintained the number of jobs was a relatively small payoff compared to what the region might net by using or selling that power elsewhere.

The debate was never resolved to anyone’s satisfaction, and in a sense the aluminum industry resolved it by dwindling away to a shadow of its former self. The listing of aluminum customers in BPA’s FY95 annual report is an exercise in industrial nostalgia and a roll call of the departed. Where have you gone, Reynolds? Anyone remember Northwest, Vanalco, Columbia?

Columbia Falls in Montana has been idled since 2009, according to a recent story in the Missoulian, although there have been occasional conversations about a restart. Another company on that list, Kaiser, is still around, but its smelters in Spokane and Tacoma are gone.

That leaves Alcoa, with its operations in Wenatchee and Ferndale, Wash. (the latter known as Intalco). They’re both running, but neither at full strength. Half of one potline—about 18 percent of the plant’s production capacity—is idled at Ferndale, while one potline, or 22 percent of Wenatchee’s capacity, is idled.

For all of its aluminum production operations Alcoa has 13 percent of capacity on idle, and the recent announcement suggests more is coming. The review will, the company warned, “focus on higher-cost plants and plants that have long-term risk due to factors such as energy costs or regulatory uncertainty.”

The problem, the company says, is that global aluminum prices are down 33 percent from their peak in 2011. “Alcoa’s review of its primary metals operations is consistent with the company’s 2015 goal of lowering its position on the world aluminum production cost curve by 10 percentage points,” the company said in its announcement.

Here are a few more numbers to illustrate the problem. BPA’s FY95 annual report lists an average price for aluminum of 82 cents per pound. The website InfoMine.com provides a chart of U.S. aluminum prices of about a week ago at . . . 82 cents per pound. Think Alcoa or anyone else is paying what it did in 1995 for, well, anything?

Little of this is new. The story of the aluminum industry in the Northwest over the last two decades has been one of lurching from one crisis to another—blamed variously on low sales prices, low demand, supply glut, high input, or production costs (or a combination of these)—which occasionally pushed a company out of business.

What has changed is the perception of whether this matters outside of Ferndale and Wenatchee, or to anyone besides those drawing a paycheck at those facilities.

As recently as 2003, the fate and fortune of the aluminum industry was of at least passing regional importance. We know this because of the issuance of a report 10 years ago on the future of the aluminum industry commissioned by the United Steelworkers union, the state Department of Community, Trade and Economic Development (now known as Commerce) and Kaiser Aluminum.

“A consultant hired by the United Steelworkers of America says idled aluminum smelters in the Pacific Northwest could be restarted and compete in world markets if they get a break on power prices,” said a story in the Seattle Post-Intelligencer written by Bill Virgin (whatever happened to the P-I, or him?). A USW official was quoted in the story as saying that, in the wake of the West Coast power crisis, “The question has been ‘is the era of aluminum production over?’” in the region.

Even then the trend suggested the long-term answer was “yes.” Kaiser was in bankruptcy and had sold the site of its Tacoma smelter; its Mead smelter (the focus of the study) was idled. Others were limping along.

The study’s backers said Mead and other smelters could survive with short-run BPA rate cuts and the aluminum companies developing their own generating resources and reducing their dependence on Bonneville.

Mead is gone and the report is largely forgotten (except by this writer, who before locating it would have put the year of issue much earlier than 2003). The industry itself isn’t quite gone, but it’s largely forgotten. Even within Northwest utility and energy circles aluminum no longer commands the attention or generates the debate it once did. Outside those circles, news of another smelter in jeopardy is likely to elicit a shoulder shrug—if that.

You’d have better luck raising a reaction, and maybe a study and news story or two, if Google or Microsoft or Yahoo announced that, because of high energy costs, they were considering idling Northwest data-storage capacity [Bill Virgin].

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