COLUMN-Another US primary aluminium smelter bites the dust: Andy Home

By Andy Home

LONDON, Jan 26 (Reuters) - And then there were four.

This week's curtailment of the New Madrid smelter in Missouri leaves just four operating primary aluminium producers on U.S. soil.

At the turn of the century the country boasted 20 primary smelters, all but one of them operating.

The sector has been devastated by a combination of high power prices, the key cost variable for the electrolysis production process, and high Chinese exports.

New Madrid was a poster child for the Trump administration's import tariffs. It was bought out of bankruptcy and restarted just months after the 10% duties were imposed in 2018.

But tariffs haven't been enough to save it.

Neither has the Biden administration's massive spending on rebuilding domestic critical minerals supply chains.

Primary aluminium, although core to both national defence and the clean energy transition, has fallen through the policy gaps.

Can the sector be saved? And how much does it matter if it can't be?

DECLINE AND FALL

Trump's tariffs, intended to reverse the long-term decline of the U.S. primary aluminium sector, have had little lasting impact.

Efforts to restart the Intalco smelter in Washington ran out of steam last year, Alcoa announcing its permanent closure in March. Century Aluminum, meanwhile, fully idled its Hawesville smelter in Kentucky in July 2022.

Century is still producing primary metal at its Sebree and Mt Holly smelters, the latter at reduced capacity.

Alcoa is operating the other two plants. Massena in the state of New York is the world's oldest continuously operating aluminium smelter and is running at its 130,000-metric ton annual capacity.

The Warrick plant in Indiana originally had nameplate capacity of 269,000 tons but since the middle of 2022 has been operating just two production lines.

National primary metal production enjoyed a short-term bounce in 2018-2019 thanks to the restart of New Madrid but has declined every year since.

Last year's output was 785,000 metric tons, compared with 740,000 tons in 2017, the year before import tariffs were enacted.

The curtailment of the 263,000-ton per year New Madrid smelter will inevitably see national run-rates fall to a new historic low.

POWER PROBLEMS

Magnitude 7 Metals, which operates New Madrid, blamed the curtailment on "abnormally cold weather", which has so impaired operations "they cannot be restored while running".

However, the smelter has been struggling to turn a profit since its 2018 restart.

The company's chief executive Charles Reali told Reuters in February 2020 that "we're seeing red numbers every month."

The problem is partly the age of the plant, which was built in 1971 and had the dubious distinction of producing the worst quality air in the United States in 2019.

That underlines the other big problem, which is that New Madrid is powered by high-cost coal.

That puts it at an environmental and commercial disadvantage to global competitors, many of which are rapidly going green by tapping into cheaper renewable power, not least in China.

CALL FOR ACTION

There's a broad consensus about what is needed to prevent the U.S. primary aluminium sector sliding into oblivion.

"The announced curtailment of this site is a clear call for the need for low-cost clean energy in America's heartland," according to Ben Jealous, executive director of environmental group Sierra Club.

The country's aluminium users agree, calling in September 2023 for the Department of Energy (DoE) to "invest in American-made clean aluminum to retain and create manufacturing jobs, reduce industrial emissions, and grow a vitally important industry".

The open letter to DoE Secretary Jennifer Granholm was signed by Ford Motor Co., General Motors, Pepsi Co., Ball Corp., Rivian, SunPower and eight others ranging from power conductor manufacturers to brewers.

While the Inflation Reduction Act (IRA) is aimed at boosting the U.S. renewable energy sector and includes tax credits for producing primary aluminium, there appears to be no over-arching strategy on how to link the two.

GOING, GOING...GONE?

An action plan providing for the modernisation of aging facilities and a tie-in with renewable energy needs to come sooner rather than later if the remaining U.S. smelters are going to survive.

But is it worth the effort?

Although one of the arguments for preserving them is the country's already high import dependency, the nature of that dependency is changing.

Penal duties on Russian commodity-grade aluminium imposed in February last year have effectively shut the door on what was once a major source of imports in the U.S. market.

Repeated rounds of anti-dumping duties on Chinese semi-manufactured products have also dramatically reduced imports from the world's largest producer.

De-risking imports to avoid non-friendly countries has benefited the likes of Canada, which has historically been the single largest supplier to the U.S market-place.

Not only is Canada explicitly deemed to be part of the U.S. defense industrial supply chain but Rio Tinto's string of smelters over the border are powered by green hydro energy.

The company is also continuously upgrading its plants, most recently announcing an expansion of its modern-technology AP60 smelter to offset the phase-out of the older Arvida plant on the same site.

If the U.S. needs more primary metal Canada seems well placed to provide it.

In terms of domestic production, the decline in primary production is being more than offset by investment in recycling capacity.

Secondary aluminium production has grown steadily over the last twenty years and accounted for 78% of all the aluminium produced in the United States in 2021, according to a 2022 report prepared by the Congressional Research Center. ("U.S. Aluminum Manufacturing: Industry Trends and Sustainability")

The pace of investment in recycling and remelt capacity has since accelerated further thanks to the IRA.

If the future is green, the U.S. is not going to be short of green aluminium, whether in primary form from Canada or in secondary form from its own rapidly-growing recycling capacity.

Barring an emergency intervention from the U.S. government, it's not clear whether the country's aging primary smelters are going to be part of that future.

The opinions expressed here are those of the author, a columnist for Reuters.

(Editing by Louise Heavens)