Restarting idled plants
Previously, we analyzed power supply agreements at Century Aluminum’s (CENX) operational plants. However, its plants in Helguvik and Ravenswood are idled. It hasn’t been able to secure power supply contracts. In this part of the series, we’ll analyze the latest developments related to these plants.
Deutsche Bank expects that restarting the Helguvik plant will add another $5 to Century’s share price. The plant has an annual capacity to produce 250,000 metric tons of aluminum. Ravenswood has the capacity to produce 170,000 metric tons of aluminum per year.
Century Aluminum’s smelter in Ravenswood is old. Old smelters tend to be less energy efficient. Since electricity is a crucial raw material for aluminum companies, operating vintage plants puts them at a competitive disadvantage.
Alcoa (AA) closed several smelters in the last few years to improve its cost position in the aluminum industry. It plans to close more plants where unit production costs are high. These curtailments and closures help Alcoa improve its positioning on the cost curve. Alcoa forms 3.30% of the Materials Select Sector ETF (XLB). BHP Billiton (BHP) also closed down several old smelters. Rio Tinto (RIO) is a top quartile aluminum producer.
According to Century Aluminum, they would require significantly lower electricity prices than what’s currently being offered at the Ravenswood plant. Aluminum prices have also corrected this year. This can be seen in the above chart. Lower aluminum prices could delay the possible restart of this plant.
The plant is under construction in Iceland. There still isn’t an update on possibly restarting this plant.
However, Century Aluminum’s operating plants started to produce more value-added products. We’ll discuss this in the next part of this series.