#3 Most Viewed | Jobs that once seemed permanent could be gone for good with Alcoa’s curtailment

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This story was originally published on Dec. 14, 2015. 

By Oliver Lazenby
The Bellingham Business Journal

When Marc Norman started working at Alcoa Intalco Works in 1994, the plant west of Ferndale was one of five major aluminum producers in Washington. The aluminum industry paid out hundreds of millions of dollars in wages in the state and employed more than 7,500 people.

Norman, 45, bought a house soon after starting at Intalco Works and he thought he might stay at Alcoa until retirement.

“It seemed like a job I could have for at least 30 years,” he said.

But the industry’s long term prospects changed. Since 2000, three smelters in the state have permanently closed. Aluminum’s long price drop reached a six-year low this fall, rendering smelting at Intalco Works unprofitable. In November, the company announced that it will idle smelting operations and lay off 465 at Intalco Works and 415 at its Wenatchee Works plant, the only other smelter left in the state.

Alcoa could begin smelting again, but prices would need to rebound significantly, Alcoa officials said. Meanwhile, the loss of 465 well-paying jobs will likely affect other sectors of Whatcom County’s economy, according to local economists.

Some operations will continue at Intalco Works, and the plant will keep 118 of its 583 employees.

The part of the facility that is closing is called the potlines. In the potlines, electrical current runs through aluminum ore (which arrives monthly from Australia), breaking molecular bonds and producing refined molten aluminum.

The potlines will close in the first quarter of 2016 but work will continue in the cast house, where molten aluminum is cast into blocks and logs of refined aluminum that gets shipped all over the western U.S., Canada and Mexico to be used for manufacturing. Once the potlines are closed, the cast houses won’t work with aluminum refined on-site, but will instead produce aluminum alloys from metal smelted elsewhere.

Declining prices

The price of Aluminum dropped more than 30 percent in the past year to about $1,475 per ton in November on the London Metal Exchange. Most U.S. smelters can’t make money unless prices are well above $1,500, according to a report by Harbor Intelligence, an aluminum industry analyst. Harbor researchers predict that almost all U.S. smelting plants will close next year if prices don’t recover, Bloomberg News reported in November.

A variety of factors have pushed aluminum prices down from a high of more than $2,500 per ton in 2011. China, Russia and the Middle East ramped up production in recent years, and now China’s recession has helped cause a global oversupply in the lightweight metal, according to the Bloomberg report. Some industry leaders suspect China of illegally subsidizing its state-owned aluminum producers.

“Illegal Chinese subsidies — such as direct grants, interest free loans, transfers of low cost state-owned land, and preferential regulatory treatment — have collapsed the global price of aluminum,” the China Trade Task Force, an aluminum industry coalition, said in a prepared statement for the president in November.

Alcoa has dealt with the price decline by cutting unprofitable smelters. The company will idle refining and smelting at a facility in New York called Massena West early next year. Another New York facility, Massena East, will permanently close. Portions of that plant were closed in March 2014.

Also, Alcoa is splitting in two. In the second half of 2016 Alcoa’s traditional aluminum producing and refining business will become separate from its more profitable parts and metal alloys business.

Curtailed or permanent?

Alcoa has curtailed operations in the past. Most recently, the facility cut production in 2007 and 2008, laying off about 170 full-time employees. In 2011, Intalco Works increased production and added 60 jobs.

John Martin vice president of operations for United States and Brazil Alcoa GPP, visited Intalco Works in November and held a town hall meeting with smelter employees, according to the International Association of Machinists & Aerospace Workers website. The union represents most Alcoa workers.

He told workers that Intalco Works had a better chance of restarting than the other smelters, but the price of aluminum will have to get significantly higher.

Norman, a supervisor in the potlines who expects to lose his job, hopes that Alcoa’s curtailments will help raise the price of aluminum. Once the cuts announced in November are complete, Alcoa will have closed, divested or curtailed 45 percent of its total smelting operating capacity since 2007, according to a company news release.

High wage jobs

Since Alcoa’s announcement, Norman has seen other employees go through the five stages of grief, he said. And in a period of weeks, Norman went from thinking the plant could avoid shutting down if only they could work harder and make it profitable, to accepting the curtailment and looking into other careers.

Some employees have quit already, Norman said. Workers moving away could make it harder to restart operations, but Intalco Works public relations manager Raina Clark said the company is used to training new employees; since there are so few aluminum smelters left in the U.S. virtually no new hires have any experience at the job, she said.

Employees at Intalco Works made an average of $105,000 annually in 2013. The loss of 465 high-wage jobs will reverberate through the county’s economy, Western Washington University economist Hart Hodges said.

Hodges’ economic modeling software found one job at Alcoa indirectly supports an estimated two other jobs in the county through consumer spending and other economic activity.

“For each job at Intalco that goes away, we can imagine that two other jobs in the county are at risk,” Hodges said in an email. “Equivalently, if we lose 400 jobs at Intalco, we might lose 1200 jobs in total.”

That’s the worst case scenario. The impact goes down if Alcoa continues to pay wages or benefits in some form to the laid-off workers. At press time, the company hadn’t said anything about employee benefit packages.

In a 2000 study, economic forecaster Dick Conway calculated that jobs at Intalco Works had a jobs multiplier value of 2.8. That is, for every job lost at Alcoa, 1.8 other jobs may be lost in the county — similar to what Hodges found.

Conway chronicled the demise of Washington’s aluminum industry through a series of studies in the 1990s up until 2005, covering a period in which smelters in Longview, Goldendale and Spokane closed. The aluminum industry commissioned the studies to make a case that smelters should continue to receive subsidized power from the Bonneville Power Administration.

It’s been years since Conway studied the industry, but he expects Whatcom County will deal with the curtailments better than Wenatchee, he said.

“The loss of Wenatchee Works — they’re going to feel it,” he said. “Whatcom, not so much because of the university, the proximity to Canada, even the proximity to the Puget Sound region.”

Oliver Lazenby, associate editor of The Bellingham Business Journal, can be reached at 360-647-8805, Ext. 5052, or olazenby@bbjtoday.com

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