Alcoa Weighs Proceeding with Massena's $600 Million Modernization

Researched by Industrial Info Resources (Sugar Land, Texas)--Alcoa Incorporated (NYSE:AA) is expected to reach a decision by month's end on whether to proceed with the $600 million modernization plan at the East Aluminum Plant in Massena, New York.

The company will continue to receive low-cost hydropower from the New York Power Authority (NYPA) for 30 years only if it proceeds with the modernization plan. The proposal is expected by March 31, 2013. If Alcoa carries on, it will receive 239 megawatts of additional power to restart its Massena East plant. With the incentive of cheap power supply, the prospect of continuing to manufacture in Massena becomes a much more attractive proposition for Alcoa.

If the company moves forward, it could see increased production, reduced waste, and overall better working conditions for employees. However, Alcoa could also confront large environmental liabilities. If the plant were to close, the company's overall total smelting capacity would not decrease by any significant amount, but it would lose out on 30 years of power-related savings for the plant and, in turn, Alcoa bottom line.

The company operates two facilities here: an integrated aluminum smelting/fabricating plant, and a smelting/casthouse facility. The Massena facility is the longest continually operating aluminum facility in the world, home to two aluminum smelters: the East plant and the West plant. The West plant produces 130,000 metric tonnes of aluminum every day, while the East plant produces 125,000 metric tonnes. The modernization project includes the construction of a new potline at the Massena East plant, which will produce 144,000 metric tons of aluminum per year; upgrades to existing facilities at Massena West; and modifications to other existing facilities that will help integrate the two plants and support the new potline.

In addition to building a new pot room at the East plant, Alcoa will replace the current "Soderberg" technology at that facility with the more modern "pre-bake" technology, which is already in use at the West plant. "Pots" are steel-lined containers in which molten aluminum is smelted. They are arranged in long rows in large buildings called "pot rooms." When Alcoa begins using the pre-bake technology at the East plant, there will be improvements in air quality and emissions, and a reduction in the quantity of waste generated in the aluminum-making process by as much as 56%. It also will reduce the amount of dust generated, thus creating better working conditions for workers.

Some experts in the industry have presented a depressing picture of today's aluminum market from the producer side. But the view for consumers seems to be much brighter. Rising production around the world, matched with a slower demand, results in overall lower prices. Noranda Aluminum Holding Corporation (NYSE:NOR) announced higher revenues and higher fourth-quarter losses. Alcoa reported a better overall standing due to a more expanded product line. Other plants have decided to curtail their production across the North America, Rio Tinto Alcan (Montreal, Quebec), Century Aluminum (NASDAQ:CENX) (Monterey, California) and Alcoa all have plants scheduled to be closed during the next 18 months.

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