December 1, 2016 / 11:41 PM / 3 years ago

Blackout ramps up pressure on Alcoa Australian aluminum smelter

MELBOURNE (Reuters) - A blackout that forced Alcoa Corp to shut one of two potlines at its Portland aluminum smelter in Australia will ratchet up costs further and may put the plant’s future in jeopardy, analysts said on Friday.

The smelter was hit when a power interconnector between the states of Victoria and South Australia went down on Thursday, knocking out power to both of the plant’s potlines for about five-and-a-half hours.

Speculation has grown about the future of the Portland smelter after a recent rise in electricity prices added to pressure from a years-long glut in the global aluminum market.

“Restarting potlines is a messy, time-consuming, expensive business,” said analyst Lachlan Shaw of UBS in Melbourne. “It’s unquestionably another headwind to keep that operation open.”

The smelter, co-owned by Alcoa, CITIC Resources and an arm of Marubeni Corp, produces about 300,000 tonnes of aluminum a year.

Alcoa said that one potline had been curtailed as a result of the outage, and to ensure the safety of people inside the plant.

“Efforts are focused on maintaining production in the smelter’s second potline,” Alcoa said in a statement, adding that it was too early to speculate on the full impact of the power outage, or on how long it may take to restore normal operations.

“We are not speculating at all about the future of the smelter as a result of this latest power outage,” Alcoa spokesman Brian Doy told Reuters.

The smelter moved to a power contract with utility AGL Energy last month, following the end of a power contract with the state government, raising its costs.

Global aluminum market have only recently picked up from seven-year lows, thanks in part to a coal shortage in China that many expect to prove temporary.

“(It’s) a bad time with metal prices so high. It will take months to jack hammer all the frozen metal and carbon from out of the pots, then repair,” said Managing Director Paul Adkins of consultancy AZ China.

“So Alcoa have a difficult decision to make.”

Reporting by Sonali Paul and Melanie Burton; Editing by Richard Pullin

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