"Alcoa met today with the representatives of the workers of San Ciprián to inform them of the serious circumstances and of the unsustainable situation that the aluminium plant is going through due to inherent structural factors and permanent difficulties," an Alcoa statement said.
"These circumstances have led Alcoa to contemplate the start of a consultation period for a collective dismissal process."
Alcoa said no decision will be made until the consultation period has ended but the process would potentially affect up to a maximum of 534 employees.
Alcoa has proposed to open an informal consultation period with the workers' representation, which will last approximately three weeks. The process will aim to explain the situation of the plant, the challenges it faces and discuss the options and measures, the statement added.
"The purpose of this informal consultation is to be able to move forward with the workers' representatives before starting a formal consultation period, which has specific deadlines."
San Ciprián has nameplate capacity of 228,000 tonnes per year of primary aluminium, Alcoa's 2019 annual report said.
The start of Alcoa's collective dismissal process is the latest step in the company's initiative to curtail global aluminium production
San Ciprián is Alcoa’s last remaining aluminium smelter in Spain. In July 2019, Alcoa sold its Avilés and La Coruña aluminium plants in Spain
to Swiss private equity firm Parter Capital Group after Alcoa said running the smelters was no longer profitable.
Parter have since sold near 75% stake on to Grupo Industrial Riesgo
Last month, Alcoa announced it was curtailing the remaining 230,000 tonnes of aluminium capacity at its Intalco smelter in Washington
, United States by August 2020 due to challenging market conditions.
The collective dismissal consultation in Spain and the curtailment follow weak global aluminium prices and premiums squeezing margins for the producer.
"The plant faces a series of external production and market problems that have made primary aluminium production inefficient and the plant's operation is not competitive," Alcoa's statement said.
"Those structural problems include high energy costs and low aluminium prices, which, together with global overcapacity, have caused significant recurring losses, which are expected to continue. The European Works Council has been informed of the informal consultation process during a meeting held this morning."
The London Metal Exchange three-month aluminium contract averaged $1,494.48 per tonne in April, its lowest since January 2016.
In Europe, primary aluminium value-added product premiums are sitting at record-low levels, even to the point where they are not profitable for most smelters to produce, Fastmarkets understands.
Aluminium 6063 extrusion billet premium, ddp Spain
was assessed at $230-250 per tonne on May 22, its lowest since Fastmarkets started to track the market in 2017.
Worries for alumina prices
Production at the San Ciprián alumina plant will not be affected and is not included in the consultation period.
Alcoa World Alumina and Chemicals (AWAC) - a joint venture between Alcoa (60%) and Alumina Limited (40%), owns the San Ciprián alumina plant.
San Ciprián has annual production capacity of 1.5 million tonnes of alumina – around 70% of which is supplied to Alcoa's aluminium smelters in Spain.
Alumina market participants are worried that a closure at the aluminium smelter would lead to an oversupply of alumina and pressure prices, sources said.
“Everyone is keeping an eye on it because there will be a lot of excess alumina coming into the market if the smelter shuts,” a consumer said.
Fastmarkets' alumina index, fob Australia
was most recently at $244.89 per tonne on May 28, significantly lower than $361.32 per tonne on the same day in 2019.
Alumina prices have already been under pressure
from oversupply and poor aluminium demand of late due to Covid-19 shutdowns.