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Kaiser eyes Q4 output recovery at Indiana aluminum mill after force majeure
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Warrick mill increasing use of aluminum scrap
Kaiser Aluminum has taken steps to potentially restore normal aluminum sheet shipments from its Warrick, Indiana, rolling mill by the start of the fourth quarter, after it issued a force majeure to customers earlier in the month, company executives said July 26
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But they cautioned that deliveries from the facility could be halved for the remainder of the third quarter due to magnesium and primary aluminum supply disruptions.
For magnesium, Kaiser has been able to identify and expedite the qualification process for alternative supplies of the alloying metal to fill the shortfall of shipments from its primary provider US Magnesium, Kaiser's CEO Keith Harvey said during a quarterly earnings call with industry analysts.
"With that activity that we've done in the qualification process and the hard work that's been going on at Warrick, we now feel that we can contain [the impact on shipments] possibly to the third quarter and could return to full shipments sometime before the end of the [third] quarter," Harvey said.
The Salt Lake City-based US Magnesium has also been able to provide additional supply over the last two weeks after deliveries of its contracted volumes to Kaiser "unexpectedly ceased" in June, Harvey added.
Harvey said Kaiser was moving to negotiate and secure its magnesium requirement for 2023 from other producers, but US Magnesium would not account for "any strategic level of supply for [Warrick] moving forward."
A representative for US Magnesium was not immediately available for comment when contacted by S&P Global Commodity Insights.
In a July 7 statement, Kaiser said it had to issue force majeure on deliveries from Warrick "due to the limited availability of magnesium utilized in the production of certain of its aluminum beverage and food packaging products.
"Although US Mag had continued to supply approximately 50% of its contractual commitment to Kaiser Warrick, deliveries have recently stopped. Kaiser Warrick has been unable to immediately source additional magnesium from alternative sources."
US Magnesium's contracted shipments declined after the company issued its own force majeure in September 2021.
Warrick has an annual capacity of 310,000 mt/year, and it produces can sheet for the beverage and food packaging industry. Magnesium is a main alloying element for sheet products used in these packaging applications.
Harvey said Kaiser's operations at Warrick have also been impacted by Alcoa's recent potline curtailment at the nearby Warrick primary aluminum smelter, from which Kaiser's rolling mill sources about 30% of its aluminum in the form of hot metal directly from the smelter.
"Under our arrangement with Alcoa, they are unable to provide the full hot metal sources to us, so from their other locations we are to receive cold prime metal," he said, adding that Kaiser has also increased its use of scrap to supplement primary aluminum. "But, we're not going to wait for just that issue to cure itself or to possibly improve, and we are actively qualifying other hot metal sources that we will utilize going forward," he said.
The Franklin, Tennessee-based downstream aluminum producer reached an agreement to purchase Warrick from Alcoa in late 2020, and the sale was finalized in April 2021.
Kaiser posted a $1 million loss on sales of $954 million in its fiscal second quarter, compared with a $16 million profit on sales of $741 million in the year-ago quarter.
Beyond its goal of reaching normal production by Q4, Harvey said Kaiser is also taking initiatives to permanently reduce the Warrick mill's dependence on third-party magnesium and primary aluminum supply and meet sustainability objectives.
"The Warrick plant has one of the largest and most sophisticated cast houses in the world, and we have plans to further improve its ability to utilize more scrap and rely less on current metal sources," Harvey said. "We are also developing and currently testing new alloys with significantly lower magnesium content and enhanced recyclability characteristics to meet our and our customers' needs for more highly sustainable products."
Kaiser earlier in July began operating a new coated scrap melter at Warrick that can process over 100 million lb/year of painted and bare scrap, and its new negotiated contracts with customers have "increased closed-loop return scrap provisions, thereby providing our business with a greater supply of low-cost scrap," Harvey added.
The magnesium and aluminum supply disruptions have not impacted any of Kaiser's other US operations, he said.
Trial update with US Mag
In April, Kaiser filed a complaint against US Magnesium in the US District Court of the Southern District of New York alleging that the latter breached its contractual obligations regarding a supply agreement "to sell certain quantities of pure magnesium to Kaiser at specified prices, beginning in December 2020 and continuing through December 2022," according to court documents.
Harvey said Kaiser anticipated a trial to begin in early 2023.
The supply agreement obligated US Magnesium to provide between 6,674 mt and 7,526 mt of magnesium to Kaiser during the period of Dec. 1, 2020, to Dec. 31, 2021, and again during calendar year 2022, according to the complaint.
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