Striking workers at Alcoa's San Ciprian smelter in Spain were continuing to block aluminum shipments from leaving the premises as of Oct. 8, as the company's negotiations with the government over competitive energy prices have stalled and failed to ensure the sale and continuing operation of the plant.
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"Production of alumina and aluminum is continuing at the San Ciprian complex, but the strike action by the workers' representatives is limiting various activities at the location and preventing shipments," Alcoa spokesperson Jim Beck said in a statement to S&P Global Platts Oct. 8. "We've communicated as appropriate to our customers regarding the situation."
The blockade of shipments began as early as Oct. 1, according to local media outlet La Voz de Galicia.
Workers at the smelter voted in September to commence an indefinite strike after Alcoa, the Spanish government and other parties failed to reach an agreement on the smelter's future by a Sept. 15 deadline.
The aluminum producer began assessing options in 2020 for the sale or closure of the 228,000 mt/year San Ciprian smelter, a facility it says has become difficult to operate profitably.
"The fundamental issue that makes it unviable is the high price of energy," Beck said. "Power prices in the country are significantly higher than the average energy cost for smelters globally and in the EU."
"We continue to look for a solution for the San Ciprian smelter," he added.
In October 2020, Alcoa said it would curtail operations at San Ciprian and move forward with a collective dismissal process after talks to sell the smelter to UK-based GFG Alliance failed to result in an agreement. The smelter's labor union filed and won a subsequent lawsuit with the High Court of Justice of Galicia challenging the collective dismissal.
In January, Alcoa said it would resume efforts to sell the facility.
Energy costs trip up sales process
Alcoa said it is committed to working with central and regional governments in Spain to resolve the smelter's non-competitive energy framework before it can be sold to a third-party.
"Alcoa needs clarity and certainty that there will be a real competitive energy framework for a potential buyer to avoid the potential risks to the company and workers that come with divesting an unviable plant," it said in a Sept. 28 statement. "All potential buyers have requested guarantees in the energy framework or very significant financial support in their offers."
Despite negotiations with government representatives, "the key issue of non-competitive energy is not being addressed," the Pittsburgh-based company said.
"Once the government had ruled out a possible sale to SEPI (Sociedad Estatal de Participaciones Industriales), the company presented on July 30, 2021, a proposal that sought to find a way to work with the national government, Xunta (regional government), unions and workers' representatives to address the energy problems of the production of primary aluminum and obtain guarantees on the price of electricity," the company added.
SEPI is a Spanish state-owned industrial holding company.
Alcoa said its current proposal provides for the continuity of the plant's operations until July 31, 2022 to allow time to find a solution on energy pricing and resume the process of transferring the plant to a buyer.
"The initiation of a direct transfer process is only possible if the plant has a clear exit towards financial viability, which requires a stable and competitive energy framework," it added.
José Antonio Zan, president of the San Ciprian labor council, said the latest strike action was prompted by the stalled negotiations between Alcoa and Spain's government, though he placed blame on the recent stalemate on the latter party.
"What the government has to do is, once and for all, unblock this torture to which the staff is being subjected," Zan said, as reported by Spanish news agency Europa Press. "The only thing they have done is to remove SEPI and thereby lead the operation to a stalemate and a blockade."
San Ciprian energy costs higher than average
Alcoa has said that it currently pays an average annual price of around Eur95/MWh ($109.96/MWh) for electricity, more than triple what the company pays at any of its other aluminum plants in the world.
"Even with aluminum prices at 10-year highs, the San Ciprián aluminum plant remains unviable due to the price of electricity," Tim Reyes, Alcoa's executive vice president and global commercial director, said in the September statement. "What would contribute to the solution is not a strike, which has a negative impact on the future of the alumina and aluminum plants, but a real government solution to the problem of electrical energy."
Citing CRU data, Alcoa said its energy prices for aluminum output at San Ciprian are 160% and 150% more expensive than the average prices of its competitors in the world and in the EU, respectively, according to the company's website.
This has contributed to a cumulative loss of Eur160 million at the San Ciprian plant between 2018 and 2020, it added.
"The San Ciprián plant is compromised by the lack of a competitive electricity cost in Spain and not by other costs or inefficiencies," Alcoa said.