Alcoa (NYSE:AA) and the Government of Québec have reached an agreement to improve the competitiveness of Alcoa’s three smelters in Québec, securing approximately 3,000 jobs. Under the agreement, Hydro-Québec will renew Alcoa’s power supply contracts for the Becancour and Deschambault facilities until 2030 and for the Baie-Comeau plant through 2036.
The agreement enables Alcoa to proceed with $250 million of planned investments at the smelters over the next five years to further improve their competitiveness. As part of that investment, Alcoa will increase production of aluminum used for auto manufacturing and reduce production of commodity-grade aluminum at the Baie-Comeau casthouse to capture demand from automakers as they turn to aluminum for more fuel-efficient vehicles. According to automakers, aluminum body sheet content in North American vehicles is expected to quadruple by 2015 and increase tenfold by 2025, from 2012 levels.
“These actions support our strategy to lower the cost base of our upstream businesses while capturing demand for higher-margin, value-add products,” said Bob Wilt, president of Alcoa Global Primary Products. “The agreement will help Alcoa achieve its goal of moving down the global aluminum cost curve, and the casthouse optimization will help meet growing demand for aluminum in the North American auto market.”
In addition to the planned investments, Alcoa has agreed to support the government’s electric transportation strategy by considering the Baie-Comeau facility as a potential source of aluminum for emerging technology applications, including aluminum-air batteries. Alcoa recently entered into a joint development agreement with clean technology company, Phinergy, to further develop its battery, which can be used in electric vehicles and runs on air and aluminum. Alcoa will also provide financial support and lend technical expertise to government-led programs focused on lightweighting vehicles with aluminum.The previously planned modernization of the Baie-Comeau facility, through which Alcoa would have constructed a new potline to replace the two Söderberg potlines it closed last year, is not included in this agreement and will no longer be pursued.