Canada insulated by cheap power from job cuts at aluminum smelters

MONTREAL - Canadian aluminum workers are breathing a sigh of relief that cheap hydro power has so far shielded the country from job cuts as Alcoa (NYSE:AA) and Rio Tinto Alcan (LSE:RIO, NYSE:RTP) look to trim production in the wake of dwindling global demand.Daniel Roy, Quebec director of the United Steelworkers of America, said workers are relieved as they watch thousands of their union colleagues lose their jobs in the United States."There are worries since nothing is guaranteed in life but our members...are pretty confident in the situation we face," he said in an interview.The union represents about 900 workers at ABI Becancour, a joint venture between the two North American-based aluminum companies that used to operate as one entity. It also represents another 800 to 900 workers at Alcan's facility in Alma, Que. Roy said Quebec workers are benefiting from hydro contracts that allow jobs to be developed in the province by offering rates that make the facilities very competitive with other countries."Canada has come off pretty well," said analyst Tony Robson of BMO Capital Markets in Toronto. While thousands of aluminum jobs are being shed around the world, Canadians are protected because the country's smelters in Quebec and British Columbia are among the lowest-cost in the world.Also helping is the reduced value of the Canadian dollar, which has fallen well below the U.S. dollar after spending the last quarter of 2007 at historic highs and the early part of 2008 near parity."I wouldn't expect to see any significant cutbacks from Canada," said Robson, adding costly projects may be deferred by both companies.Rio Tinto Alcan has already indicated spending delays for upgrades at Kitimat, B.C. and the Saguenay, Que. Alcoa is looking to trim capital costs in half in 2009.Metal companies around the world are struggling to reduce costs in the wake of dwindling demand and near record low prices as major economies operate at recessionary levels.Alcoa announced Tuesday that its will cut 13,500 positions, or 13 per cent of its work force. Alcoa has more than 4,200 workers in 15 locations and plants, mostly in Quebec and Ontario, but a spokesman at the company's headquarters in Pittsburgh said that they weren't the target of the job cuts.Last month, Rio Tinto Group - a more diversified mining company - said it will cut 14,000 jobs worldwide, or 12.5 per cent of its overall employee base. That's about the size of its Canadian workforce, which includes 9,000 for the Alcan division.Both companies are focusing their efforts on closing high cost mills in Europe and the United States.Alcoa reiterated that 25 per cent of its aluminum production is in Quebec where it signed a new power agreement through 2040. The company has three smelters in Quebec - Baie Comeau, Deschambault near Quebec City, and Becancour near Montreal, as well as the Becancour rod plant.Rio's Quebec aluminum facilities are in Becancour and Shawinigan and it operates the Kitimat smelter and nearby hydro-electric operation in British Columbia.Capacity at Alcoa's facility in Baie Comeau has been reduced under a $1-billion modernization program. It is negotiating with Hydro-Quebec to facilitate a planned $1.5-billion expansion at Deschambault.Aluminum companies have been hammered as the metal's selling price has fallen to US$.70 per pound, less than half the peak price in July.Charles Bradford of Bradford/Soleil Securities said if selling prices were to fall to 50 cents per pound it could force the temporary closure of some Canadian smelters. said Canada is among a series of countries that are largely insulated from closures by cheap power. Others include Russia, Iceland, areas of the Middle East and to a lesser extent Australia.Bradford said aluminum companies around the world are cutting capacity and capital spending to preserve cash."At these metal prices, I don't think anybody's making money," he said from New York.---canadianbusiness

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