Buyers used to be assured of primary aluminum supply from the Pacific Northwest, but smelting there has been reduced dramatically by low ingot prices, high power costs and intensified competition from foreign mills. Supply from the region will fall further now that Golden Northwest Aluminum Inc. in Goldendale, Wash., is "temporary curtailing" operations.

Analysts believe the 33-year-old smelter won't reopen, particularly if power costs, demand and world aluminum ingot prices stay at current (60-65¢/lb) levels and competition from lower-cost foreign competitors continues to rise. Brett Wilcox, sole owner of Golden Northwest, is wallowing in financial quicksand—caused by a $13 million past due electricity bill from the Bonneville Power Authority (BPA). His other smelter, Northwest Aluminum Co. in Dalles, Ore., has been shut since December 2000. "The longer these smelters stay down, the more costly it will be to restart them, which raises the odds against them," says Lloyd O'Carroll at BB&T Capital in Richmond, Va.

Electricity accounts for about one-third of the cost to make aluminum. The BPA's current power prices are more than $35 per megawatt hour. For decades, the region's power supplies went from surplus to shortage and back again, yet smelters managed to make the right deals at the right times to keep smelting. However, the Northwest's 10 aluminum smelters in Washington, Oregon and Montana began to halt production in 2000 as rising power costs and slumping aluminum prices made them unprofitable to run.

Aluminum ingot hasn't been on the purchasing community's items-in-short-supply list for quite some time, as tracked monthly by PURCHASING magazine. That's probably because the new-order index tracked by the Aluminum Association remains 10% off the 1999 cyclical peak.

Domestic ingot production has dropped from an average 322,000 metric tons/month at the peak in late 1999 to an average 233,000 metric tons/month in early 2003. About 1.6 million metric tons of annual capacity is shuttered in the Northwest.

Today, only two regional smelters are open—Alcoa's Intalco plant in Bellingham, Wash., and Columbia Falls Aluminum in Montana—and both at only partial capacity. Analyst O'Carroll says, "The problem is that aluminum prices aren't high enough and power prices are far too high. In the meantime, the world competitive landscape in that industry has worsened. Those are not good trends for somebody trying to operate in the Northwest."