Ormet shuts Ohio potline, cites lack of alumina

NEW YORK, June 12 (Reuters) - Ormet Corp (ORMT.PK), a U.S. primary aluminum producer, cut production capacity at its Hannibal, Ohio, smelter to five potlines from six as of May 20, after trimming output to 5-1/2 potlines on May 1, it said in its latest quarterly performance report posted on its website. The smelter's total production capacity is about 265,000 tonnes of aluminum per year. Citing a dispute with Swiss-based Glencore International AG GLEN.UL over a shortage of alumina supplies, Ormet said, it was forced to curtail aluminum output. The aluminum maker said it may need to cut production further, possibly halting all operations, if Glencore fails to deliver alumina to the company under a tolling agreement that took effect in April 2008. Raw material bauxite is turned into alumina, which is then smelted into aluminum. Ormet said that as of May 21, about 50,000 tonnes of alumina has missed the scheduled arrival date. Ormet and Glencore agreed, however, to accelerate a third-quarter shipment of about 25,000 tonnes for delivery in May. Under the tolling deal, all of the aluminum sow produced at the Hannibal smelter is committed to a single customer and is made from alumina supplied by Glencore, for which Ormet receives tolling fees. A portion of the alumina that Glencore delivers to Ormet for tolling comes from the Windalco refinery in Jamaica, which was temporarily shut down earlier this year. The tolling agreement with Glencore requires disputes to be settled by binding arbitration. On April 16, Ormet served Glencore with a demand for arbitration. At the same time, it filed suit in the Federal District Court of Southeastern Ohio against Glencore seeking to prevent interruption of alumina deliveries under the tolling agreement. But in late May, Ormet said, it withdrew the suit to pursue a settlement through arbitration. The company said its profitability in 2009 may be adversely impacted if Glencore fails to deliver alumina in the amounts and times specified in their tolling agreement, if the agreement is terminated, or if market prices for aluminum do not increase above current levels before the deal's expiration at year end. At current London Metal Exchange prices for aluminum, Ormet pointed out that about half of the world's smelters are operating below cash break-even levels. Aluminum prices have rebounded somewhat in recent weeks and Ormet said it thinks prices will continue to increase slowly. "While we expect aluminum pricing will improve from current levels, no assurance can be given that it will improve or, if so, how quickly," the report said. Elsewhere in the report, Ormet said, it continues to discuss the sale of its Burnside, Louisiana, marine terminal facility and land with prospective buyers after a previous interested buyer failed to complete the deal.