Platts
April 3, 2014
By Bob Matyi, with Anthony Poole in New York

W.V. regulators grant US silicomanganese producer Felman partial power relief 

West Virginia regulators approved a portion of the electricity rate relief requested by US silicomanganese producer Felman Production on April 3, but it was not immediately clear if it was sufficient for the company to restart its 105,000 mt/year silicomanganese plant in New Haven.

The Florida-based company had asked the Public Service Commission for a special electricity rate with Appalachian Power, an American Electric Power subsidiary, and New Haven's supplier, that would save the plant about $95 million annually on power costs. However, Felman will only achieve a discount of about $9 million/year from its full-electricity rate under the PSC order. “The commission gave them a haircut on that,” PSC spokeswoman Susan Small said in an interview.

The commission had not been in contact with the company and did not know whether the rate relief would be enough for the plant, idled since last July, to reopen, she added. Felman spokesman Ted Lowen had no immediate comment on the PSC order.

When the plant is operating normally, Felman contributes about $9.5 million annually toward APCo's fixed costs, the PSC said. Giving Felman a maximum discount of $9 million a year ensures the company pays at least $500,000 toward the utility's fixed costs, the PSC reasoned.

Felman said in testimony submitted to the commission that the silicomanganese plant had not been profitable since 2010, although those claims were challenged by other parties in the case.

APCo has suggested that Felman intends to restart the plant with or without the special rate. The utility has maintained Felman has used the plant's downtime to perform needed maintenance on its facilities, “at a more leisurely pace and in a more cost-effective manner than would ordinarily be possible.”

In the order, the PSC set a target gross margin at which Felman would simply pay its normal rate for electricity. In a month where the actual gross margin is less than the target, Felman would qualify for a discount off its electric rates. In months when the actual gross margin is above the target, the company would pay a premium above its regular rate.

As an inducement to have Felman operate the plant for at least five years after accepting the special rate plan, the commission plan requires that a portion of the discounts given in each of the first five years is subject to recapture until the end of the fifth year. If Felman accepts the special rate, Small said, it has until June 30 to enter into a contract with APCo.

APCo officials could not be immediately reached for comment.

The domestic market for silicomanganese is about 400,000 mt/year, meaning Felman had a market share of about 25% of the market with its own production. However, with its parent company, Georgian American Alloys, part of Ukraine’s Privat Group, the combined share was estimated at just over 50%. Georgian American Alloys imported large volumes of silicomanganese from Georgia to supplement the production in West Virginia.

There has been much speculation in the US ferroalloys market that Felman was planning to restart production at New Haven, regardless of whether or not it received power rate relief, because of the challenges of keeping up with contractual deliveries to US steelmakers with imports alone. Over the last month, Felman has reportedly been trying to source manganese ore for its West Virginia plant.

Several large steelmakers in the US did not sign annual supply contracts for 2014 for silicomanganese, especially in cases where Felman had been incumbent suppliers, according to mill purchasing managers. Instead, these mills have covered their first-half requirements on a spot and quarterly basis. Several market sources have said this pattern of mill buying is the main reason behind the rise in silicomanganese prices in the last quarter of 2013 and so far this year.

Silicomanganese prices in the US are now 59.50-62 cents/lb, in-warehouse major US hubs basis, according to Platts assessments, compared with 49.50-51.00 cents/lb at the end of July 2013, when Felman suspended production in New Haven.