What happened
Shares of aluminum producer Century Aluminum (NASDAQ: CENX) crashed on Thursday, falling 18.6% through 2:50 p.m. ET after the company announced that it will idle its Hawesville, Kentucky, aluminum smelter in response to "skyrocketing energy costs."
"The power cost required to run our Hawesville, KY, facility has more than tripled the historical average in a very short period," CEO Jesse Gary said, and "this makes it necessary to temporarily curtail operations for approximately nine to 12 months until energy prices return to more normalized levels."
So what
What does this mean for Century? For one, it means a big drop in production capacity over the next year. The smelter in Hawesville is Century's second largest worldwide, and its largest in the U.S. With an annual production capacity of 250,000 metric tons of aluminum, it represents nearly 25% of the company's total global production capacity of 1 million metric tons.
But today's news could be even worse than that. If Hawesville -- Century's biggest smelter with presumably its biggest economies of scale in the U.S. -- can't make a profit in the current environment of high energy prices, then at the very least, this suggests profits are probably under strain at the company's other operations in the U.S. as well.
Now what
While management says it's confident that energy prices will get back to reasonably levels sometime in the next year, there's no guarantee it is right about that. And even if it is, it still means the company will be struggling for a while.
This move by Century management throws into question analysts' assumption that the company will reverse last year's losses and earn $3.03 per share in profit this year. At a share price just 2.3 times that current-year profits projection, it looked like a screaming bargain -- up until today.
Now, investors have to reconsider whether Century Aluminum will end up earning any profit at all.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
