NEW YORK, April 16 (Reuters) - Privately held U.S. aluminum producer Ormet Corp said Thursday that it began legal action against Glencore International AG to enforce its tolling agreement with the Swiss-based commodities trader and producer.
Hannibal, Ohio-based Ormet said it filed an injunction with the United States District Court for the Southern District of Ohio to prevent interruption of alumina deliveries from Glencore as required under their tolling agreement.
Under the deal set last May, Glencore agreed to supply Ormet's smelter with alumina so it can produce aluminum sow, for which Ormet would receive tolling fees.
Alumina is the principal component used to manufacture aluminum.
All of Ormet's aluminum capacity is currently dedicated to producing aluminum for Glencore under the tolling agreement.
Ormet's Hannibal aluminum smelter has annual production capacity of 266,000 tonnes.
In its court filing, Ormet argued that failure to prevent Glencore from breaking its contractual obligations could force Ormet to shut down operations, threatening its 1,000 active employees' jobs as well as retiree benefits for about 3,000 former employees.
'If Glencore does not continue shipping alumina and otherwise performing its obligations under the tolling agreement, Ormets operations will be seriously affected,' the company said in a press release.
At the same time, Ormet said it has demanded arbitration against Glencore according to dispute resolution provisions in the tolling agreement.
Prior to taking legal action, the aluminum producer said it tried to resolve the dispute amicably.
'Having enjoyed the substantial benefit of pricing terms under the tolling agreement for many months, Glencore no longer wishes to fulfill its contractual obligations now that aluminum prices have declined,' Chief Executive Officer Mike Tanchuk said in the press statement.
At $1,483 per tonne, London Metal Exchange benchmark aluminum's latest price on Thursday was well above the 7-1/2 month low of $1,275 hit in February, but down sharply from last July's record peak at $3,375 a tonne.
'Rather than honoring its obligations,' the CEO added, 'Glencore is attempting to use its size, market position and significant financial resources relative to Ormet to force unjustified material changes under the tolling agreement.'
In its quarterly update issued on Monday, Ormet said Glencore had notified it that some alumina refineries that supply Glencore were planning temporary shutdowns. The Swiss trader said the closures constituted force majeure under the tolling agreement.
Ormet said it vigorously disagreed with Glencore's conclusion and that it must use other means to supply alumina to keep Hannibal's potlines running through 2009.
'Glencores wrongful use of force majeure is nothing more than a way to try to escape a binding contract that it no longer finds desirable,' said Tanchuk.
Glencore was not immediately available for comment.
(Reporting by Carole Vaporean; Editing by Christian Wiessner)
((carole.vaporean@reuters.com; 1-646-223-6044; Reuters Messaging: carole.vaporean.reuters.com@reuters.net; nyc.commods.newsroom@reuters.com)) Keywords: ALUMINUM ORMET/GLENCORE (For help: Click 'Contact Us' in your desk top, click here or call 1-800-738-8377 for Reuters Products and 1-888-463-3383 for Thomson products; For client training: training.americas@thomsonreuters.com; +1 646-223-5546) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
Hannibal, Ohio-based Ormet said it filed an injunction with the United States District Court for the Southern District of Ohio to prevent interruption of alumina deliveries from Glencore as required under their tolling agreement.
Under the deal set last May, Glencore agreed to supply Ormet's smelter with alumina so it can produce aluminum sow, for which Ormet would receive tolling fees.
Alumina is the principal component used to manufacture aluminum.
All of Ormet's aluminum capacity is currently dedicated to producing aluminum for Glencore under the tolling agreement.
Ormet's Hannibal aluminum smelter has annual production capacity of 266,000 tonnes.
In its court filing, Ormet argued that failure to prevent Glencore from breaking its contractual obligations could force Ormet to shut down operations, threatening its 1,000 active employees' jobs as well as retiree benefits for about 3,000 former employees.
'If Glencore does not continue shipping alumina and otherwise performing its obligations under the tolling agreement, Ormets operations will be seriously affected,' the company said in a press release.
At the same time, Ormet said it has demanded arbitration against Glencore according to dispute resolution provisions in the tolling agreement.
Prior to taking legal action, the aluminum producer said it tried to resolve the dispute amicably.
'Having enjoyed the substantial benefit of pricing terms under the tolling agreement for many months, Glencore no longer wishes to fulfill its contractual obligations now that aluminum prices have declined,' Chief Executive Officer Mike Tanchuk said in the press statement.
At $1,483 per tonne, London Metal Exchange benchmark aluminum's latest price on Thursday was well above the 7-1/2 month low of $1,275 hit in February, but down sharply from last July's record peak at $3,375 a tonne.
'Rather than honoring its obligations,' the CEO added, 'Glencore is attempting to use its size, market position and significant financial resources relative to Ormet to force unjustified material changes under the tolling agreement.'
In its quarterly update issued on Monday, Ormet said Glencore had notified it that some alumina refineries that supply Glencore were planning temporary shutdowns. The Swiss trader said the closures constituted force majeure under the tolling agreement.
Ormet said it vigorously disagreed with Glencore's conclusion and that it must use other means to supply alumina to keep Hannibal's potlines running through 2009.
'Glencores wrongful use of force majeure is nothing more than a way to try to escape a binding contract that it no longer finds desirable,' said Tanchuk.
Glencore was not immediately available for comment.
(Reporting by Carole Vaporean; Editing by Christian Wiessner)
((carole.vaporean@reuters.com; 1-646-223-6044; Reuters Messaging: carole.vaporean.reuters.com@reuters.net; nyc.commods.newsroom@reuters.com)) Keywords: ALUMINUM ORMET/GLENCORE (For help: Click 'Contact Us' in your desk top, click here or call 1-800-738-8377 for Reuters Products and 1-888-463-3383 for Thomson products; For client training: training.americas@thomsonreuters.com; +1 646-223-5546) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.