Aleris International Inc., the secondary aluminum producer that filed for bankruptcy in February, has petitioned the court overseeing its case to cancel a long-term supply contract Aleris has with General Motors Corp. The company claims that the terms of the contract and the auto industry’s “widely known difficulties” comprise an extraordinary risk.
Aleris’ secondary aluminum subsidiaries include facilities it acquired in its consolidation of IMCO Recycling, Wabash Alloys, and Alumitech Inc. It also has operations that produce aluminum rolled products and extrusions, and it filed for Chapter 11 citing “financial constraints related to deteriorating demand, earnings, and liquidity caused by the steep decline in global economic conditions.”
Alchem Aluminum Inc., another Aleris subsidiary, has a series of supply contracts with GM that took effect March 1. Alchem agreed to deliver aluminum sows or ingots, as well as silicon metal, to GM operations according to a schedule that stipulates the time and volumes of the deliveries.
As Aleris explained in its petition to the bankruptcy court: "In order to prepare the aluminum sow/ingot for shipment, Alchem must purchase aluminum cans, scrap and dross from third parties and then refine the base aluminum to remove impurities and ready it for sale to GM. Payments under the contracts, however, are not due until the second day of the second month after a shipment is made."
Aleris says GM's public statements about its finances and the "widely known difficulties" of the domestic auto industry make it “very concerned" about the terms of the contracts.
"The combination of the delay in receiving the payment under the terms of the contract, the uncertainty of receiving any such payment when due and the substantial cost associated with preparing the aluminum sow/ingot for shipment and purchasing the silicon has created an economic risk that (Aleris) does not feel is justified," it claims.
GM may file an objection to the claim until March 18. The U.S. Bankruptcy Court scheduled a hearing on the request for March 25.