Century Aluminum issues lockout notice to Kentucky smelter workers

(Adds details on labor dispute, aluminum market background, FACTBOX link)

NEW YORK, May 1 (Reuters) - Century Aluminum (NasdaqGS: CENX - news) will invoke a lockout of unionized workers at its Hawesville, Kentucky smelter starting on May 11 if the union does not approve a final offer on a labor deal, according to a letter posted on Century's website on Friday.

United Steelworkers Local 9423 is set to vote on the proposed contract on Monday, according to a post on the union website. If workers go on strike, it would be the first industrial action at a U.S. aluminum smelter in more than a decade.

The smelter produces 244,000 tonnes of primary aluminum each year, just under 15 percent of the United States' total 2015 smelting capacity of 1.7 million tonnes.

It is the fourth-largest of eight active smelters in the country. The potential strike comes on the heels of several recent smelter cutbacks and closures in the United States and elsewhere.

Any production cutbacks due to a strike could boost regional aluminum premiums (AL-PREM) amid an oversupplied market. The Midwest premium fell to 14-15 cents a lb this week, its lowest level in more than a year, as the arbitrage between the U.S. and other markets attracted imports.

The premium is rapidly approaching a level at which it will find support, Century Vice President Shelly Harrison during the company's first-quarter 2015 earnings call on Thursday.

The lockout notice came after the union's membership last weekend initially voted down a tentative five-year labor agreement reached between Century and the union's bargaining committee.

The union will vote on the agreement one more time on Monday, at which time strike rules will also be read to members, Reuters reported on Wednesday.

At issue in the negotiations are health insurance and wages. Century says its proposal contains no increases in healthcare contributions in 2015, and that even after increases beginning in 2016, Hawesville employees' contribution rates would be below the average for employees at other manufacturing companies.

The proposed contract also includes wage increases of 15 percent over five years, not including overtime, Century says. The union website says, "members know a lot of overtime was required to reach that level of compensation" and demanded "fixed insurance rates."

During Thursday's call, Century President and Chief Executive Officer Mike Bless said the company was considering its next steps.

In 1998, a two-year strike began at Kaiser Aluminum's Mead, Washington smelter, eventually forcing the facility's closure.

(Reporting by Luc Cohen; Editing by Andrew Hay and Jonathan Oatis)