Alcoa to Close Australian Smelter as Rusal Trims Output

Alcoa Inc., the largest U.S. aluminum producer, will close its uneconomic Point Henry smelter in Australia, and two rolling mills hurt by excess capacity for materials used to make cans.

Shutting the 50-year-old Point Henry smelter, in Geelong, 74 kilometers (46 miles) southwest of Melbourne, will cut Alcoa’s global smelting capacity by 190,000 metric tons to 3.7 million tons, the New York-based company said yesterday in a statement. Combined with the closing of rolling mills in Victoria and New South Wales, it will result in the loss of almost 1,000 jobs.

The smelter is “a small operation which doesn’t use modern technology and can’t be upgraded,” Matthew Hope, a Sydney-based analyst at Credit Suisse Group AG, said by phone. “You’d have to rebuild the entire smelter and they don’t want to do that, particularly in Australia.”

Rising electricity costs and low prices are squeezing producers and there may be as much as 3 million tons of capacity cut by 2015, according to Bloomberg Industries. United Co. Rusal, the world’s largest aluminum producer, said today it plans to cut output to the lowest in at least eight years as it shutters inefficient shelters.

Alcoa is building the world’s lowest-cost smelter in Saudi Arabia in a joint venture with Saudi Arabian Mining Co., or Maaden. Since May, it has curtailed or permanently closed 551,000 tons of capacity at higher-cost plants in the U.S. and Europe. Alcoa will seek a buyer for the Anglesea coal mine and power station that supplies about 40 percent of the Port Henry smelter’s power, the company said.

Not Sustainable

The Australian assets closed “are no longer competitive and are not financially sustainable today or into the future,” Chief Executive Officer Klaus Kleinfeld said in the statement.

The future of the smelter, 60 percent owned by Alcoa, has been under review since February 2012. Alumina Ltd., which owns the remainder of Point Henry, fell 1.9 percent to A$1.305 at the close in Sydney trading.

The closings follow other setbacks for Australia’s manufacturing industry. Toyota Motor Corp. this month signaled the end of the nation’s carmaking industry, saying it will shut its production lines in three years time. Alcoa’s Geelong smelter employs about 500 people and will close in August, while a nearby rolling mill, and a second mill and recycling facility in Yennora, New South Wales state, which employs about 480 people, will close by the end of the year, the company said.

Rusal’s Forecast

Restructuring charges related to the shutdowns are expected at $250 million to $270 million, Alcoa said. “The two rolling mills serve the domestic and Asian can-sheet markets, which have been impacted by excess capacity,” it said.

Alcoa’s other Australian assets -- the Portland aluminum smelter in Victoria and its bauxite mining and alumina refining operations in Western Australia -- will continue to operate normally, the company said.

Rusal’s production is forecast to be 3.5 million tons this year, the Moscow-based company said today in a statement to the Hong Kong stock exchange. That’s down 10 percent on 2013 output.

The aluminum market has been flooded with excess capacity in China and affected by slowing global economic growth. Recent efforts by China’s government to tackle overcapacity have “tempered” net capacity increases to 2.2 million tons after shutting down 2.1 million tons, Rusal said today.

Global consumption of the metal gained 6 percent in 2013 to

51.7 million tons, while China’s demand increased 13 percent, Rusal said. Global demand will rise another 6 percent this year as the transport industry supports demand in markets including North America and Thailand, it said.

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