Alcoa Cuts Back on Metal Making as Aluminum Extends Price Slump

  • Alcoa will have cut 45% of total smelting capacity since 2007
  • Measures to be completed by end of the first quarter 2016

Alcoa Inc., the largest U.S. aluminum producer, stepped up efforts to close higher-cost smelting and refining capacity as a global glut batters the price of the metal.

The New York-based company will reduce smelting capacity by 503,000 metric tons and alumina refining by 1.2 million tons, it said Monday in a statement. The measures will be completed by the end of next quarter. About 1,500 jobs probably will be lost, spokeswoman Monica Orbe said in an e-mail.

With aluminum plunging 19 percent this year to below $1,500 a ton, U.S. smelters aren’t making money, Harbor Intelligence said in a research note last month. Alcoa, which plans to split into two parts by separating its metal-making business from manufacturing, will have closed, divested or curtailed 45 percent of smelting capacity since 2007. U.S. smelting capacity will drop to 1.6 million tons this year, 34 percent lower than a decade ago, Harbor said in an Oct. 16 report.

“These difficult, but necessary measures will further strengthen our Upstream portfolio, reducing our cost position and driving greater resilience as we prepare to launch this business as a strong standalone company in the second half of 2016,” Chief Executive Officer Klaus Kleinfeld said in the statement.

Alcoa will idle smelters in Washington and New York and partially curtail refining capacity at its Point Comfort, Texas facility by about 1.2 million tons. Restructuring charges this quarter associated with the cutbacks are estimated at $160 million to $180 million after-tax, or 12 cents to 14 cents a share, of which about 30 percent would be non-cash, it said.

In June, Alcoa permanently shut its idled Pocos de Caldas smelter in Brazil, bringing the company’s production capacity to 3.4 million tons, compared with 4.5 million tons at the end of 2010.

Century Aluminum Co. has also shuttered U.S. production capacity as prices have dropped. The Chicago-based company said it intends to curtail one of three pot-lines at its Sebree, Kentucky smelter by the end of the year because of a glut of the metal being exported from China. It has curtailed 60 percent of its facility in Hawesville, Kentucky and said on Oct. 22 that it will stop operations at its Mt. Holly plant in South Carolina by year-end if it can’t secure power to run the smelter.

Aluminum prices have lost 28 percent in the past year to $1,493 a ton in London, while premiums -- the amount added to the LME price for immediate delivery for transactions at Detroit warehouses -- have fallen 68 percent to a 56-month low from record highs.

Alcoa said in September that it expects aluminum demand to exceed production in 2016.

The shares rose 2.7 percent to $9.17 Monday in New York. Alcoa has slumped 42 percent this year.

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