Alcoa may curtail quarter of aluminum output as industry confronts low prices | iNFOnews | Thompson-Okanagan's News Source
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Alcoa may curtail quarter of aluminum output as industry confronts low prices

MONTREAL - Alcoa may curtail about one quarter of its global aluminum production as the American company and its industry rivals continue to adjust to low metal prices.

The U.S.-based company said Wednesday it may curtail an additional 460,000 tonnes of aluminum capacity, or 11 per cent of its global output.

Alcoa (NYSE:AA) has already idled 568,000 tonnes of production capacity, or 13 per cent of its global network.

The company, which has large operations in Quebec, won't say what countries or regions of the world are being considered as part of its 15-month review.

"Because of persistent weakness in global aluminum prices, we need to review every option to maintain Alcoa’s competitiveness," stated Chris Ayers, president of global primary products.

The company said the latest review is in response to a more than 33 per cent aluminum price drop since 2011.

"Any action taken will only be done after a thorough strategic review and consultations with stakeholders."

Alcoa said it will focus on higher-cost plants and those that have long-term risks due to energy costs and regulatory uncertainty. Its goal is to lower its global aluminum production costs by 10 percentage points by 2015.

Industry observers say it's highly unlikely that Quebec smelters will be affected because they benefit from low-cost energy.

But company officials declined to exclude Canada or say how costs compare with other facilities in the world.

Alcoa employs 3,100 workers in Canada, including those who work at Quebec smelters in Baie Comeau, Becancour and Deschambault. They are among the 61,000 Alcoa employees in 30 countries around the world.

The three plants have annual capacity to produce nearly one million tonnes of aluminum for Alcoa.

Alcoa said it will consider a number of alternatives, from discontinuing pot relining to full plant curtailments and permanent shutdowns.

Its alumina refining system will also be reviewed, resulting from any curtailments in smelting.

Decisions on curtailments and closures will be announced as reviews are completed.

Tony Robson of BMO Capital Markets said Alcoa continues to run "old and high-cost plants" using older technology, particularly in the U.S., Australia and Europe, that have cash costs above the current aluminum price.

"Given its cost structure and high debt levels, Alcoa has little choice with this process unless the aluminum price rebounds on a sustainable basis," he wrote in a report.

Robson said the most likely target is the Point Henry smelter in Australia, which has 190,000 tonnes of annual capacity.

"Closing another 460,000 tonnes of primary capacity would hasten Alcoa's declining market share in smelting... and continue the transformation of the company from a metals producer to a fabricator/industrial concern."

Robson said the potential cuts may improve cash flows in the medium term.

Carol Levenson of Gimme Credit said the company's margins could be hit unless overhead is also cut.

She said Alcoa reduced its smelting capacity by 20 per cent in 2009 with an accompanying employee reduction and cost savings.

Lower prices have prompted the entire aluminum industry to close, sell or idle high-cost assets.

Rio Tinto Alcan (NYSE:RIO) said it continues to review its operations.

"The industry is facing significant challenges on a number of fronts but price is certainly a big one," said spokesman Bryan Tucker, also pointing to energy and raw material costs.

The company is selling its Pacific smelters which have 1.6 million tonnes of capacity.

"We are the lowest cost producer in the world because of the quality of the assets that we have. Those that aren't Tier 1 we've either already selected for divestment or will continue reviewing them," Tucker said in an interview.

Just this week, the company announced the sale of its 205,000-tonne Sebree smelter in Kentucky to Century Aluminum for US$65 million in cash and debt.

Rio has closed smelters in England, Wales and Beauharnois, Que.

Operations in Cameroon, France and Norway are running at less than full capacity.

About 276,000 tonnes of capacity will be removed when Rio Tinto closes facilities in Shawinigan and Arvida, Que., by the end of 2014. That will be offset by the addition of 60,000 tonnes with the impending opening of a facility using AP60 technology.

An expansion in Kitimat, B.C., will increase production to 420,000 tonnes from the current 187,000-tonne output.

Meanwhile, Rio Tinto Alcan said its anode operations in Alma, Que., have begun a gradual restart following the accidental death of a worker late Monday. The temporary shutdown didn't affect aluminum production.

News from © The Canadian Press, 2013
The Canadian Press

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