UPDATE 3-Alcoa considering aluminum production cuts

Wed May 1, 2013 2:43pm EDT

* Review to look at 460,000 tonnes of operating capacity

* Considering permanent shutdowns and other options

* Weak aluminum prices have weighed on Alcoa

May 1 (Reuters) - Alcoa Inc said on Wednesday it could shut down as much as another 11 percent of its aluminum smelting capacity, targeting higher-cost facilities amid weak prices.

The company, which already has 568,000 tonnes, or 13 percent, of its annual smelting capacity sitting idle, said it will review 460,000 tonnes of operating capacity for curtailment over the next 15 months.

"Because of persistent weakness in global aluminum prices, we need to review every option to maintain Alcoa's competitiveness," said Chris Ayers, president of global primary products at Alcoa, in a statement.

Stubbornly low aluminum prices, due to a global surplus and concerns about lackluster demand, have weighed on Alcoa's business of mining bauxite, refining it into alumina and smelting alumina to produce aluminum, prompting production cuts and shutdowns.

In April 2012, the company said it would cut alumina production by 390,000 tonnes. That followed a January announcement that it would close or curtail 531,000 tonnes of annual smelting capacity.

Even so, operations are ramping up at Ma'aden, the $10.8 billion, 740,000 tonne per year smelter run by a joint venture between Alcoa and Saudi Arabian Mining Co.

In recent quarters, better financial results have come from Alcoa's engineered products segment, which makes wheels, aircraft parts and other goods, and some have speculated that it could offload raw material assets.

In an interview with cable channel CNBC in April, Chief Executive Klaus Kleinfeld declined to rule that out: "This is not the time to speculate," he said.

ALUMINA REVIEW

Alcoa said it would consider everything from halting plant refurbishments to permanent shutdowns, and also review its alumina refining operations "to reflect any curtailments in smelting as well as prevailing market conditions."

Analysts had been expecting further cuts to worldwide aluminum production, as millions of tonnes of global capacity are losing money thanks to high production costs and low metals prices.

"I'm not surprised, but what we need is to see the Chinese cut back. Alcoa can't do it all on its own," said Ed Meir, metals analyst at futures brokerage INTL FCStone.

To be sure, aluminum producers have been sheltered somewhat by record high physical premiums, which are paid over the benchmark London Metal Exchange cash price to secure physical aluminum for delivery. In the United States, premiums are above 11 cents per pound, which equates to $242 per tonne.

But in a recent Reuters poll, analysts forecast an aluminum surplus of 782,250 tonnes this year, widening to 896,000 tonnes next year.

In March, United Company Rusal PLC, the world's largest aluminum producer, announced plans to shrink output for at least three years to curb market oversupply.

POWER COSTS IN FOCUS

As well as looking at costs, Alcoa's review will focus on plants that face long-term risks related to power costs and regulatory uncertainty, the company said.

European plants are likely more vulnerable to any cutbacks than in the United States as the boom in U.S. shale gas production has helped to lower the price of energy, which accounts for a third of aluminum production costs.

LME aluminum prices did not react to the news. Three-month prices were down 2.4 percent at $1,825 at 2:05 p.m. EDT (1805 GMT), in line with a broad-based decline in commodities that followed disappointing Chinese data.

Alcoa's shares were little changed, down 0.2 percent at $8.48 on the New York Stock Exchange.

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (1)
Shoefly wrote:
Alcoa is just following their new Business Policy, designed to be less dependent on LME Prices! The new Chevy Corvette has an all aluminum frame and others are following to reduce weight and increase mileage. The New Ford F150 all aluminum Truck is going into production as I speak. Reduced aluminum production shouldn’t be looked on as a Negative? I see it as Positive for the Alcoa Business Model!!! Too bad other miners have to rely on LME Prices!!!

May 01, 2013 12:07pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

How to get out of debt

Financial adviser Eric Brotman offers strategies for cutting debt from student loans and elder care -- and how to avoid money woes in the first place.  Video