* 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 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
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
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.
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
"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
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.