Rio Tinto Alcan plans minor smelter cutbacks

LONDON (Reuters) - Aluminum producer Rio Tinto Alcan (RIO.L) (RIO.AX) plans minor production cutbacks at two or three higher-cost smelters due to weak prices and is hunting for takeovers of firms hit by market turmoil, its CEO said.

"In a couple of cases we are reducing the number of pots operating without shutting down potlines," Chief Executive Dick Evans told Reuters in an interview on Wednesday.

"If prices fall further, then we might accelerate that."

About 80 percent of Alcan's production is in the lowest half of the cost curve and production at all smelters is cash flow positive at an Aluminum price of $2,300 per tonne.

The London Metal Exchange benchmark price was around $2,250 on Wednesday morning.

While Alcan trims some higher cost output, it was also increasing some production at lower cost smelters, including ramping up a new operation in Oman and resuming some output in New Zealand that had to be reduced due to low water levels.

Evans said Alcan, one of the world's two biggest producers along with Russia's UC Rusal, was expected to see flat to slightly higher overall production in 2009.

Much of output in China is burdened by some of the world's highest costs and producers there are moving to cut output, which would help stabilize prices, Evans added.

"More likely than not, (the) Aluminum (price) has bottomed, just because of looking at the cash costs of the cost curve and apparently fairly significant quantities of capacity are coming out of China."

Evans said he had heard 1 million tonnes of production were being shut down in China, about 7 percent of the nation's total, but this could double if prices remained weak.

HUNT FOR TAKEOVERS

Canadian-based Alcan is also planning to defer some growth projects and look for acquisition opportunities thrown up by the current market turmoil, Evans said.

Alcan had previously released a growth plan of new projects to boost output to around 7 million tonnes per year from current levels of around 4 million.

"With the significant downturn in prices, even more importantly in asset values, I think we will try to keep some of our powder dry to potentially make acquisitions," he said.

"We might choose to defer some of our organic growth projects to have flexibility to make some acquisitions, as Alcan did in the last downturn."

All of the group's planned growth projects are attractive low-cost operations and would likely go ahead after some possible delays. By waiting, the group might enjoy lower capital costs as prices of steel and other commodities fall.

In looking for takeovers, the group could target low-cost operations where joint venture owners might want to sell off stakes to realize cash, he said.

This is the strategy Alcan used during the last downturn, when it bought 40 percent of the Alouette smelter in Canada from the Quebec government and steelmaker Corus and then doubled production there, Evans said.

He said Alcan was slightly ahead of schedule in making a planned $1.1 billion in after-tax cost savings by end 2009 following Rio's purchase of the firm for $38.1 billion last year.

The company was only making short-term purchases of items that had seen sharp price rises during the commodities boom, such as pitch, coke and caustic soda, since those prices were expected to fall in the current environment.

(Editing by David Cowell)