February 18, 2014 / 12:35 AM / in 4 years

UPDATE 2-Alcoa to close Australian smelter as aluminium markets reel

* Alcoa to close Australia Point Henry aluminium smelter

* Underscores pressure on producers to control costs

* Will bring total Alcoa capacity cuts to 551,000 tonnes

* Output by Chinese producers growing

By James Regan

SYDNEY, Feb 18 (Reuters) - Alcoa Inc said it will close its Point Henry aluminium smelter and two rolling mills in Australia, underscoring the dire market conditions facing producers amid a flood of new Chinese capacity.

Alcoa is shutting the 50-year-old smelter after a two-year review found no prospect of it becoming financially viable.

Australia was once one of the world’s biggest aluminium producing countries but has slipped to fifth as costs of production climbed and prices dropped.

Point Henry’s closure in August will eliminate around 190,000 tonnes of annual aluminium-making capacity, equal to about 10 percent of Australia’s total yearly output.

“These assets are no longer competitive and are not financially sustainable today or into the future,” Alcoa Chief Executive Klaus Kleinfeld said.

Including the Point Henry smelter, Alcoa has announced closures or curtailments representing 551,000 tonnes of smelting capacity, exceeding the 460,000 tonnes placed under review in May 2013.

“The global oversupply of aluminium has devastated our industry,” said Paul Howes, national secretary for the Australian Workers Union, adding the union tried in vain to save nearly 1,000 jobs set to be lost at the smelter.

Goldman Sachs recently lowered its 2014 forecast for aluminium prices by 3 percent to $1,700 a tonne. -- the lowest since July 2009.

Alcoa’s closure of Point Henry also turns attention back to the troubled aluminium operations in Australia and New Zealand owned by Rio Tinto.

In August, Rio Tinto abandoned plan to spin off its Pacific Aluminium business housing 13 underperforming smelting and alumina-making businesses after failing to find any buyers.

At Rio’s Bell Bay smelter in the Australian island of Tasmania, union workers have agreed to forego guaranteed pay increases in exchange for greater job security.

In August, Rio Tinto accepted a NZ$30 million ($25.07 million) subsidy from the New Zealand government to help keep its Tiwai Point smelter afloat.


Alcoa’s not the only one scaling back operations.

Rio Tinto shut a 100,000-tonnes-per-year smelter in Shawinigan, Quebec last year, while Norsk Hydro’s 180,000-tonne Kurri Kurri smelter has also been mothballed.

At the end of last year, Aluminium Delfzijl, the last remaining smelter in the Netherlands, with annual capacity of 110,000 tonnes, applied for bankruptcy.

Russia’s Rusal, the world’s biggest aluminium producer, estimates that producers outside of China eliminated up to 1.2 million tonnes of capacity last year and further reductions of 1 million-1.5 million tonnes are expected in 2014.

For its part, Rusal cut production by 325,000 tonnes in 2013 and it plans to remove a further 325,000 tonnes in 2014.

While Alcoa and other established producers shutter old facilities that can no longer compete, China’s aluminium industry is growing.

China’s production is estimated to have increased by around six percent to 21.5 million tonnes last year alone.

Lower energy costs have encouraged higher output at smelters in China’s northwest provinces as well as restarts in the heavily industrialised provinces of Guangxi and Sichuan.

These production increases are aimed at offsetting capacity cuts at out-dated and inefficient operations, as the government strives to achieve emissions and sustainable growth targets outlined in its 12th Five-Year Plan.


Even with all the cuts so far, analysts polled by Reuters expect a surplus of 568,400 tonnes this year.

The price of aluminium - used in the aerospace, construction and automotive sectors - has nearly halved since 2008 due to a massive global surplus of the metal, forcing loss-making firms to slash capacity and make savings.

Alcoa’s 358,000-tonnes-per-year Portland smelter will continue normal operations, as will bauxite mining and alumina refining operations elsewhere in Australia, the company said.

A coal mine and power station supplying about 40 percent of the power needs for Point Henry, will be put up for sale, according to Alcoa.

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