Alcoa smelter closure to bring U.S. aluminum output to post-WWII levels

NEW YORK (Reuters) - Alcoa Inc's AA.N plans to close its 269,000 tonne-per-year Warrick smelter, announced on Thursday, will bring U.S. aluminum output to its lowest level in more than 65 years as the industry endures tumbling prices amid rising trade tensions with China.

The Great Smoky Mountains are shown in the background in this view of the Alcoa Aluminium plant in Alcoa, Tennessee. REUTERS/Wade Payne

Warrick is the largest currently-operating smelter in the United States and the biggest shoe to drop in a string of recent curtailments and closures, potentially boosting prices and possibly bolstering some U.S. producers’ claims they are harmed by subsidized Chinese production.

The Evansville, Indiana plant’s closure, which will take place by the end of the first quarter, will leave Alcoa with just one active smelter: the 130,000 tonne-per-year Massena West plant, which was saved from closure with $70 million in New York state aid.

It will bring annual U.S. production of aluminum, which became a key strategic material during World War II, down to around 720,000 tonnes, the lowest level since at least 1950, according to the U.S. Geological Survey.

Five U.S. smelters will operate following Warrick’s closure, compared with eight at the beginning of 2015 and 23 in 2000.

In a statement, Alcoa global primary products president Roy Harvey said “these assets are not competitive” amid “challenging market conditions.”

London Metal Exchange aluminum prices CMAL3, which fell 18.6 percent in 2015, are hovering near 6-1/2 year lows at $1,475 a tonne as demand wanes in top-consumer China. The Midwest premium AL-PREM paid to producers on top of the LME price has fallen more than 60 percent to around 8.9 cents a pound from record highs hit last year.

Alcoa has distanced itself from the aggressive stance against China taken by rival U.S. producer Century Aluminum CENX.O, which is considering launching a trade case.

"The fact that [Warrick] has to close due to illegal Chinese trade practices is a very powerful data point for a trade case," said Will Dempster of the China Trade Task Force, a pressure group comprised of Century, whose largest shareholder is Glencore GLEN.L, and the United Steelworkers.

The closure could provide a boost to the premium, as Alcoa plans to keep its rolling mill open and demand from the U.S. automotive industry grows.

“It’ll attract more metal to the middle of the U.S.,” one U.S. trader said. “Now, it’s a little more bullish premiums.”

Reporting by Luc Cohen; Editing by Sandra Maler and Chris Reese