CHICAGO Alcoa Inc. is
considering cutting as much as 460,000 tonnes of smelter
capacity over the next 15 months as aluminum prices remain
The Pittsburgh-based aluminum
producer said May 1 that it would focus its efforts on
higher-cost plants, including those facing power issues or
The possible curtailments could
impact about 11 percent of Alcoas global smelting
capacity, according to the company, which has already idled
586,000 tonnes, or 13 percent, of its smelting capacity.
"Because of persistent weakness
in global aluminum prices, we need to review every option to
maintain Alcoas competitiveness," Chris Ayers, president
of Alcoas global primary products segment, said in a
Options under consideration
include discontinuing pot relining, plant closures and
permanent shutdowns, Alcoa said. The company said it also is
reviewing its alumina refining system.
Any decisions will be announced
as facility reviews are completed, Alcoa said, without
mentioning specific regions or facilities.
The companys review will
take power costs into account first, as well as labor costs,
supply contracts, and government policies and incentives,
market observers said.
Analysts and market observers
agreed that Alcoa was responding appropriately to low aluminum
prices. Most agreed that cuts, while possible anywhere, were
most likely to be focused in Europebecause of high power
costs, a strong euro compared to other currencies, and politics
seen as unfriendly to manufacturingand perhaps Australia,
where a strong dollar and carbon taxes are hampering
represents a shot across the bow to not only suppliers,
utilities, unions and governments, but also to other producers,
who are effectively being urged to make similar moves, sources
"Rational action is, if a
smelter is not cash-flow positive at a price, then it should be
shut down. That is the way Alcoa has approached it in the past,
and I think that is the rational thing that Alcoa and other
producers should be doing in this environment," Davenport &
Co. LLC analyst Lloyd T. OCarroll told AMM.
Some sources speculated that the
move could bolster aluminum prices.
The cash primary aluminum
contract on the London Metal Exchange ended the May 1 official
session at $1,788.50 per tonne, down 3.1 percent from $1,846.50
per tonne the previous day and off 15.8 percent from a 2013
high of $2,123 per tonne on Feb. 15.
"This is a logical reaction to
where current aluminum prices are and various pockets of
weakness in different parts of the world," said John Tumazos of
Very Independent Research LLC. "Its unfortunate, but when
(the aluminum price) is 80 cents (per pound) these things are
going to happen."
Aluminum producers might have
missed a window to secure lower power prices as natural gas
prices have recovered over the past year, Tumazos said. "The
recovery to natural gas to $4.40 (per million British thermal
unit) reduces the likelihood of deep concessionary power
contracts and raises the possibility of a minor, mild recovery
in coal prices. The window for getting deep concessionary power
contracts was $1.90 (mmBtu) gas13 months ago. ... So the
cheap power window is now gone, and the aluminum price is
The aluminum industry also is
coping with overcapacity issues, said Charles Bradford,
president of Bradford Research Inc., New York. "There has been
excess capacity in aluminum, in steel and almost every place
you look," he said. "Capacity comes on. Demand is weak.
Its economics 101."
Alcoas announcement is
consistent with past comments the company has made about
looking to "move down the cost curve," said Bank of America
Merrill Lynch senior research analyst Timna Tanners. It also
could represent "posturing like what we saw from Century
(Aluminum Co.) in a bid to get lower power prices to improve
Monterey, Calif.-based Century
recently reached a tentative power agreement for its smelter in
Hawesville, Ky. (
amm.com, April 29). The company had warned it
would close Hawesville if it could not secure a competitive
power deal (
amm.com, April 17).
"Certainly, it is not a bad
thing for the aluminum industry to see some of the higher-cost
capacity come out of the market," she said.
Like other companies in the
commodities sector, Alcoa has only limited control over
pricing, so it must focus on the things it can
controlnamely, costs, Bradford said. "Thats a
constant battle. It will be interesting to see what happens.
The crash in metals prices is really serious stuff. ...
Its not aluminum per se, its not copper per se,
its something affecting all of them."