Alcoa to consider more plant closings to cut costs
Falling aluminum prices are prompting Alcoa Inc. to take a close look at idling or closing more plants to cut costs, the company said Wednesday.
To remain competitive, the nation's largest aluminum producer has idled about 13 percent of its smelting capacity as prices have fallen more than 33 percent since a peak two years ago. A review during the next 15 months could affect another 11 percent of capacity worldwide.
“Because of persistent weakness in global aluminum prices, we need to review every option to maintain Alcoa's competitiveness,” said Chris Ayers, president of Alcoa's global primary products. “Any action taken will only be done after a thorough strategic review and consultations with stakeholders.”
The review will focus on plants with higher costs and long-term risks because of energy costs or regulatory uncertainty, the company said.
Alcoa is headquartered in New York and has its operations center in Pittsburgh, where its annual meeting of shareholders will be held Friday.
“It's expected, and it's necessary,” said metals analyst Charles Bradford, president of Bradford Research in New York. “They're going to make less money because aluminum prices are lower, and that's the key.”
Aluminum declined 2.4 percent to $1,825.50 a metric ton Wednesday on the London Metal Exchange. The price of the commodity, used in products ranging from beverage cans to aircraft parts, has fallen 14 percent in the past 12 months, and 33 percent since reaching a high of $2,797.00 on May 3, 2011.
“Alcoa sells a commodity product, and they can't control the selling prices, which have come down a lot. So costs have come down,” Bradford said.
At Friday's annual meeting, Alcoa CEO Klaus Kleinfeld likely will tell shareholders that cuts must be made, according to Bradford, because there is too much aluminum capacity worldwide and too little demand.
In its announcement Wednesday, the company said its goal for 2015 is to reduce aluminum production costs by 10 percentage points. The review will look for ways to cut 460,000 metric tons of smelting capacity. Alcoa already has idled about 568,000 metric tons of capacity, including the closing of its Alcoa, Tenn., smelter; part of its plant in Rockdale, Texas; and cutbacks in Italy and Spain.
Bradford said Alcoa also is opening lower cost production in a joint venture with Saudi Arabian Mining Co., a state-controlled company also known as Ma'aden, which started production late last year.
Growth is slowing in China, the biggest consumer of the metal, in Europe, Brazil and Russia, Bradford said.
When Alcoa issued first-quarter financial results on April 8, Kleinfeld said he expects worldwide output will exceed demand by 155,000 tons this year, even as demand grows 7 percent.
Those earnings exceeded analysts' estimates with net income rising 59 percent to $149 million, or 13 cents a share, from $94 million, or 9 cents, a year earlier. Alcoa said it cut $247 million in costs through productivity gains and increased sales of engineered-products. In recent years, the company has moved more of its business to parts for industry and away from mining and refining.
Last week, Standard & Poor's Ratings Services revised its credit rating outlook on Alcoa to negative from stable because of the aluminum price slump. Alcoa's cash flow and debt are “well outside our expectations” for the company's BBB- corporate credit rating, the ratings company said.
Bloomberg News contributed to this report. John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or email@example.com.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Pitt to start Energy Law and Policy Institute
- Stocks in slump as Chinese shares plunge
- Israel’s Teva drops bid for Mylan, buys Allergan for $40.5B
- Plummeting natural gas prices slash revenue of Marcellus shale producers
- Wabtec moves to buy France-based transport company
- Invasive beetle costs Pittsburgh-area power companies plenty
- What to do with a toxic worker
- Muni bond funds stressed
- Chronic job-seekers giving up the hunt
- Urban rentals pit old vs. young
- Bayer sets sights beyond aspirin