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Alcoa to consider more plant closings to cut costs

About John D. Oravecz

By John D. Oravecz

Published: Wednesday, May 1, 2013, 12:30 p.m.

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 joravecz@tribweb.com.

 

 
 


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