Aluminum maker Alcoa tapers U.S. smelting, refining capacity

| Thursday, Jan. 7, 2016, 10:48 p.m.

Alcoa Inc. is cutting more smelting and refining capacity in the United States as the aluminum maker grapples with falling aluminum prices and overcapacity around the globe, primarily in China.

The capacity reductions, the latest in a string of cuts that started last year as the company prepares to separate its aluminum production business from its high-value parts operation, will result in layoffs for more than 1,200 workers in Indiana and Texas. The parts business supplies components primarily for the automotive and aerospace industries.

Alcoa said it will close its Warrick Operations smelter in Evansville, Ind. by the end of March, and lay off 600 workers. A rolling mill and power plant at Warrick will remain open.

The company will temporarily halt all refining at its Point Comfort, Texas, facility by the end of June, affecting 670 employees.

“Despite the hard work of employees, these assets are not competitive,” Roy Harvey, president of Alcoa's Global Primary Products business, said in a written statement. “We're confident that these actions are the right ones in face of these challenging market conditions.”

Aluminum prices dropped 30 percent last year, and alumina prices fell 40 percent, the company said. At the same time, aluminum production around the world has remained high, said John Tumazos, an analyst and owner of Tumazos Very Independent Research in Holmdel, N.J.

Global output in November was the third-largest monthly total ever, Tumazos said, and Chinese production was up 16.5 percent through November, compared with the same period in 2014.

Alcoa's capacity reductions are a “natural reaction to low prices,” he said. “I think they're just saying, ‘The market looks worse. The prices are bad. We're going to produce less.' ”

With the Warrick closure, Alcoa will have shuttered three of its five smelters in the United States. In November, the company announced it was closing two smelters in Washington state and one in New York. But after officials in New York offered Alcoa incentives to reduce costs at the Massena West smelter, the company agreed to keep it open.

Including the Warrick smelter, Alcoa has shuttered 24 percent of its global smelting capacity since starting a review of high-cost production in March.

The Point Comfort facility was Alcoa's only U.S. alumina refinery. The company has cut 19 percent of global refining capacity since March.

Alcoa said it will record a charge of $120 million, or 9 cents a share, in the fourth quarter related to the latest closures. It expects to record a charge of $50 million to $60 million in the first quarter.

The company will report its fourth-quarter financial results on Monday.

Alcoa is planning to split into two companies in the second half of next year, separating its mining, refining and smelting operations from faster-growing businesses that produce high-value parts for the automotive and aerospace industries.

Tumazos said the capacity reductions should not affect the viability of the primary metals company, which will retain the Alcoa name. Despite the weakness in its markets, it should be in good financial shape because the parts-manufacturing company, which has not been named, will retain Alcoa's debt.

“I don't think this affects the spinoff,” he said.

Alex Nixon is a Tribune-Review staff writer. Reach him at 412-320-7928 or anixon@tribweb.com.

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