January 8, 2012

Alcoa to Cut Production by Mid-Year… Jamalco’s Impact Unknown

Alcoa has announced that due to sharp decline in aluminium prices and high production costs, it will be curtailing production capacity at three European smelters.

Operations at Alcoa’s Portovesme, Italy, as well as La Coruña and Avilés, Spain, smelters are designated for curtailment.

This followed last week’s announcement to permanently close the company’s smelter in Tennessee and idling two of six lines in Rockdale, Texas. However, the company has not yet indicated if Jamalco will be affected.

The restructuring will reduce the Company’s global smelting capacity by 12 percent or 531,000 metric tons.

Jamalco refines alumina used in the production of aluminium and Alcoa also plans to make cuts in this area, saying its “alumina production will be reduced across the global refining system to reflect the final curtailments in smelting as well as prevailing market conditions.

Alcoa’s restructuring is a cost-cutting measure made necessary by falling aluminum prices, which have declined by more than 27 per cent from their peak in 2011. The metal is currently trading at 90 cents per pound.

Alcoa will be making another announcement on the markets to be affected by curtailments, which will reduce smelting capacity by 240,000 tonnes, or five per cent.

The permanent shut down of the plant in Tennessee and the scaling back in Texas will take 291,000 tonnes, or seven per cent of capacity offline.

Alcoa’s global smelting capacity is currently at 4.5 million tonnes. The combined 12 per cent reduction takes system capacity to just below four million tonnes. The cuts are to happen by midyear.

“These are difficult but necessary steps to improve Alcoa’s competitiveness, preserve and grow shareholder value, and protect jobs in the rest of the Alcoa system,” said Chairman and CEO Klaus Kleinfeld.

In addition to the curtailments, Alcoa said it would “accelerate actions to reduce the escalating cost of raw materials”.

Alcoa owns 55 per cent of the 1.5 million tonne-capacity operation at Jamalco. CAP is in the process of selling its stake, reportedly to Glencore, which would then own the other 45 per cent of Jamalco.

Jamalco plant

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The Jamalco Plant