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Alcoa to Close or Curtail Capacity

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Aluminum giant Alcoa Inc. (AA - Free Report) announced that it will shut down or curtail 164,000 metric tons of smelting capacity in the U.S and Brazil as part of its smelting capacity review. Alcoa is taking this step to maintain its competitiveness as aluminum prices have declined to four-year lows.

Alcoa announced that it will temporarily cut production at its aluminum smelters in Brazil and will permanently close a potline at the Massena East plant in New York. The current capacity of its smelters in Brazil represent 124,000 metric tons while that in New York represents 40,000 metric tons. Alcoa expects to complete the shut down and curtailments by the end of Sept.

The closure and curtailments are as per Alcoa’s announcements made in May where the company stated that it will review 460,000 metric tons of smelting capacity over the next 15 months for potential curtailment. Of 460,000 metric tons, the company has closed or curtailed 269,000 metric tons of capacity. This includes permanent closure of 105,000 metric tons of capacity announced earlier at Alcoa’s Baie-Comeau smelter in Canada.
In addition to this, Alcoa also permanently closed its Fusina primary aluminum smelter in Italy. The closure of the facility reduced Alcoa’s global smelting capacity of 4.2 million metric tons per year by 44,000 metric tons. The closure was not a part of the review that the company announced in May.

As a result of these actions Alcoa expects to incur total restructuring-related charges of between $5 and $10 million (after-tax), or a penny per share, of which, roughly 50% is non-cash, in the third quarter of 2013.

Alcoa’s strategy of curtailments is consistent with its previously announced 2015 goal of lowering its position on the world aluminum production cost curve by 10 percentage points and the alumina cost curve by 7 percentage points.

Alcoa remains on track to move down the cost curve and curtailed capacities in its upstream business. The curtailments will improve the competitiveness of the company’s Primary Products business.

Alcoa, a prominent player in the mining industry along with Aluminum Corporation of China Limited , Atlatsa Resources Corporation and BHP Billiton Limited (BHP - Free Report) , is a world leader in production and management of primary aluminum, fabricated aluminum, and alumina. The company is also the world’s largest miner of bauxite and refiner of alumina.

Alcoa is divesting underperforming assets through its restructuring program and is aggressively pursuing cost-cutting actions. Healthy demand in the aerospace market is expected to drive results going forward.

However, weakness remains in the commercial building and construction market. In addition, the company continues to contend with pricing pressure.

Alcoa currently retains a short-term Zacks Rank #4 (Sell).

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