Lightweight metals leader Alcoa announced that it is taking decisive action to reduce noncompetitive smelting and refining capacity to ensure continued competitiveness amid prevailing market conditions. The Company will cut down aluminum smelting capacity by 503,000 metric tons and alumina refining capacity by 1.2 million metric tons. Alcoa will begin the curtailments in the fourth quarter of 2015 and will complete them by the end of the first quarter of 2016.
The reductions will further improve the cost position of the Upstream business and ensure competitiveness in a lower pricing environment, including a 30 percent drop in the Midwest transaction aluminum price year-to-date. Alcoa has been aggressively reshaping its Upstream portfolio as part of a successful multi-year strategy to position itself as a low-cost global leader in alumina and aluminum production. Once today’s actions are complete, Alcoa will have closed, divested or curtailed 45 percent of total smelting operating capacity since 2007.
“Alcoa has consistently taken decisive actions to create a commodity business that is positioned to succeed throughout the cycle,” said Klaus Kleinfeld, Chairman and Chief Executive Officer. “We have closed or curtailed unprofitable capacity, repowered key assets at lower energy prices, built-up a profitable value-add casthouse network, established the foundation for a strong commercial bauxite business, and made substantial productivity improvements. In the face of continued adverse market forces, we are once again not standing still. These difficult, but necessary measures will further strengthen our Upstream portfolio, reducing our cost position and driving greater resilience as we prepare to launch this business as a strong standalone company in the second half of 2016.”
In its aluminum business, Alcoa will idle the Intalco and Wenatchee primary aluminum smelters in Washington State, and the Massena West smelter in New York. The Company will not modernize the New York Massena East smelter and will permanently close the facility; potlines at Massena East have been closed since March 2014. The casthouses at Intalco and Massena West, which produce value-add shaped products, will continue to operate. The Alcoa Forgings and Extrusions facility in Massena is unaffected.
In its alumina business, Alcoa will partially curtail refining capacity at its Pt. Comfort, Texas facility by about 1.2 million metric tons.
“Across the globe, we have been taking measures to curtail smelting and refining capacity that is not competitive to improve our cost profile,” said Roy Harvey, Executive Vice President and President, Global Primary Products. “Alcoa has a long, proud history at the affected locations and our dedicated employees have worked hard to keep our facilities competitive in the face of challenging market conditions. Unfortunately, today’s pricing environment necessitates very difficult decisions. We recognize how deeply these decisions affect our Alcoa family and communities and are committed to working closely with our employees and unions and local stakeholders to support them through this transition.”
Once these actions are implemented, Alcoa will have curtailed or closed 673,000 metric tons of uncompetitive smelting capacity and 2.5 million metric tons of uncompetitive refining capacity since its announced review of 500,000 metric tons of smelting capacity and 2.8 million metric tons of refining capacity in March 2015.
Total restructuring-related charges in the fourth quarter of 2015 associated with today’s announcement are expected to be between $160 million and $180 million after-tax, or $0.12 to $0.14 per share, of which approximately 30 percent would be non-cash.