Nov 11 2008

Alcoa’s shares down as production is decreased

Today Alcoa’s shares lowered 7,6%  after the company announced that it would decrease production by 350 thousand tons per year. The cut-down takes place in Alcoa’s smelters in Ferndale, Washington; and Baie Comeau, Quebec. Alcoa runs the Fjarðaál aluminium smelter in Reyðarfjörður, east Iceland. Earlier the company had announced 256 thousand ton cutback in Rockdale, Texas which means that Alcoa’s production downturn is 15%.
Alcoa also announced that a 2,2 million ton enlargement of an aluminium smelter in Wagerup, Australia would be delayed.  The project’s estimated cost was between 3 and 4 million dollars and Alcoa said it will restart when the state of market change. According to experts, there is still redundance of aluminium on the market.

“The industry is in surplus and has experienced an unprecedented fall in aluminum prices over a very short period of time,” said Bernt Reitan, Alcoa Executive Vice President and President – Global Primary Products. “While we continue to see a strong long-term outlook for aluminum consumption, we are taking a series of actions to address the current market conditions, including targeted cost-reductions across our system and reducing production.

“These curtailment steps are part of a larger global effort to reduce our costs, match production with demand, and help secure a long term future for our operations in light of the current market,” said Reitan. “We have reviewed every asset across our entire system with an eye on how best to maximize profitability as we look to align production with demand. After careful analysis we have developed a four-part model that spreads the curtailments across our global system and minimizes the costs associated with plant shutdowns and re-starts and, in turn, minimize the impact on plant communities.”

A part of Alcoa’s curtailment steps is the building of aluminium smelters in countries which provide cheap energy. Third world countries are the best option for the aluminium industry, as well as Iceland and Greenland. The price Alcoa pays for energy in Iceland is one of the lowest in the world and has been the main reason for the company’s interest in building more smelters there.

Alcoa however recently announced that investment for construction of it’s planned smelter in Bakki, North Iceland, will be delayed for unknown time because of the current economic crisis.