Alcoa to Curtail Brazil Smelters as Aluminum Price Declines

Mar 28, 2014 4:21 pm ET

(Updates with closing share price in last paragraph.)

March 28 (Bloomberg) -- Alcoa Inc., the largest U.S. aluminum producer, will curb capacity at two smelters in Brazil after falling metal prices and rising costs made them uncompetitive.

Alcoa will shutter 147,000 metric tons at its Sao Luis and Pocos de Caldas plants, the New York-based company said today in a statement. Pocos, in the southeastern state of Minas Gerais, will be fully idled. Sao Luis, a smelter in the northeast that’s 40 percent-owned by BHP Billiton Ltd, will see output cut by 97,000 tons.

Alcoa is trimming production at smelters with the highest operating costs worldwide and earlier this year said it will close a 50-year-old facility in Point Henry, Australia, cutting 190,000 tons of capacity. In 2013, it permanently closed another 190,000 tons at smelters in the U.S., Canada and Italy.

Brazil’s output of primary aluminum, used in drink cans and aircraft, dropped to the lowest in more than 12 years last month as producers face growing electricity and labor costs amid declining metal prices. Companies including Alcoa and Norway’s Norsk Hydro ASA lowered production in the country 9.2 percent to 1.3 million tons in 2013, the third consecutive annual drop.

Alcoa will take a charge of as much as 5 cents a share on the Brazil curbs in the first quarter and expects to complete the cuts by the end of May. It plans to have about 800,000 tons, or 21 percent, of capacity halted once all closures are implemented.

‘Reshaping Costs’

“Across the globe, we are taking measures to curtail high- cost smelting capacity that is not competitive and reshape our cost profile,” Bob Wilt, Alcoa’s president of global primary products, said in the statement.

Alcoa is also building the world’s lowest-cost aluminum smelter in Saudi Arabia in a partnership with the country’s state-owned mining company.

Aluminum for three-month delivery on the London Metal Exchange has dropped about 8 percent in the past year, the second-worst performer among six base metals on the bourse. The metal rose 1.1 percent to $1,756.25 a ton at 4:40 p.m. in London.

Shares of Alcoa declined 0.9 percent to $12.48 at the close in New York.