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UPDATE 2-Alcoa cuts alumina output as oversupply dents prices
April 5, 2012 / 2:47 PM / 5 years ago

UPDATE 2-Alcoa cuts alumina output as oversupply dents prices

* Alcoa to cut annual alumina refining capacity by 390,000 T
    * Output reduction follows January's smelter capacity cuts
    * Producer also cites prevailing market conditions


    By Carole Vaporean	
    NEW YORK, April 5 (Reuters) - Alcoa Inc, the U.S.
aluminum giant, plans to cut alumina production in the Atlantic
region by 4 percent, becoming the first producer to take
measures aimed at reducing oversupply that has lowered prices to
around $300 per tonne.	
    The move follows a slump in prices of alumina, an
intermediate ingredient in aluminum production, to levels at
which many of the world's higher-cost refiners are unprofitable.	
    The company said on Thursday that it would cut annual
alumina output by 390,000 tonnes in the Atlantic region, an area
representing about half of its global refining capacity of 18
million tonnes per year, to bring it more in line with smelter
demand for the product made of raw ore bauxite.	
    Alcoa said it had begun taking some refining capacity
offline, but declined to name specific refineries. Potential
sites in the Atlantic region could include Jamaica, Suriname,
Europe or the United States. 	
    Analysts say production costs at Caribbean refiners are at
the higher end of the cost curve, with some refineries in
Jamaica estimated to be profitable at those price levels. 	
    "Alcoa is taking these steps to avoid aggravating alumina
oversupply in the Atlantic region and to enhance the efficiency
of our refining system," Chris Ayers, president of Alcoa's
global primary products division, said in a statement.	
    The cutbacks equate to intermediate material feed to produce
about 200,000 tonnes of aluminum. For every tonne of aluminum, a
smelter would need two tonnes of alumina.	
    Alcoa said it would trim refining output to bring it more in
line with smelting production after announcing in January the
company would close or curtail 531,000 tonnes of annual smelting
capacity.	
    While Alcoa is the first producer to announce alumina output
cuts, Norwegian group Norsk Hydro said last month it
would delay building its planned CAP alumina refinery in Brazil
due to concerns about short- and medium-term demand for the
intermediate material. 	
    Pressure has been mounting for the aluminum industry to
reduce capacity because of a global production surplus. 	
    Spot alumina prices in mid-March were around $315 per tonne,
down from above $400 at the end of last year, according to
traders, who attributed the fall to smelter capacity cutbacks
and lower aluminum prices at the London Metal Exchange.	
    In March, spot alumina prices rose 2 percent in China, the
world's top producer of aluminum and alumina, due to the view
that domestic production would fall in the second half of 2012,
traders and sources at smelters said. 	
    They said smelters were paying about 2,650 yuan ($420) a
tonne for spot alumina in China, compared with below 2,600 yuan
in February. Top alumina producer Aluminum Corporation of China
Ltd  has kept its spot prices since November
at 2,800 yuan. Spot Australian alumina traded at $315-$320 a
tonne on a free-on-board basis, up from $305-$310 in January.	
	
    	
    COST CURVES	
    Alcoa has said its goals were to achieve a reduction of 10
percentage points in its position on the global smelting cost
curve and shave 7 percentage points off its position on the
global refining cost curve by 2015.	
    Even with oversupply of smelting and refining capacity,
analysts expect the aluminum market to improve as global demand
increases and have said Alcoa should post quarterly profits for
the rest of the year. 	
    Alcoa's first-quarter results are due on April 10, when it
looks set to post its second consecutive quarterly loss.	
    "The outlook for aluminum is still strong, but Alcoa cannot
expect an outstanding year," said Bridget Freas, an analyst with
Morningstar in Chicago, citing weakness in the aluminum price. 	
    Demand for aluminum has been strong in China and other
emerging economies, but is only slowly returning to
pre-recession levels in the developed world.	
    Benchmark LME aluminum prices were around $2,110 per
tonne o n Thursday, off considerably from $2,360 in early March,
though still up over 7 percent from December's 1-1/2-year low. 	
    	
    CAPACITY CUTS	
    In January, Alcoa said it would cut its global smelting
capacity by 12 percent, or 531,000 annual tonnes, due to a steep
drop in aluminum prices. Of the total, 291,000 came from the
permanent closure of capacity idled since 2009 at its Alcoa,
Tennessee smelter and in Rockdale, Texas. 	
    Another 240,000 tonnes, or 5 percent, of Alcoa`s smelting
capacity will be curtailed in Portovesme, Italy by the end of
2012 and at La Coruña and Aviles, Spain. 	
    Alcoa said on Thursday it had reached agreements with
government authorities and unions in Italy and Spain on the
curtailments. It has already begun to curtail 90,000 tonnes at
the Spanish smelters, a move due for completion in the first
half of 2012.	
    Separately, Alcoa told Reuters it had been in talks for more
than two years with Brazil's government, asking for suggestions
on how to reduce high energy costs. 	
    The company said it was doing its part to reduce operating
costs there by increasing productivity, improving processes, and
reducing fixed costs. It said it would defer any decision about
reducing output from its two Brazilian smelters for at least two
months -- the time the government needs to review energy costs. 	
    "This is part of making sure our operations in Brazil are
competitive and right now, energy costs are a big impediment to
that," said Libby Archell, director of corporate affairs.	
    Alcoa shares were off 1.7 percent at $9.64 by 2:30 p.m. EDT
(1830 GMT), while the Dow Jones industrial average lost 0.26
percent.

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