(Corrects second paragraph to replace downstream with upstream)
* Unsecured debt and corporate family ratings cut to Ba1
* Moody's says ratings outlook is stable
* Alcoa has cut costs, but low prices weigh on results
May 29 (Reuters) - Moody's Investors Service cut aluminum producer Alcoa Inc's main credit rating to junk on Wednesday, citing weak prices and a tough market for the company's primary metals business.
Stubbornly low prices have hurt Alcoa, especially its upstream business of mining bauxite, refining it into alumina and smelting alumina to produce aluminum.
"We believe Moody's decision is a greater reflection of macroeconomic conditions and the volatility of metal prices than a true statement of the financial and operating strength of Alcoa," the company said in a statement.
Moody's cut Alcoa's senior unsecured debt and corporate family ratings to Ba1 from Baa3. The agency said Alcoa's rating outlook is stable and confirmed its Ba2 preferred stock rating.
Companies with lower debt ratings tend to face higher borrowing costs.
Moody's noted Alcoa has cut costs and boosted productivity, but said key debt metrics are likely to fall short of investment-grade standards through 2013 and 2014, in part because of weakness in the aluminum industry.
In recent quarters, Alcoa's engineered products segment, which makes wheels, aircraft parts and other goods, has been more profitable than the company's upstream business, which has faced rock-bottom prices. That has some speculating Alcoa could offload raw material assets.
But even as the company shuts down high-cost capacity at facilities such as Baie-Comeau in Quebec, operations are ramping up at Ma'aden, the $10.8 billion, 740,000 tonne per year smelter run by a joint venture between Alcoa and Saudi Arabian Mining Co .
Prices of Alcoa bonds, which mostly trade above face value, fell after the downgrade. The 5.4 percent notes maturing in 2021 fell 0.6 cents to about 103.4 cents, boosting their yield to 4.87 percent, according to bond pricing service Trace.
In April, S&P cut its outlook for Alcoa to negative from stable and maintained a BBB- corporate credit rating. Fitch Ratings also revised its outlook to negative and affirmed its own BBB- senior unsecured debt rating. (Reporting by Allison Martell; Additional reporting by Jonathan Stempel; Editing by Diane Craft, Andre Grenon and Paul Tait)