Alcoa Inc. may pare its aluminium capacity by closing or selling plants in a move to lower costs as prices are falling and production in China is growing.
New York-based Alcoa, which has an operations base and research center in Pittsburgh, said it will review high-cost operations across its global system of production facilities over the next 12 months, as part of the long-running effort to make its commodity aluminum business more competitive.
The company said it is contemplating cutting its smelting capacity by 14 percent and reducing refining capacity by 16 percent. Aluminum production involves refining bauxite into alumina, and smelting alumina to produce aluminum.
“Alcoa continues to take decisive action, transforming its upstream portfolio to create a lower cost, globally competitive commodity business,” Bob Wilt, president of Alcoa’s global primary products, said in a statement.
The company, which is working to diversify its business into producing higher-value aluminum parts for automotive and aerospace markets, has idled about 19 percent of smelting capacity and 7 percent of its alumina refining capacity. It started cost-reduction initiatives in 2010.
Alcoa owns or has interests in 20 smelters in the United States, Canada, Brazil, Australia, Norway, Iceland, Spain and Saudi Arabia. It owns or has interests in nine refineries in the United States, Brazil, Suriname, Spain, Australia and Saudi Arabia.
Revenue from its production, or upstream, operations accounted for 43 percent of the company’s total revenue in 2014.
The price of aluminum for delivery in three months dropped to a seven-month low in January on the London Metal Exchange. China’s aluminum production rose 9.1 percent last year.
Alcoa said the review will consider several alternatives for reducing capacity, including partial or full plant curtailments, permanent shutdowns and divestitures. Since 2007, it has curtailed, closed or sold 31 percent of its highest-cost smelting capacity.
Alcoa stock closed Friday at $14.48 a share, up 10 cents, or 0.7 percent.
“I was surprised at the magnitude” of the potential capacity cuts, said John Tumazos, an analyst with Very Independent Research in Holmdel, N.J.
There’s a chance Alcoa could cut production too much, he said. Demand for aluminum is increasing from automakers, such as Ford Motor Co., which is building an all-aluminum body pickup.
And Chinese aluminum makers may have to raise prices because energy costs — key to production of the metal — are rising as the country tries to reduce pollution.
“I think the aluminum business is getting better,” he said. “But if they (Alcoa) tighten the market and earn an extra profit, they won’t cry.”
Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or [email protected]. Bloomberg News contributed to this report.