Steve Schaefer

Steve Schaefer, Forbes Staff

1/06/2012 @ 9:33AM |4,051 views

Alcoa Slashes Smelting Capacity To Lower Cost Profile

Alcoa Car

Image by hyku via Flickr

Just a few days before releasing its fourth-quarter earnings, Alcoa had some big news Thursday that may make investors betting on a global economic recovery nervous.

The aluminum producer announced it will close or curtail 12% of its global smelting capacity to improve its competitiveness, a move that will result in fourth-quarter restructuring charges of $155-$165 million (15-16 cents per share).

Thursday’s announcement, which cuts capacity by 531,000 metric tons, includes the permanent closure of a smelting plant in Alcoa, Tennessee, which was idled in 2009, and two of six idled potlines at its Rockdale, Texas smelter. The combination will account for more than half of the overall reduction.

“These are difficult but necessary steps to improve Alcoa’s competitiveness, preserve and grow shareholder value and protect jobs in the rest of the Alcoa system,” Alcoa Chairman and Chief Executive  Klaus Kleinfeld said of the move, which is aimed at lowering the company’s positioning on the aluminum cost curve by at least 10 percentage points.

Aluminum prices are down more than 27% from their 2011 high, Alcoa said, in large part due to higher raw material costs.

Shares of Alcoa, due to issue fourth-quarter results Monday Jan. 9, fell 1.7% after-hours, following a 1% decline earlier Thursday.

Update 1/6: An Alcoa spokesman says the announcement Thursday should not be viewed as any kind of strategic shift and the latest capacity reduction is consistent with the company’s stated goal, dating back to 2009, of moving its primary products business lower down the cost curve.

Shares of Alcoa were down 2.2% Friday morning ahead of Monday’s earnings report.

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  • apppro apppro 2 years ago

    You think this is a miss on Monday?

  • rpscott rpscott 2 years ago

    Profits lagging? Cut supply to simulate over demand…RESULT: Higher prices on aluminum products to make up the difference. Supply side economics at work!

    Wouldn’t it be great IF Capitalism wotked the way it used to? You know, when America was the world leader of Manufacturing THINGS?

    Who sold America out? …and WHY?