Alcoa to Cut Capacity in Brazil - Analyst Blog

Aluminum giant, Alcoa Inc. AA announced that it will cut 147,000 metric tons of smelting capacity at its Sao Luis (Alumar) and Pocos de Caldas smelters in Brazil. The company is cutting capacity to address the challenging market conditions as well as increasing costs that made the smelters uncompetitive.

At the Poços smelter, Alcoa will curtail 62,000 metric tons of capacity and 85,000 metric tons will be curtailed at Sao Luis. The curtailments are expected to be complete by the end of May 2014.

As a result of the cutbacks, the three potlines of the Pocos smelter will be fully curtailed and the Pocos refinery will also reduce production. However, the mine, aluminum powder plant and casthouse at Poços will carry on with their normal operations. The refinery at Sao Luis will also continue with the normal operations.  

The company expects to incur restructuring charges in the range of $40 million and $50 million after-tax, or 4 cents to 5 cents per share in the first quarter related to the curtailments in Brazil. 30% of the expense incurred will be non cash.

In May 2013, Alcoa announced that it will review 460,000 metric tons of smelting capacity over the next 15 months for potential curtailment. Once the company completes all the curtailments and closures, it will have about 80,000 metric tons or 21% of smelting capacity offline.

Earlier in Feb 2014, Alcoa announced that it will permanently shut down its Point Henry aluminum smelter and two rolling mills in Australia by the end of 2014. Alcoa had put the Point Henry smelter under strategic review since 2012 due to the challenging market conditions and found that the smelter had no prospect of becoming financially viable.

Alcoa remains on track to move down the cost curve and curtailed capacities in its upstream business. The curtailments will improve the competitiveness of the company's Primary Products business.

Alcoa, a prominent player in the mining industry along with Aluminum Corporation of China Ltd. ACH , Atlatsa Resources Corp. ATL and BHP Billiton Ltd. BHP, is a world leader in production and management of primary aluminum, fabricated aluminum, and alumina. The company currently retains a short-term Zacks Rank #2 (Buy).