Aluminum cuts deepest for facilities in US

Alcoa (NYSE: AA) is idling three of its four U.S. aluminum smelters, taking out annual capacity of 500,000 tonnes of aluminum and 1.2 million tonnes of alumina to curb costs, amid low prices.

Alcoa says the measures will result in a total divestment or curtailment of 45% of its smelting capacity across all of its operations since 2007.

The latest suspensions are at its Intalco and Wenatchee smelters in Washington State, and the Massena West smelter in New York State, where it will also fully close its Massena East smelter.

The company expects restructuring charges between US$160 million and US$180 million after-tax, or US12¢ to US14¢ per share.

The announcement comes as the company prepares to separate into two units by next year’s second half — dividing its traditional mining and energy business from its technology-driven sector, which produces parts for planes and trucks.

Alcoa’s latest cuts account for 1% of global aluminum supply, which might not be enough to restore supply balance in a market that’s been battered by a slowing of China’s economic growth, and growing oversupply.

Cash-buyer prices for the metal have slumped 19% to US$1,469.5 per tonne since January, which grazes the lowest levels seen since 2009, and is forcing other U.S. producers to slash capacities, as most smelters are unprofitable at or below US$1,500 per tonne, according to a Harbor intelligence report.

Century Aluminum (NASDAQ: CENX) plans to curtail one of its three potlines at its Sebree smelter in Kentucky by year-end, blaming the decision on a collapse in aluminum prices from “Chinese overcapacity, and the improper export of heavily subsidized Chinese aluminum product.”

Michael Bless, president and CEO of Century, said in a press release “there is a supply deficit in the world … these otherwise favourable conditions have been severely neutralized by the global supply glut caused by the government of China’s continued unfair subsidization of additional capacity expansion in China, irrespective of market forces.”

He added the alleged behaviour on the part of Chinese authorities has resulted in the “failure” of a free market.

Century’s decision comes after the company closed its Ravenswood smelter in West Virginia in July, along with  cutbacks at its Hawesville smelter in Kentucky, and Mt. Holly smelter in South Carolina.

Cheap production of the metal from China has led to ramped-up exports, which have risen 17.7% in the first nine months of the year, compared to the same period in 2014.

Meanwhile, other international operations are being leveraged by the strong U.S. dollar.

Mining giant Rio Tinto (NYSE: RIO) shows no sign of slowing down its aluminum business, with its aluminum production up 5% for the first nine months of 2015, compared to the same period in 2014.

Curtailments from Alcoa and Century will remove more than 900,000 tonnes of annual capacity from the market. That equates to 18% of U.S. consumption that will need to be replaced by imported metal in the future, according to a U.S. Geological Survey report.

The report also states that U.S. imports of aluminum have climbed since 2011, increasing 12% to 4.2 million tonnes in 2014, in response to shrinking domestic production.