January 6, 2012- Alcoa Inc., the largest producer in the U.S. of aluminum, will cut its smelting capacity by 12% globally. Alcoa is the first aluminum producer to take such action to lower costs following a huge drop in the price of metal.
The production cut will result in the company taking a restructuring charge during the fourth quarter. This will result in Alcoa’s first loss in the last nine quarters. The large cut in production should help increase prices that have remained below $2,500 per ton since last fall.
Nevertheless, other cuts across the industry may be necessary to offset concerns about metal surpluses in both Europe and the United States and less demand from a key consumer in the industry, China.
Alcoa said the cuts in output would amount to 530,000 fewer tons per year. The cuts will also help to sharply lower costs. Six pot lines in Texas will be closed permanently amounting in a cut in smelting capacity of 7%. Another 5% in capacity will be cut in other areas but the company would not give any specific as to what plants would be shuttered or how many workers would be affected.
Alcoa’s shares were down after the news was released, but an increase in metal prices is expected. The news was widely anticipated and should help raise the market say many analysts.