Oversupply, high costs pressure Alcoa’s future smelting business

Alumina. Image: Alcoa

Alcoa is still reviewing the future of its aluminum smelting business amid the COVID-19 crisis and stock overhang.

Alcoa president and chief executive Roy Harvey, speaking at a Bank of America metals, mining and steel conference, said that the company was in a position of oversupply, producing more aluminum than needed.

The company also received customers’ request to delay shipments until later in the year due to the impact of the pandemic.

Alcoa has outlined 1.5 million tonnes in its smelting portfolio that needs reviewing, with 900,000 tonnes of those in operation including 230,000 tonnes capacity in the Intalco plant in the Washington State.

“It means there’s additional capacity that needs to be addressed. Each of those is a very special situation,” Harvey said.

“Our first action is always to try to find ways to fundamentally shift the competitiveness of each of those plants.

“However, again, when you have the crisis sitting in front of you and when you have significant cash losses at your high cost plant, it becomes fundamentally important for us to take actions in Alcoa.”

Harvey suggested that such decision making tended to be a slow process for producers. There is a high cost involved in bringing down smelting capacity, and even more so to bring it back up, he said.

“I would […] layer in the fact that it has an important impact on workers and I have no doubt that it’s lying heavily on people’s minds,” Harvey added.

“It certainly did on ours when it came to Intalco. But this industry is producing more aluminum than it needs and it extends to difficult pricing environments.”

Harvey admitted that he saw the most issues in respect to the company’s aluminum smelting business due to the interplay between supply, demand and inventories.

Alcoa has built up an inventory in excess of two million tonnes.

“From a box eye perspective, there’s still a lot of demand inside of China, but also a lot of supply,” Harvey said.

“[…] There needs to be a clear call of action that demands people to think about the competitiveness of their smelters.”

Alcoa revised its annual aluminum shipments outlook for this year from 3–3.1 million tonnes to 2.9–3 million tonnes. It also operates the Portland aluminium smelter in Victoria.

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