[Pesqueeb]

He stays away too long and look what happens to aluminum prices. Time to increase Chemtrail production.

(Reuters) - Alcoa Inc (AA.N), the largest U.S. producer of aluminum, said it will slash its global smelting capacity by 12 percent, becoming the first producer to take direct action to cut costs amid a steep drop in metal prices.

The move will result in a restructuring charge in the fourth quarter that will push the U.S. producer into its first loss in nine quarters.

The cuts are likely to help boost prices , which have languished below $2,500 per tonne since August, traders said. Analysts estimate as much as a quarter of the global production is already unprofitable at that level.

But more brutal industry-wide cuts may be needed to allay deeper concerns about a slowdown in demand from key consumer China and a surplus of metal in the United States and Europe, traders said.

Unveiling what Chief Executive and Chairman Klaus Kleinfeld described as "difficult but necessary steps", Alcoa said it will cut output by about 531,000 tonnes per year and slash costs.

Its Tennessee smelter, which was curtailed in 2009, and two of the six idled potlines in Rockdale, Texas will be permanently closed to reduce global smelting capacity by 291,000 tonnes per year, or 7 percent.

A further 240,000 tonnes, or 5 percent, will be curtailed elsewhere, it added, without saying how many other plants or how many employees were affected.

Alumina output will be reduced to reflect the smelting curtailments as well as prevailing market conditions, it said.

SHARES DOWN, PRICES UP

While the news pushed Alcoa's shares down 17 cents to $9.19 in after-hours trading, traders expected London Metal Exchange prices to rise on the much-anticipated news.

"The market will be up a bit on this," said a New York-based trader noting that the market had hoped such a move would be in the offing.

"Everyone's been waiting for it to happen and nothing's happened until now. If it gets to $2,200 per tonne, there will be a tremendous amount of hedging," he said.

But it remains to be seen if other producers will follow suit or if the measures, in addition to production problems at Rio Tinto Alcan, will be enough to push prices high enough to stop the industry bleeding.

"I think they (Alcoa) would like not to be the only one, but it remains to be seen whether others will follow," said analyst Charles Bradford, of Bradford Research.

Alcoa's cut represents just 1.1 percent of estimated global output of around 46 million tonnes last year.

The market will be keenly watching for closures by Chinese smelters which have some of the highest production costs due to power prices and their reliance on imported raw materials.

Analysts said Chinese smelters, faced with weakening demand and thinning margins, were likely to start making aggressive production cuts should domestic aluminum prices fall below 15,000 yuan for a sustained period.

Production costs of most Chinese aluminum smelters ranged between 15,000 yuan and 16,500 yuan per tonne, depending on their efficiency, said industry sources. Spot aluminum prices on Friday stayed near 16,000 yuan in China.

The outlook for Chinese import demand is also clouded as a raft of new smelters are scheduled to come online this year, which could add about 4 million tonnes of new smelting capacity.

Some producers such as Norsk Hydro have indicated they would be prepared to lower production, but others may not be so swift to make the cuts. Rio Tinto's Canadian smelters use hydroelectric power and can sustain lower prices for longer.

Until now, the market has barely registered other hitches with output at other companies. Three-month aluminum dropped to $2,036 per tonne on Thursday from $2,065 a day earlier even after news of Rio Tinto's force majeure on deliveries from two of its Canadian smelters.

The temporary removal of 300,000 tonnes per year of Canadian capacity in addition to cuts at its Lynemouth smelter in England was not considered enough to make a dent in the surplus when demand shows no signs of picking up, traders said.

DIFFICULT BUT NECESSARY

Alcoa also plans to speed up efforts to lower escalating costs of raw materials, aimed at lowering the company's position on the world aluminum production cost curve by 10 percentage points, it said.

"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," said Kleinfeld.

All the measures are expected to be in place by the first half of this year.

Alcoa said it will take restructuring charges of $155 million to $165 million, or 15 cents to 16 cents per share, in the fourth quarter.

That is certain to knock Alcoa into red-ink territory - a victim of slow demand and aluminum prices.

Prior to Thursday's announcement, the average Wall Street estimate for Alcoa's earnings per share was 1 cent, according to Thomson Reuters I/B/E/S. In the same quarter of 2010, Alcoa's profit was 21 cents per share.

Equity research firm Starmine, which gives more weight to estimates from analysts with a more accurate track record, had forecast Alcoa to post a loss of 4 cents per share. That would be the company's first loss since the second quarter of 2009.

At least 15 Wall Street analysts have cut their fourth-quarter earnings estimates in recent weeks for Alcoa, which is scheduled to announce results on Monday after the market close -- the first Dow component stock to report.

Aluminum prices fell 18 percent last year and 6 percent in the fourth quarter due largely to the euro zone debt crisis and fears of a slowdown in China.

Such industry-wide pain from low prices is the first since the global recession in 2008 and 2009 when swathes of capacity in the United States and Europe were taken off line.

But prices might not be the only factor behind Alcoa's decision to cut output.

The company's demand outlook was significantly more measured in the last earnings release in October.

At the time Alcoa chief Kleinfeld said he still expected a near doubling of aluminum demand in the next 10 years, driven largely by China and emerging markets. But he also noted weak economic conditions, particularly in Europe, because confidence in the global recovery has faded.

That has sapped aluminum demand from the automotive, industrial products, construction and packaging sectors since the second quarter, with only the aerospace and transport sectors growing, he said.

"We have seen a weakening trend in the last few months and it will show in the results," said Bridget Freas of Morningstar in Chicago. "Most analysts are blaming what has happened with the LME (London Metals Exchange) price and we ended the year on a low point."

 

[dante]

That's a shame, actually as cheaper Alu prices are what's needed in the car industry in order to provide lighter-weight cars and hit their (mandated) mpg requirements...

 

[kidwoo]

That's good news actually. I was starting to feel like mountain bikes were getting too cheap these days.

 

[stevew]

That's good news actually. I was starting to feel like mountain bikes were getting too cheap these days.

need moar carbon fiber...

 

[dante]

Any time we went to go talk pricing with the factories, it was always one of 3 things:

Materials
Labor costs
Currency

It was like they just rolled a dice and 1-2 was Materials, 3-4 was Labor, and 5-6 was Currency. Price of Alu goes from 2500 up to 4000? Bike prices go up. Alu falls from 4000 down to 2500? Sorry, Labor costs have increased and still have to charge more....

 

[?????]

Maybe we'll get lucky and the government will offer money to drop aluminum cans off at the grocery stores... or just anywhere other than going to the metal recycler.

I know some states do this, but not many. I really liked that about Germany. Perfect solution to the litter problem. If we got $0.35 back for every can and bottle at the grocery store, I doubt so many drunks would just toss their cans and bottles on the ground.

It's a win-win, but it might not be good for Alcoa.

 

[kidwoo]

Maybe we'll get lucky and the government will offer money ..........

paultard says what?

 

[?????]

paultard says what?

They can profit from it too if done right.

Going to the metal recycler takes forever and in general sucks. Plus, you need a bulk amount for it to be reasonable. I would gladly forfeit 25% of the value of the recycled metal or glass bottle if there was a convenient pick up method.

Trash collection in the United States doesn't make a whole lot of sense. What's the incentive for anyone to recycle? Most people aren't really going to feel enough better about themselves to bother separating their trash.

Instead of paying a flat rate for trash pick up, paying a certain amount per pound of trash depending on if it's recyclable, nonrecyclable, compostable, or reusable makes a lot of sense to me. A side benefit is that people will be much less likely to buy products with ridiculous amounts of packaging, which saves on all levels of storage, transport, and landfill resources.

Anyways, it's not against Ron Paul's ideology. It would just need to be done at a state level.