Alcoa Falls on Capacity Cuts

Alcoa Inc. shares (NYSE: AA) are falling over 2.5% in morning trade after the aluminum company said that it plans to cut its aluminum smelting capacity globally by about 12% by the middle of the year. This follows a slump in the price of Aluminum that has plunged more than 27% from its peak in 2011. The price of the metal touched a 17 month low in December.

“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 Alcoa Chairman and CEO Klaus Kleinfeld in a statement.

“The curtailments are expected to be complete by the first half of 2012. Alcoa’s alumina production will be reduced across the global refining system to reflect the final curtailments in smelting as well as prevailing market conditions. The curtailments will contribute to the Company’s long-term goal of lowering Alcoa’s position on the world aluminum production cost curve by 10 percentage points.” He added.

The company will permanently close its smelter at Alcoa, Tennessee, and two of six idled potlines at its Rockdale, Texas, plant, eliminating 291,000 metric tons of annual capacity, the New York-based company said yesterday in a statement. An additional 240,000 tons of curtailments will be announced “in the near future.”

Analysts have lowered their fourth-quarter earnings estimates for Alcoa by over 85 percent in the last month to an average of 1 cent a share. The curtailments are “meaningful to them, but it’s not that much to world supply,” Charles Bradford, president of Bradford Research in New York, said in a telephone interview. “If you have less supply, that should help the metal price but I’m not so sure it’s going to work this time.”

Alcoa shares are the second worst performing in the Dow Jones Industrial average after falling over 40% last year.

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Post Written By: Ed Liston Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.