Alcoa Inc Facing ‘hard times’ on aluminum plants

It is not all that good for Alcoa Inc as it has been forced to close some of its aluminum plants to reduce the production of aluminum by 164,000 tons. These plans are aimed at ensuring a balance between supply and demand. The close of some of the plants will reduce the aluminum capacity by approximately 460,000 metric tons, this cut announcements were initially made in May

The closure of these plants has been precipitated by the increasing competition from China; the 15% slump in prices of Aluminum on the other hand has not done any good to the New York Based company. This outcome has made Alcoa Inc fall into margins of worst performing companies in the Dow. Alcoa has been experiencing bad news over the past years, the worst being the credit rating cut by Moody’s investor’s service. After these revelations Alcoa was quick to express reservations that its earnings remained unchanged from the past financial year.

The hard decisions had to be made to meet the broader better good of the company to ensure long term sustainability. The latest move has been spearheaded by the newly appointed head of the company Bob Wilts. Wilt intends to review the 11% capacity of the company to ensure the company remains a float and competitive. The shutdown of plants has been preceded by the permanent shut down of plants in Quebec and Italy.

According to estimates compiled by Bloomberg, Alco looks set to post net income for the second quarter that will exclude one-time items of 6 cents per share. Alcoa shares have been on a downward trend with a decline of 10% for the first quarter of the year. The company has continuously refused to comment on these results. The company also intends to curtail 124,000 metric tons of aluminum of its smelter operations in Brazil.

The curtailment will be completed in October 2013 aimed at maintaining the competitiveness of the company. Aluminum prices have been dropping over the past four years pushing the company to a low time low. Over the past few months Alcoa has gone forth with curtailments totaling 269, 000 tones of its 460, 000 tons that was initially placed under review in May. This was also followed with closure of 105, 000 metric tons in its smelter base Baie-Comeau in Canada.

Alcoa prosperity has been overtaken in size by more diversified commodities from companies such as BHP Billiton Ltd and Glencore Xstrata Plc. Alcoa chairman and CEO Klaus Kleinfelds promised to move the company in what is known in the industry as a cost curve in a matter of two years, this will ensure the company reaches the 41% of global capacity. For this to be achieved Alcoa Inc will engage in low cost smelter by entering into partnership with Saudi Arabian Mining Co.

In April the company announced a $247 million year on year productivity gains for the first quarter of the year. The company will go forth and cut its operating costs by $750million, this is a decline as compared to $1.3 billion in 2012.