Global glut of aluminium sinks once strong U.S. Industry

Alcoa’s latest aluminum-making cutback is signaling the end of an iconic American industry.

For 127 years, the New York-based company has been churning out the lightweight metal used in everything from beverage cans to airplanes. Now, with prices languishing near six-year lows, it’s wiping out almost a third of domestic operating capacity. If prices don’t recover, the researchers predict almost all U.S. smelting plants will close by next year.

While that’s a big deal for the U.S. industry and the people it employs, it doesn’t mean much for global supplies. Alcoa’s decision to eliminate 503,000 metric tons of smelting capacity accounts for about 31 percent of the U.S. total for primary aluminum, but less than 1 percent of the global total.

For more than a decade, output has been moving to where it’s cheaper to produce: Russia, the Middle East and China. A global glut has driven prices down by 27 percent in the past year, rendering U.S. operations unprofitable and accelerating the pace of the industry’s demise.

Alcoa announced last Monday it will idle smelters in Ferndale and Wenatchee in Washington state and in Massena, N.Y., and partially curtail refining capacity at its Point Comfort, Texas, facility by about 1.2 million tons.

In June, Alcoa permanently shut its idled Pocos de Caldas smelter in Brazil, bringing the company’s production capacity to 3.4 million tons, compared with 4.5 million tons at the end of 2010.

Century Aluminum has also shuttered U.S. production capacity as prices have dropped. The Chicago-based company said it intends to curtail one of three potlines at its Sebree, Ky., smelter by the end of the year because of a glut of the metal being exported from China. It has curtailed 60 percent of its facility in Hawesville, Ky., and will stop operations at its Mount Holly plant in South Carolina by year-end.

Aluminum is down 19 percent this year to $1,501 a ton on the London Metal Exchange. The metal touched $1,460 last month, the lowest since 2009, and most U.S. smelters can’t make money when prices are near $1,500 or below. Plants overseas usually have the advantage of lower labor costs, cheaper energy expenses and weaker domestic currencies that favor exports to the U.S.

While output has been moving abroad for some time, the game changer in the past year has been the domination of China, where ballooning output has compounded a global surplus. China is likely to account for 55 percent of global aluminum production this year, up from 24 percent in 2005. The U.S. has gone in the opposite direction: from 2.5 million tons in 2005 to 1.6 million in 2015, said a recent report.

Still, not all U.S. smelters will benefit from closing down. Citigroup says some domestic operations with long-term energy contracts will have to pay regardless and are better off making the metal than simply paying the energy bill. Some plants also have access to cheap hydro power, said David Wilson, an analyst at Citigroup in London.