Alcoa is closing a high-cost Texas smelter

Power costs, competitive issues cited for shutdown

By Tom Stundza -- Purchasing, 10/1/2008 11:24:00 AM

Citing power-supply problems, lower sales prices and decreasing demand for aluminum, Alcoa will continue the staged shutdown of its Rockdale, Texas, smelter. A portion of the ingot-making smelter was shut in June and more will shut in December. Alcoa says the move is an effort to reduce production and power costs to remain competitive against bigger rivals Rio Tinto and United Co. Rusal.

The Rockdale smelter won't close entirely as Alcoa will continue to operate the aluminum atomizer and anode operation. But the move will reduce Alcoa's aluminum ingot production, including the June curtailment, by about 300,000 net tons a year. More importantly, it reduces the production at one of the Pittsburgh-based company's highest-cost aluminum smelters. Alcoa’s smelters in various locations smelt about 5 million tons of aluminum annually.

The company's curtailment of operations at the Texas smelter this summer set the stage for it to phase out operations completely. “When we initially curtailed half of our aluminum production in Rockdale, we said it would be extremely challenging to try to be competitive operating only half of the plant,” according to a statement by John Thuestad, president of Alcoa's U.S. Primary Products business. “Unfortunately, the cumulative effect of operating only half of the smelter, well-known issues regarding the cost and long-term reliability of the power supply in Rockdale, and current market conditions, has forced us to make this difficult decision.”

Aluminum plants are heavy users of power, which accounts for nearly 30% of production costs. To mitigate expenses, aluminum companies have been moving operations from high-cost power countries such as the U.S. to relatively cheaper locations like Canada, Iceland, the Middle East and Russia.