Alcoa to close two potlines in Quebec, delay new construction for three years

MONTREAL – Alcoa will eliminate about 500 jobs by permanently closing two potlines this summer at its smelter in Baie-Comeau, Que., while also delaying construction of more efficient facilities at the smelter for three years.

The company said Thursday that the job cuts will be made through retirements and attrition at the smelter, which currently has about 1,400 employees.

One of the potlines had been expected to be shut down later this year and the second in 2015. Instead, they will both be closed by August.

The closure will leave the smelter with two operating potlines — the long rows of high-voltage reduction pots where aluminum is smelted.

The aluminum giant said the decision will remove 105,000 tonnes of annual capacity, leaving the facility with the capability of producing 282,000 tonnes of metal annually.

The announcement came a couple of weeks after Alcoa announced a 15-month review to cut worldwide production by 460,000 tonnes or 11 per cent of its global output.

The company said the review was in response to a more than 33 per cent drop in the price of aluminum since 2011.

It has already idled 568,000 tonnes of production capacity, or 13 per cent of its global network.

Alcoa (NYSE:AA) said the Soderberg potlines to be closed are among its highest-cost smelting capacity.

“With the goal of improving the competitiveness of the smelter, we have reviewed the project’s timeline,” Martin Briere, president of Alcoa Canada Primary Products, told a local radio station.

Alcoa is the largest employer in the north shore community, where the plant has operated under various owners since 1957.

Briere also said market conditions have forced it to delay a new potline at the smelter until 2019 instead of 2016. The new line will have the capacity to more efficiently produce 160,000 tonnes of aluminum annually.

The company said it will begin preparations for the upgrade by investing $100 million in the smelter over the next three years, including $30 million to upgrade the plant’s casthouse facilities.

The investment is in addition to $75 million to rebuild port facilities to better meet the future needs of a modernized plant.

Briere said the Quebec government was “very open” to reviewing the construction schedule because of the importance for Alcoa to adapt to market realities and make the project as cost-effective as possible.

“These efforts will help move our Baie-Comeau plant down the global aluminum cost curve and continue to provide important economic benefits to the region.”

The Quebec government announced Thursday that it has given both Alcoa and Rio Tinto Alcan more time to honour their investment commitments in the province because of the weak aluminum market.

Alcoa plans to spend $1.2 billion to modernize the Baie-Comeau plant.

“Our sole purpose is to enable Alcoa to realize the modernization of its facilities in Baie-Comeau and maintain quality jobs,” said Finance Minister Nicolas Marceau.

The government also gave the same flexibility to Rio Tinto Alcan for its planned $2.1-billion investment in the Saguenay-Lac-Saintt-Jean region.

Marceau said its decision will preserve hundreds of jobs by granting a 24-month extension to the life of Rio Tinto Alcan’s Arvida smelter to January 2017.

“This decision is particularly important because it ensures the preservation of jobs and favours a gradual transition between the complete closure of the Arvida plant and the investment program released in 2006 by Rio Tinto Alcan,” said Etienne Jacques, head of Rio Tinto Alcan primary metal in North America.

The mining giant said it has already spent nearly $1.5 billion on a new AP60 project at Arvida and a Shipshaw energy project.

Alcoa said the delay in its upgrade won’t affect its commitment to provide $50 million over 25 years to the province’s economic development fund. It will also continue to contribute $10 million over the same period to the local community.

The closure is expected to lead to an after-tax restructuring charge of $135 million to $155 million, of which 30 per cent will be recorded in the second quarter.

Alcoa employs 3,100 workers in Canada, including those at Quebec smelters in Baie-Comeau, Becancour and Deschambault. They are among 61,000 Alcoa employees in 30 countries around the world.

The three plants have the capacity to produce nearly one million tonnes of aluminum annually.

Tony Robson of BMO Capital Markets has said Alcoa runs “old and high-cost plants” using older technology, particularly in the U.S., Australia and Europe, that have cash costs above the current aluminum price.

“Given its cost structure and high debt levels, Alcoa has little choice with this process unless the aluminum price rebounds on a sustainable basis,” he wrote in a report earlier this month.