Alcoa to Close Smelter in Alcoa, Tenn.

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By JOHN W. MILLER

PITTSBURGH—Alcoa, the world's biggest aluminum company, said it will slash global smelting capacity by 12%, as high costs and slumping prices threaten profits.
Alcoa said it will permanently close the smelter in Alcoa, Tenn., a small community founded in 1919 around the company's aluminum plant.
"The plant would have needed a major investment to be competitive with other smelters around the world," said Mark Johnson, Alcoa's city manager. The smelter was idled in 2009. Alcoa spokesman Mike Belwood said the company has no current layoff plans and said the handful of workers maintaining the Tennessee smelter since 2009 will be reassigned.
Alcoa Chief Executive Klaus Kleinfeld promised the company would work with unions and affected communities to "explore ways to redevelop" the closed facilities. "We recognize our responsibility to the people and communities of the affected facilities."
Alcoa, Tenn., pop. 6,920, lies in the foothills of the Great Smoky Mountains. "We're here because of the company," said Patricia Tipton, a spokeswoman for the mayor's office. The town will not have to change its name just yet: It will hold on to keep an Alcoa recycling plant that employs 1,000 people.
Thursday's decision comes days before Alcoa kicks off the earnings season with its fourth-quarter results, which promise to be disappointing due to difficult market conditions and now, added restructuring charges.
Alcoa said total restructuring-related charges for quarter are expected to be between $155 million and $165 million after-tax, or 15 cents to 16 cents a share. Prior to the announcement, analysts forecast the company's earnings per share at around breakeven, down from 21 cents in the fourth quarter of 2010.
Aluminum prices have fallen more than 27% from their peak in 2011, due to slowing housing construction in China, which consumes almost half the world's aluminum, and debt chaos in Europe depressing economies there.
"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 Mr. Kleinfeld.
In addition to closing the smelter in its namesake town, Alcoa also said it would close two of its six lines in Rockdale, Texas. The Texas closures alone will cut annual capacity by 291,000 tons, or 7%. An additional 5% of undisclosed capacity will be curtailed in the first half of 2012.
Alcoa, which is based in Pittsburgh, currently smelts some 4.5 million tons of aluminum per year, for the beer and soda can, auto, aviation, construction, and other industries.
Lloyd O'Carroll, an analyst with Davenport & Co., said aluminum prices are "bottoming out around now." He said "there should be a small uptick [for Alcoa] in the first half of 2012, and a larger one in the second half." Aluminum is selling for about $2,000 a ton on the London Metals Exchange and is expected to reach $2,300 per ton for the year.
Cutting production will help, and is part of the company's wider strategy. Alcoa "is phasing out production in high-cost places, and increasing it in low-cost places," says Mr. O'Carroll.
For example, the company is building a massive new plant in Saudi Arabia, taking advantage of natural gas flares. Power is the main cost component in making aluminum. That's why production is often to be found in energy-rich places like Russia, which has plentiful gas, or Iceland, which has hydropower.
Write to John W. Miller at john.miller@dowjones.com