Alcoa shelves expansion as aluminium producers cut back production

Alcoa, the world's third largest producer of aluminium, has suspended a proposed $3.8 billion expansion of its Wagerup refinery in Western Australia even as Rio Tinto deferred plans for a $11 billion smelter in Saudi Arabia amidst plunging aluminium prices.

The expansion of the Western Australian refinery would have given Alcoa a two million tonne production boost, or as much as 80 per cent, but has been kept on hold citing the low demand for the product. Alcoa says it will be looking at the project again when the market conditions improve.

Aluminium prices have plummeted by more than 40 per cent to around $1,995 a tonne on the London Metal Exchange (LME) since July as demand from industries as far apart as aerospace and soda cans has shriveled up. Inventories held in LME warehouses have ballooned to 1.55 million tonne, equivalent to more than half the yearly output of Australia, a major supplier.

Russia's Rusal - the world's largest producer of the metal - said last month that 75 per cent of the companies making the metal in China, Europe and the US were unprofitable following the price plunge.

Overall, Alcoa will cut its aluminium production by 350,000 tonne a year. This comes after an earlier cut of 265,000 tonne a year. Although Alcoa's massive cutback of 615,000 tonne amounts to as much as 15 per cent of its total capacity, it still trails the 720,000 tonne reduction by China's largest producer, Aluminum Corp of China (Chalco), announced last month. (See: Alcoa to close Texas smelter, lay off 660 workers)

"The industry is in surplus and has experienced an unprecedented fall in aluminium prices over a very short period of time," Alcoa Executive Vice President Bernt Reitan said in a statement.