High costs challenge smelter responses to aluminum oversupply: Alcoa

　　"I think it's clear that one of the issues facing aluminum is that it is costly to bring down smelting capacity and even more costly to bring it back up again," Harvey said during a virtual presentation at the Bank of America Securities Global Metals, Mining & Steel Conference. "I think it has tended to be a relatively slow process for producers to come to those decisions."

　　Harvey said each potline at a smelter requires about $25 million to restart, which made it challenging for operators to reach curtailment decisions.

　　The lack of smelter production cuts amid deteriorating demand caused by the coronavirus pandemic had worsened supply conditions that were already in surplus at the beginning of the year, he said.

　　During its first-quarter conference call in April, Russian aluminum producer Rusal said global primary aluminum demand fell 6.4% during Q1 to 14.43 million mt, while supply in the quarter grew 3.5% year on year to 16.12 million mt, driven by growth in China's aluminum industry. Rusal added that about 24% of global aluminum capacity was producing at net losses.

　　"This industry is right now producing more aluminum than it needs, which means that it extends out the difficult pricing environment," Harvey said. "I think there needs to be a clear call for action that really demands people think about the competitiveness of their smelters and ensures that we are smartly acting as an industry through this cycle."

　　ALCOA CONTINUES TO REVIEW SMELTING CAPACITY AMID PANDEMIC

　　Alcoa announced in April that it would idle its Intalco smelter in Ferndale, Washington, at the end of July as part of its company-wide restructuring, which includes a review of 1.5 million mt of the company's smelting capacity to determine potential operational changes, curtailments or closures.

　　Harvey said the pandemic would present additional challenges as the company addresses the remainder of the capacity under review.

　　"Our first action is always to try and find ways to fundamentally shift the competitiveness of each of those plants," Harvey said. "However, again, when you have a crisis sitting in front of you, and when you have significant cash losses at your high-cost plans, it becomes fundamentally important for us to take action."

　　Harvey said flexibility in power and labor agreements was key in driving decision-making in response to current market conditions.

　　"We need to have that flexibility so that we are not forced to continue to operate uncompetitive capacity that consumes cash and, in the end, is simply adding extra production into a market that simply doesn't have a customer for it," Harvey said, adding that it was also important to strategically shut down potlines in a way that facilitated economical restarts in the future.

　　Harvey said Intalco would remain in a curtailed status with the possibility to restart again in the future.

　　"We're in the midst of discussions with our workers in our union so that we can do that in an intelligent and thoughtful way," he said.

　　As manufacturing operations in several key end-markets remain closed, Harvey said Alcoa was continuing to route its smelting output towards commodity-grade products for inventory rather than value-added products for industrial applications.

　　"Our customers have asked to delay shipments until later in the year, hoping that there is a recovery in economic activity," Harvey said. "We've had to move some of those products into commodity grade, which essentially means you're selling to traders, you're selling into warehouses or you're selling to people that want more commodity-grade material."