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UPDATE 1-Closing of Alcoa smelter in Australia underscores aluminium sector woes

James Regan
Monday, 17 Feb 2014 | 7:35 PM ET

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* Alcoa to close Australia Point Henry aluminium smelter

* Underscores pressure on producers to control costs

* Will bring total Alcoa capacity cuts to 551,000 tonnes

* Output by Chinese producers growing

SYDNEY, Feb 18 (Reuters) - Aluminium producer Alcoa Inc said it will close its Point Henry smelter and two rolling mills in Australia, underscoring the dire market conditions facing producers amid a flood of new Chinese capacity.

Alcoa said it would shut the 50-year-old smelter after a two-year review found there was no prospect of it becoming financially viable.

The Point Henry smelter, placed under review in February 2012, will close in August. Closure of the smelter in Geelong, Victoria and the rolling mills will affect about 980 jobs, the company said in a statement.

The move will eliminate around 190,000 tonnes of annual aluminium-making capacity, equal to about 10 percent of Australia's total yearly output.

Including the closure of the Point Henry smelter, Alcoa has announced closures or curtailments representing 551,000 tonnes of smelting capacity, exceeding the 460,000 tonnes placed under review in May 2013.

While Alcoa and other established producers shutter old facilities that can no longer compete, China's aluminium industry is growing.

China's production is estimated to have increased by around six percent to 21.5 million tonnes last year alone.

Lower energy costs have encouraged higher output at smelters in China's northwest provinces as well as restarts in the heavily industrialised provinces of Guangxi and Sichuan.

These production increases are aimed at offsetting capacity cuts at out-dated and inefficient operations, as the government strives to achieve emissions and sustainable growth targets outlined in its 12th Five-Year Plan.

Meanwhile, Russia's Rusal, the world's biggest aluminium producer, estimates that producers outside of China cut up to 1.2 million tonnes of capacity last year and further reductions of 1 million-1.5 million tonnes are expected in 2014.

But even with all the cuts so far, analysts polled by Reuters expect a surplus of 568,400 tonnes this year.

Total restructuring charges related to the Alcoa closures are expected to be between $250 and $270 million after-tax, or 22 to 25 cents per share.

"These assets are no longer competitive and are not financially sustainable today or into the future," Chief Executive Klaus Kleinfeld said.

The price of aluminium - used in the aerospace, construction and automotive sectors - has nearly halved since 2008 due to a massive global surplus of the metal, forcing loss-making firms to slash capacity and make savings.

The declines in aluminium prices have hurt Alcoa's so-called upstream operations, which mine bauxite, refine it into alumina and smelt alumina to produce aluminium. In response, it has been shutting down higher-cost smelting capacity and focusing on more profitable segments, such as its engineered products business.

Alcoa's Australian Portland aluminium smelter will continue normal operations, as will bauxite mining and alumina refining operations in Australia, the company said.

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