Alcoa's Aluminum Ax Falls

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I fly commercially from a nearby airport in a town named Alcoa. As you might suspect, the town contains a plant operated by Alcoa (NYSE: AA  ) , the nation's largest aluminum manufacturer. The town's residents are not wearing happy faces today.

Pittsburgh-based Alcoa has announced that, in the face of the expanding worldwide economic slump -- including plummeting aluminum prices – it will cut about 15,000 jobs worldwide, reduce its output by 18%, sell four non-core businesses, and cut its capital spending in half. The restructuring will result in charges of about $900 million to $950 million after taxes for the 2008 fourth quarter, and it is expected to result in savings of about $450 million before taxes annually for the company.

The units to be sold include Alcoa's electrical and electronic systems, global foil, cast auto wheels, and European transportation products. As for the layoffs, a number of them will occur in Russia, where the company bought two plants in 2005. Neither is profitable.

Aluminum, like most metals, has seen its price plummet since July, when most commodities reached their peak. Charges for the light metal have slid by more than half. That decline, however, is somewhat less than that of copper, for instance, which -- despite a recent, and probably temporary, bounce -- has given up more than 60% during the same period.

As you might suspect, metals companies' shares have not fared well since the summer.  Alcoa's have fallen by almost 75% from their highs, as have those of Freeport-McMoRan (NYSE: FCX  ) -- the largest of the publicly held copper companies.  Its smaller rival, Southern Copper (NYSE: PCU  ) , has given up more than 58%.

Alcoa isn't the only big metals producer or miner to cut staff and production or make other changes lately. Put Freeport on the same line, along with London-based Rio Tinto (NYSE: RTP  ) . And just Monday, U.S. Steel (NYSE: X  ) announced that it will cease making some steel products used in the automotive and mining industries, in favor of a focus on main sheet and tubular steel products. Further, Luxembourg-based ArcelorMittal NYSE: MT), the world's biggest steelmaker, also has been taking steps to lower its costs.

As much as Alcoa has fallen, it'd be easy for me to urge Fools to gobble up its shares. But I'm not yet a believer that our economic softness will improve quickly. So my inclination is to watch the company closely but not touch it for now.

Alcoa has been rated a four-star company in Motley Fool CAPS. Does that include your vote?  Head to its CAPS page to weigh in with your opinion today!

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Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned. He does, however, welcome your questions or comments. The Fool has a disclosure policy.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 08, 2009, at 6:25 PM, Brettze wrote:

    As long as we are still sucking up to Big OIl , we will have a prolonged recession.... It depends on the future car production and CAFE going up , I mean really a lot!!.. 20 mpg just dont cut it , anymore.. Our economy just cannot sustain that kind of fuel efficieny.. We must move up to 35 mpg or better really fast. Then oil prices will not be around to bite us back for a really long time.. We also must put another layer over our concepts of energy conservation... There is so much more to our imagination as far as conservation is concerned.. Hey, America use one quarter of the world's energy output.. This is really retarded!!

  • Report this Comment On January 08, 2009, at 6:28 PM, Brettze wrote:

    the real problem with Wall Street is that they are still infatuated wth Big Oil stocks... Too much capital are still being tied up in Big Oil stocks... There are still certain people who are convinced that oil prices will eventually return to $200 a barrel.. This is not where America is heading ... but those people still wields too much power... They are holding up the capital that we need to go elsewhere...Our economy is still a hostage of Big OIl!!

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