Alcoa (AA) is breaking itself in two. And while that news has dominated the Alcoa story since it was announced in late September, it's not the only Alcoa headline worth knowing about. Here are a few of the worst Alcoa headlines from 2015.
What's Alcoa do again?
One of my favorite headlines came from Metal Bulletin: "Alcoa -- Not an Aluminum Company." This is such a great headline because it sums up the transition that eventually led to the decision to break the Upstream business, the one that makes aluminum, from the the Value Add business, which uses aluminum and other metals to make things like aircraft parts. This isn't exactly a "worst" headline, but it really sets the tone.
The good headlines of the year are all about the continued strength and growth, organic and otherwise, of the Value Add division through the year. So, yes, increasingly, Alcoa isn't an aluminum company. And the pending break up says that in spades.
Bad news ... for the aluminum company
So Value Add looks great, but what about the pesky little fact that Alcoa really does have a large aluminum business inside it? And that this business is about to be set adrift on its own? Well, here comes the bad news. Late in the first quarter, Alcoa made this announcement: "Alcoa Continues Transforming Upstream Portfolio, Announces Strategic Review of Smelting and Refining Capacity."
At the time, Bob Wilt, head of Alcoa's Global Primary Products group, explained, "Alcoa continues to take decisive action, transforming its upstream portfolio to create a lower cost, globally competitive commodity business." This was basically an admission that all of the moves taken up to that point to get Upstream into fighting shape hadn't been enough. Amazingly, Alcoa already had 19% of its smelting capacity and 7% of its refining capacity idled at the time it made that announcement!
And that's where the next set of worst headlines comes in. On May 11, Alcoa made this announcement: "Alcoa to Close the Anglesea Power Station." That power station provided electricity for one of its shuttered facilities and had been selling power into the spot market. The company was looking to sell it but couldn't find a buyer, so it decided to shut it down.
June 30: "Alcoa to Close Pocos Smelter in Brazil." This smelter was already mothballed, but now it's just not going to open again, ever.
Sept. 14: "Alcoa to Curtail Remaining Suralco Refining Capacity." This site, which is jointly owned by Alcoa (60%) and Alumina Limited (40%), had already been operating at reduced capacity. Now it isn't operating at all, for various reasons, including power and raw material supply issues.
And, lastly, on Nov. 2, after the late September announcement of a corporate split: "Alcoa to Curtail Smelting and Refining Capacity to Further Drive Upstream Competitiveness." This news release outlined a number of actions to further reduce smelting and refining capacity through early 2016. In other words, even after all the closures in 2015, there's still more work that needs to be done on the Upstream side of the equation.
It's painful, but ...
For an aluminum company that isn't an aluminum company, Alcoa is certainly spending a lot of time and money closing aluminum businesses. To be fair, these are the right moves to make in a market that's feeling the sting of falling commodity prices. And it's positioning the Upstream business to be a more nimble competitor when it's finally a stand-alone entity. So, in some ways, this is good news.
However, it can't be seen as good that Upstream is so bloated and has so many expensive operations that the only way to get it into fighting shape is to slash and burn huge swaths of the business. At this point, fully one-third of Alcoa's smelting capacity has been shut down since 2007. And it looks like there's still more to come, which is why this series of headlines are the worst ones of 2015 for Alcoa.