Alcoa to phase out operations at Kwinana alumina refinery, citing economic factors

Alcoa Corporation (NYSE: AA) has announced a significant shift in its production strategy, planning to fully curtail production at its Kwinana Alumina Refinery in Western Australia in 2024. The process is set to begin in the second quarter, marking a notable change in the company’s operational focus.

Factors Leading to Curtailment

The Kwinana refinery, with an annual nameplate production capacity of 2.2 million metric tons, has been operating at about 80 percent of its capacity since January 2023. Matt Reed, Alcoa’s Executive Vice President and Chief Operations Officer, cited several reasons for the decision to curtail the 60-year-old facility, including its age, scale, operating costs, current bauxite grades, and prevailing market conditions.

Impact on Workforce and Community

Reed acknowledged the profound impact this decision will have on the refinery’s workforce, business partners, and the local community. The phased reduction of the workforce will see employee numbers drop from around 800 at the start of 2024 to approximately 250 in the third quarter, eventually reducing to about 50 by the third quarter of 2025.

Transition Support and Continued Operations

Alcoa is committed to supporting its employees during this transition, including potential redeployment within the company or assistance in finding employment elsewhere. Although alumina production will cease, certain processes at the refinery and associated residue storage facilities will continue to be actively managed. The company’s port facilities, co-located with the refinery, will remain operational to support imports and exports for Alcoa’s other refineries.

Financial Implications and Future Outlook

The Kwinana refinery recorded a pre-tax net loss of approximately $130 million in 2023. With the curtailment, Alcoa expects annual improvements of about $70 million starting from the third quarter of 2024. However, the refinery will continue to incur around $40 million in non-cash expenses annually while curtailed. For the first quarter of 2024, Alcoa anticipates restructuring charges between $180 million and $200 million related to the curtailment.

Alcoa’s Long-term Commitment to Western Australia

Despite the curtailment, Alcoa remains committed to Western Australia. The company will continue to assess options for the refinery, closely monitoring the factors that led to this decision. Production at Alcoa’s Pinjarra and Wagerup refineries is not expected to be impacted by the Kwinana curtailment.