Alcoa to halt production at Kwinana refinery

Aluminum producer Alcoa (NYSE: AA) confirmed on Tuesday that it plans to stop production at its loss-making Kwinana refinery in Western Australia after more than 60 years of operation.

The refinery will cease operations in the third quarter of this year, at which time its workforce would be cut from about 800 to about 250. An additional 200 contractors are expected to be affected.

Alcoa said that staff numbers would be further reduced to 50 in 2025.

Executive vice president Matt Reed said the decision reflected the 60-year-old plant’s age, scale and cost to operate as well as current market conditions.

“Today’s curtailment decision comes only after thorough and careful deliberation, and we acknowledge that this action will impact workers, business partners, and the community,” Reed said.

Western Australia Premier Roger Cook and federal resources minister Madeleine King said the outcome was “disappointing.”

“Today will be a difficult day for workers in my local community of Kwinana,” Cook said. “My government will step up to provide supports for local workers to retrain, reskill and look for new career opportunities in the local area.”

The plant was the first of Alcoa’s three Western Australia aluminum refineries and it been in operations for about 60 years, with the capacity to produce about 2.2 million tonnes of the raw material used to make aluminum. 

Kwinana has been operating well below nameplate capacity for the past year owing to operational issues, falling grades of bauxite and permitting setbacks.  It accounts for 1.2% of global output of aluminum, according to figures from the London-based International Aluminium Institute. 

BMO analysts noted the refinery has historically been a relatively major supplier of merchant aluminum to the Middle East, so a closure announcement at a time of high aluminum prices in China following bauxite availability challenges may see upward pressure on the international spot price. 

“With Rio Tinto also writing down the value of its Yarwun refinery last year, we see potential that future years will see higher volumes of bauxite exported from Australia and lower volumes of alumina,” BMO’s Colin Hamilton, head of Global Commodities, said in a note on Monday.

The U.S.-based company said it now plans to mine lower-grade bauxite in Western Australia until it gets to its next mining phase, expected to be around 2027.

The announcement follows Alcoa’s recent change in leadership. The Pittsburgh-based company shocked he markets in September with the sudden news of William Oplinger replacing Roy Harvey as CEO.

Alcoa’s aluminum business segment accounts for about 28% of total revenue. The division was described as “marginal” by Oplinger after assuming the top post.