On Tuesday, aluminum producer Alcoa (NYSE: AA) officially announced its decision to cease production at the financially unsustainable Kwinana refinery in Western Australia, bringing an end to over six decades of operations.
The company attributed the decision to challenging market conditions and the facility’s aging infrastructure, leading to the unfortunate consequence of over 750 employees being rendered jobless.
In the third quarter of this year, the refinery will halt operations, resulting in a workforce reduction from approximately 800 to 250. An estimated 200 contractors are also anticipated to be impacted by the cessation.
Alcoa announced plans to further decrease staff numbers to 50 by the year 2025.
Executive Vice President Matt Reed explained that the decision was influenced by the age, scale, and operational costs of the 60-year-old plant, coupled with the prevailing market conditions.
“Today’s decision to curtail operations is the result of meticulous and thoughtful consideration. We recognize that this action will have repercussions on employees, business associates, and the local community,” remarked Reed.
Premier Roger Cook of Western Australia and Federal Resources Minister Madeleine King expressed their disappointment with the outcome.
Cook acknowledged that the day would be challenging for the workers in Kwinana. He affirmed that the government would actively provide assistance to facilitate retraining, reskilling, and the pursuit of new career opportunities within the local area.
The facility, Alcoa’s initial alumina refinery in Western Australia among three, boasted a production capacity of approximately 2.2 million tons of the raw material essential for aluminum manufacturing.
Over the past year, Kwinana has been operating significantly below its nameplate capacity due to operational challenges, declining bauxite grades, and permitting delays. According to data from the London-based International Aluminum Institute, it contributes to 1.2% of the global alumina output.
BMO analysts observed that historically, the refinery has been a significant provider of merchant alumina to the Middle East. A closure announcement, especially during a period of elevated alumina prices in China due to bauxite availability challenges, could potentially exert upward pressure on the international spot price.
“In light of Rio Tinto’s devaluation of its Yawen refinery last year, we anticipate a potential trend of increased bauxite exports from Australia and reduced alumina volumes in the coming years,” remarked BMO’s Colin Hamilton, Head of Global Commodities, in a note on Monday.
The company based in the United States has outlined its intention to extract lower-grade bauxite in Western Australia until it reaches its next mining phase, anticipated to occur around 2027.
The disclosure comes in the wake of Alcoa’s recent leadership transition. In a surprising move in September, the Pittsburgh-based company announced the abrupt replacement of Roy Harvey with William Oplinger as its Chief Executive Officer, which garnered attention in the markets.
Approximately 28% of Alcoa’s total revenue is attributed to the alumina business segment. Following his appointment, Oplinger characterized the division as “marginal.”
