Alcoa set to announce Kwinana refinery closure

Aluminum producer Alcoa (NYSE: AA) is poised to announce plans for its Kwinana refinery in Australia, with full closure of the facility being the most likely option, The West Australian reported on Monday.

The US-based company kicked off a “restructuring program” at the alumina refinery located near Perth last year, amid environmental scrutiny and financial pressure.

The plant was the first of Alcoa’s three Western Australia alumina refineries that’s been in operation 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. BMO analysts noted the refinery has historically been a relatively major supplier of merchant alumina to the Middle East, so a closure announcement at a time of high alumina 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 Colin Hamilton, head of Global Commodities, said in a note.

Nearly 1,200 workers could lose their jobs if Alcoa decides to close Kwinana, some of which could be relocated to Alcoa’s two mines in the state’s south-west, as well as to its other two refineries in the region.

The “imminent” announcement would follow Alcoa’s recent change in leadership. The Pittsburgh-based company announced in September that William Oplinger was replacing Roy Harvey as chief executive officer.

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