Aluminum giant Alcoa Inc. (AA) and the Government of Quebec have signed an agreement to improve the competitiveness of the former’s three smelters in Quebec. Per the deal, Hydro-Quebec will renew Alcoa’s power supply contracts for the Becancour and Deschambault facilities till 2030 and for the Baie-Comeau plant through 2036. This will save about 3000 jobs in Quebec.
The deal will allow Alcoa to invest about $250 million at the smelters over the next five years. Alcoa will also increase their aluminum production but reduce production of commodity-grade aluminum at the Baie-Comeau casthouse in order to meet the growing demand of aluminum from automakers for more fuel-efficient vehicles.
As per the automakers, aluminum body sheet content in North American vehicles is expected to increase four-fold by 2015 and ten-fold by 2025, from 2012 levels.
These actions represent Alcoa’s strategy of making capital investments, moving down the cost curve and curtailing capacities in its upstream business. The curtailments will improve the competitiveness of the company’s Primary Products business.
Smelting aluminum requires large amounts of electricity, so power costs play a big role in determining where aluminum producers choose to build their smelters. Hence, Alcoa will support the government’s electric transportation strategy by considering the Baie-Comeau facility as a possible source of aluminum for emerging technology applications, including aluminum-air batteries.
Alcoa also stated that it no longer plans to build a new potline to replace the two it closed at its Baie-Comeau facility last year.
Alcoa, a prominent player in the mining industry along with Aluminum Corporation of China Ltd. (ACH), Atlatsa Resources Corp. (ATL) and BHP Billiton Ltd. (BHP), is a world leader in production and management of primary aluminum, fabricated aluminum, and alumina.
Alcoa currently retains a short-term Zacks Rank #3 (Hold).