Alcan to cut Kitimat output to 50 percent of capacity Friday June 8, 1:54 PM EDT

By Charles Grandmont

MONTREAL, June 8 (Reuters) - Alcan Inc. (AL) (AL) said on Friday it will further reduce aluminum production at its Kitimat smelter in British Columbia due to low water levels, raising the total output cut to 50 percent of the smelter's capacity of 275,000 tonnes until a least next spring.

Alcan said the cut will allow it to sell additional power to Powerex, a division of provincial electric utility B.C. Hydro that sells electricity to the power-hungry western United States, as well as to honor its contractual obligations and scheduled deliveries to B.C. Hydro.

"By cutting back additional production we can meet our contractual commitments to B.C. Hydro, generate income from additional power sales and keep all employees on the payroll," Emery LeBlanc, president of Alcan Primary Metal Group, said in a release.

The reduction will start the week of June 18 and should last at least until next spring, when Alcan will determine if the winter snowfalls have brought enough spring runoff into its reservoir.

"The condition that has to be in place is more water and we don't expect that until the spring of next year," Alcan spokesman Richard Prokopanko told Reuters.

"If there is something like a sudden huge rainstorm, which is possible, but unlikely, then we might reconsider," he said.

The actual snowpack in the mountainous Kitimat area is 75 percent lower than the average of the last 50 years, he said.

Alcan, the world's second-largest aluminum maker after No. 1 Alcoa Inc. (AA), has already reduced its primary metal output by 40,000 tonnes over a 16-month period in British Columbia.

Alcan had hinted such a further reduction would be coming during a mid-May analysts' field trip to its new $2 billion 400,000-tonne smelter in Alma, Quebec.

"It is now clear that the spring runoffs have not provided enough water to maintain the current reduced level of aluminum production," LeBlanc said in the release.

Other aluminum producers have been forced to curtail production in the U.S. Northwest because of low hydro-electric reservoir levels in that area.

"It was widely expected that Alcan would cut back its production at Kitimat," Deutsche Banc Alex Brown analyst Thomas Van Leeuwen said.

The analyst did not expect the move would have a huge impact on aluminum prices or Alcan's earnings, given the large size of the company. The Kitimat smelters account for about 12 percent of Alcan's worldwide primary aluminum production capacity of 2.3 million tonnes.

"The sentiment will be delicately balanced between inventory increases we have seen on the (London Metal Exchange) and the capacity curtailments we've seen not only in British Columbia but also in Brazil," he said.

"At today's power price in the Pacific Northwest, it's most likely that they'd be better off selling power (than using it to produce aluminum)," he said.

Alcan shares were down C$1.55 at C$66.85 on the Toronto Stock Exchange in midday trading Friday, and off 98 cents at $43.91 in New York. The stock has gained 30 percent so far this year, vs a 25 percent rise for the Toronto stock market's metals and mineral subindex.

Earlier in the day, Merrill Lynch analyst Daniel Roling lowered his estimate of Alcan second quarter earnings to 50 cents a share from 55 cents "due mainly to the impact of lower aluminum price realizations".

Twelve analysts polled by Thomson Financial/First Call, on average, expect second-quarter earnings of 59 Canadian cents a share, with a range of 50 Canadian cents to 65 Canadian cents.

Alcan said it is still in talks with the Brazilian government regarding power availability. It has extended by one month the idling of its two Brazilian smelters, with lost production increasing to 16,000 tonnes from 11,500, Roling said, adding Alcan is expected to report second quarter results on July 16.

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-- Martin Thompson (mthom1927@aol.com), June 08, 2001

Answers

This is the second B.C. smelter (the other is in Trail) to cut back on metal production so its plant can be used to produce electricity. I don't see how this can be done without creating shortages of those metals.

FYI a tonne (pronounced "tawn") is 2200 lbs.

-- Rachel Gibson (rgibson@hotmail.com), June 08, 2001.