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Alcoa Reviewing Australian Project Spending Amid Demand Slump

By Jesse Riseborough

Oct. 17 (Bloomberg) -- Alcoa Inc., the largest U.S. aluminum company, is reviewing capital spending at its Australian operations as turmoil in global financial markets curbs demand for the metal and slumping prices crimp margins.

``Alcoa of Australia is responding to the current financial market upheaval by ongoing focus on our efficiencies and operational costs, reviewing capital expenditure,'' Michaela Southby, a Perth-based spokeswoman for the company, said today in an e-mailed response to questions from Bloomberg. ``We know how to be competitive in a lower-metal-price environment.''

Chief Executive Officer Klaus Kleinfeld, facing slowing demand and slumping prices as a global credit crisis reduces manufacturing, is halting all non-critical projects, closing unprofitable units and shuttering production. Rio Tinto Group and Freeport-McMoran Copper & Gold Inc. have said they may delay or defer some projects because of the market turmoil.

Alcoa, which exported about A$4.2 billion ($2.9 billion) of products from Australia last year, is studying an expansion of the Wagerup alumina refinery in Western Australia, estimated to cost $3.8 billion by JPMorgan Chase & Co. The Wagerup expansion will be assessed as part of the review process, Southby said today. The review will likely be completed in the next few weeks, she said.

``This is not decision that we have to take at this point in time,'' Kleinfeld, referring to a final development decision on Wagerup, told analysts on a conference call on Oct. 7. ``If we were to take it at this point in time, we would not do it.''

`Negative' Outlook

New York-based Alcoa has slumped 66 percent this half and closed at $12.21 yesterday. Moody's Investors Service cut its outlook on Alcoa of Australia Ltd. to ``negative'' from ``stable'' on Oct. 14 on weakening demand, high operating costs and the outlook for lower aluminum prices.

Alcoa employs about 6,280 people and 1,500 contractors at its Australian operations and has been operating in the country since 1961, according to its Web site. The company produces about 8.5 million metric tons of alumina in Australia, or 13 percent of world demand, according to the site. It also produces 31 million tons of bauxite and 530,368 tons of aluminum.

The Alcoa World Alumina & Chemical venture, 60 percent owned by Alcoa and 40 percent controlled by Alumina Ltd., produces one quarter of the world's alumina, which is refined into aluminum. Alumina is a powder refined from bauxite ore that's processed into aluminum metal.