Alcoa shelves $3bn Wagerup expansion

Alcoa has shelved the proposed expansion of the Wagerup alumina refinery in Western Australia, estimated to cost approximately $3 billion, amid weakening demand and volatility in financial markets.

The company said the action was necessary given the "challenging economic environment" and work would be suspended on the expansion until market conditions improve.

Alcoa of Australia Managing Director Alan Cransberg made it clear that the decision to put the Wagerup expansion on ice was directly related to the economic crisis and not linked to other considerations, such as energy cost constraints, which have been seen as the key obstacle since formal state approval was granted in 2006.

Mr Cransberg said the energy issue would remain on the company's agenda, with exploration and development of potential gas fields continuing.

Staff working on the Wagerup expansion would be absorbed by other parts of the Alcoa's operations.

Alcoa produces 11 per cent of the world's alumina out of WA.

While the rest of the Australian operations remained working to capacity, internationally Alcoa has moved to wind back production by as much as 15 per cent of annualised output.

Mr Cransberg said the aluminium giant sought to match production with demand.

"We want to be on the front foot so we don't potentially damage our operations," he said.

"We want to do this project, we just have to wait for economic conditions to improve."

"When market conditions improve we will revisit implementation of the project," Mr Cransberg said in a statement.

Prior to the financial crisis, Alcoa predicted world aluminium consumption would double by 2020, pointing out that aluminium consumption in the major growth markets of the developing world was six to eight times lower than in developed nations.

Globally, Alcoa has decided to immediately cut aluminium production by 350,000 metric tonnes per year, which follows on from an initial curtailment of 265,000 tonnes last month by the company.

This represents 15 per cent of the company's annualised output, or 615,000 tonnes.

Wagerup is part of the portfolio of Alcoa World Alumina & Chemicals (AWAC) - a joint venture between Alcoa and Alumina Ltd.

US-based Alcoa is the operator of AWAC holding a 60 per cent interest in the joint venture, with Alumina holding the balance.

AWAC produces about 25 per cent of the world's alumina through a network of refineries in the US, Brazil, Suriname, Jamaica, Spain and Australia.

Full announcement below:

Global financial crisis puts Wagerup 3 on hold

Alcoa has announced it has suspended work on the proposed expansion of the Wagerup Refinery (Wagerup 3) until market conditions improve. The decision has been taken due to market softness resulting from the global financial crisis.

Alcoa of Australia Managing Director Alan Cransberg, said the action taken was necessary given the current challenging economic environment.

"Alcoa of Australia is a strong and high performing business but, like many companies, we are facing unprecedented economic challenges that require us to reign in capital expenditure and reconsider the timing of our capital projects.

"Wagerup 3 continues to represent one of Alcoa's best brown field opportunities globally to deliver value through an expansion. When market conditions improve we will revisit implementation of the project," he said.

Mr Cransberg said that the future of Alcoa's business in Australia remains bright but work also needed to be done to secure energy supply for the expansion and understand the detail of the Australian Government's emissions trading scheme before the project could be revisited.

The Wagerup 3 decision is one of a range of initiatives taken by Alcoa Inc to address the global financial crisis. Alcoa Inc also announced today that it will make targeted curtailments across its aluminium smelting system that will be phased-in beginning this month totalling approximately 350,000 metric tonnes per year.

This is on top of the previously announced curtailment of 265,000 tonnes at the Rockdale aluminium smelter in Texas