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Alcoa kicks off broad asset review; Q3'19 net loss worsens YOY to US$221M

As it announced a wide-ranging asset review and plans to sell some non-core operations to drive down costs, Alcoa Corp. reported a year-over-year net loss in the third quarter of US$221 million, or a loss of US$1.19 per share, from a loss of US$6 million, or a loss of 3 cents per share.

Citing market conditions, Alcoa said it would look to divest US$500 million to US$1 billion in non-core assets over the next 12 to 18 months. Alcoa also said that over the next five years it will review 1.5 million tonnes of smelting capacity and 4 million tonnes of aluminum refining capacity in a process that could lead to curtailments, closures and divestitures.

Speaking on an Oct. 16 earnings call, Roy Harvey, Alcoa President and CEO, said it expects the review to help improve the company's operating cost structure, pulling it into the first quartile while reducing its carbon footprint.

Harvey declined to go into detail on which assets Alcoa might consider under the five-year review, but he said, "When you look at the cost curve you can make some conclusions."

Harvey said the review was aimed at creating a "step change" in Alcoa's cost structure. Rather than holding on to market share, he said, Alcoa is determined to lower costs to create value for shareholders.

Looking to global markets, Harvey said Alcoa expects supply surpluses in the bauxite and alumina markets, while projecting a deficit in aluminum. Alcoa had also lowered expectations for primary aluminum demand, pointing to sluggish global growth in manufacturing and trade tensions.

"Global aluminum demand for full-year 2019 is now estimated to be lower year over year, ranging between negative 0.6% and 0.4%, compared to the previous quarter’s full-year estimate of global demand growth between 1.25% and 2.25%," Alcoa said in an Oct. 16 earnings release.

In the third quarter, Alcoa recorded US$2.57 billion in revenues, down 24.3% from US$3.39 billion a year earlier. Meanwhile, quarterly costs dropped 17.2% to US$2.12 billion from US$2.48 billion in the prior-year period.

The US$221 million net loss shrank from the loss of US$402 million in the prior quarter.

The third-quarter loss included US$134 million in charges related to Alcoa's divestiture of the Aviles and La Coruna aluminum plants in Spain, which the company flagged in late July, as well as US$37 million in restructuring charges after Alcoa made changes to its operating model.

Alcoa said it expects the restructured model to deliver about US$60 million in annual savings starting in the second quarter next year.