Alcoa 2009 Annual Report Download - page 62

in Suralco, and a positive impact related to the 2008 gas outage in Western Australia (absence of $69 in costs partially
offset by $19 less in insurance recoveries). ATOI for this segment decreased 24% in 2008 compared with 2007, mostly
due to significant cost increases for bauxite, caustic soda, fuel oil, and natural gas; unfavorable foreign currency
movements due to a weaker U.S. dollar; and the impact of the gas outage in Western Australia ($33 net of insurance
benefits); all of which was partially offset by higher realized prices, productivity improvements, and a positive impact
due to the curtailment of production at the Point Comfort refinery.
In 2010, increased benefits from cost savings initiatives are expected and improved customer demand is anticipated,
especially in China as indicated by the significant increase in shipments in late 2009. Also, higher production levels
due to the start-up of the Juruti bauxite mine (total additional 2,600 kmt of bauxite, Alcoa’s share is 1,560 kmt) and
São Luis refinery (total additional alumina production of 2,100 kmt, Alcoa’s share is 948 kmt) are expected; while full
production at these facilities will result in higher depreciation expense.
Primary Metals
2009 2008 2007
Aluminum production (kmt) 3,564 4,007 3,693
Third-party aluminum shipments (kmt) 3,038 2,926 2,291
Alcoa’s average realized price per metric ton of aluminum $1,856 $ 2,714 $ 2,784
Third-party sales $5,252 $ 8,021 $ 6,576
Intersegment sales 1,836 3,927 4,994
Total sales $7,088 $11,948 $11,570
ATOI $ (612) $ 931 $ 1,445
This segment consists of Alcoa’s worldwide smelter system. Primary Metals receives alumina, primarily from the
Alumina segment, and produces primary aluminum used by Alcoa’s fabricating businesses, as well as sold to external
customers, aluminum traders, and commodity markets. Results from the sale of aluminum powder, scrap, and excess
power are also included in this segment, as well as the results of aluminum derivative contracts. Primary aluminum
produced by Alcoa and used internally is transferred to other segments at prevailing market prices. The sale of primary
aluminum represents more than 90% of this segment’s third-party sales.
At December 31, 2009, Alcoa had 1,234 kmt of idle capacity on a base capacity of 4,813 kmt. In 2009, idle capacity
increased by 480 kmt compared to 2008 due to the completion of targeted curtailment reductions, including 215 kmt at
the Tennessee smelter, 125 kmt at the Massena East, NY smelter, and 140 kmt at various other smelters, in response to
the significant decline in LME prices and aluminum demand both as a result of the global economic downturn. Base
capacity rose by 282 kmt at December 31, 2009 as compared to December 31, 2008 due to the March 31, 2009
acquisition of two smelters in Norway, in which Alcoa previously held a 50% equity interest. At December 31, 2008,
Alcoa had 754 kmt of idle capacity on a base capacity of 4,531 kmt. In 2008, idle capacity increased by 302 kmt as
compared to 2007 due to the complete production curtailment at Rockdale, TX (267 kmt) and partial curtailments of
approximately 35 kmt related to other smelters, all of which were the result of negative market conditions. Base
capacity dropped by 42 kmt at December 31, 2008 as compared to December 31, 2007, primarily driven by 53 kmt
permanently curtailed in November 2008 at the Baie Comeau smelter as part of a modernization program initiated
early due to the global economic downturn.
In 2009, aluminum production declined 443 kmt, mainly the result of the effects of smelter curtailments that began
mid-2008, including the smelters in Rockdale (267 kmt-per-year), Tennessee (215 kmt-per-year), and Massena East
(125 kmt-per-year), all of which was partially offset by an increase in production at the Iceland smelter (344
kmt-per-year), as this smelter was not at full capacity until April 2008, and the acquisition of the Lista (94
kmt-per-year) and Mosjøen (188 kmt-per-year) smelters in Norway. In 2008, aluminum production increased by 314
kmt, mostly due to the Iceland smelter, as 2008 was its first full year of production; the Ferndale smelter as a result of
the restart of additional pots early in the year; and the Tennessee smelter; all of which was slightly offset by a reduction
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