Alcoa 2013 Annual Report Download - page 79

In late 2011, management approved the permanent shutdown and demolition of the Tennessee smelter and two potlines
at the Rockdale smelter (remaining capacity of 191 kmt-per-year composed of four potlines), each of which was
previously temporarily idled for various reasons. This decision was made after a comprehensive strategic analysis was
performed to determine the best course of action for each facility. Factors leading to this decision were in general
focused on achieving sustained competitiveness and included, among others: lack of an economically viable, long-term
power solution; changed market fundamentals; cost competitiveness; required future capital investment; and restart
costs.
Also, at the end of 2011, management approved a full curtailment of the Portovesme smelter and a partial curtailment
at the Avilés and La Coruña smelters. The curtailment of the Portovesme smelter may lead to the permanent closure of
the facility, while the curtailments at the two smelters in Spain are planned to be temporary. These actions were the
result of uncompetitive energy positions, combined with rising material costs and falling aluminum prices (mid-2011 to
late 2011).
In 2013, aluminum production declined by 192 kmt, mainly the result of the absence of production at the Portovesme
smelter (fully curtailed at the end of 2012), the temporary curtailment of capacity at two smelters in Brazil, and the
permanent shutdown of three potlines combined at smelters in Canada and in the U.S.
In 2012, aluminum production decreased by 33 kmt, mostly due to the previously mentioned curtailments at the
Portovesme, Avilés, and La Coruña smelters, partially offset by the benefit of a full year of production related to
capacity restarted in 2011 at the Massena East (125 kmt-per-year), Wenatchee, WA (43 kmt-per-year), and Ferndale,
WA (Intalco: 47 kmt-per-year) smelters.
Third-party sales for the Primary Metals segment declined 11% in 2013 compared with 2012, primarily due to lower
volumes, including from the curtailed smelters in Italy, Spain, and Brazil and the permanent shutdown of certain
capacity in Canada and the U.S. Also contributing to the decrease was a 4% decline in average realized prices,
somewhat offset by higher energy sales related to excess power, mostly in Brazil, and favorable product mix. The
change in realized prices was driven by an 8% lower average LME price (on 15-day lag), somewhat offset by higher
regional premiums, including an average of 12% in the U.S and 13% in Europe.
Third-party sales for this segment dropped 10% in 2012 compared with 2011, mainly due to a 12% decline in average
realized prices, driven by a 16% lower average LME price (on 15-day lag), slightly offset by higher buy/resell activity.
The U.S. capacity restarted in 2011 contributed positively to third-party sales in 2012, but was completely offset by the
curtailments of European capacity in 2012.
Intersegment sales for the Primary Metals segment declined 9% in 2013 compared with 2012, mainly the result of a
decrease in both realized prices, driven by a lower LME price, and demand from the midstream and downstream
businesses. Intersegment sales for this segment decreased 10% in 2012 compared with 2011, principally due to a
decline in realized prices, driven by a lower LME price.
ATOI for the Primary Metals segment decreased $329 in 2013 compared with 2012, primarily caused by a decline in
realized prices, the absence of a gain on the sale of Tapoco (see above), higher costs for labor and transportation, a
higher equity loss related to the joint venture in Saudi Arabia due to start-up costs and a shutdown of one of the two
potlines due to a period of instability, and costs related to planned maintenance outages at the Anglesea power plant in
Australia and two U.S. power plants. These negative impacts were somewhat offset by lower costs for carbon and
energy, net productivity improvements, net favorable foreign currency movements due to a stronger U.S. dollar against
most major currencies, favorable product mix, and a positive impact (insurance recovery in 2013 plus the absence of
business interruption and repair costs that occurred in 2012) related to the March 2012 fire at the Massena West cast
house ($36).
ATOI for this segment dropped $172 in 2012 compared with 2011, principally related to the previously mentioned
decrease in realized prices, higher costs, particularly labor and other raw materials, and an unfavorable impact as a
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