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ALCOA CUTS U.S. PRIMARY ALUMINUM PRODUCTION, CITING IMPACT OF RUSSIAN EXPORTS

 Chairman O'Neill Calls For U.S. Government And G-7 Action
 On Effects Of Russian And CIS Exports On World Commerce
 PITTSBURGH, June 28 /PRNewswire/ -- Alcoa (NYSE: AA) is reducing nearly a quarter of its U.S. primary aluminum capacity immediately, causing the layoff of approximately 750 employees at five locations.
 The company said it will purchase primary aluminum from world inventories to meet customer demands for its fabricated aluminum products.
 Alcoa reported that 268,000 metric tons (mt) of annual primary aluminum capacity will be taken out of production indefinitely in the next three weeks: one line with 56,000 mt of capacity at Badin, N.C.; 2.5 lines with 93,000 mt of capacity at Rockdale, Texas; one-half line with 53,000 mt of capacity at Alcoa, Tenn.; one line with 44,000 mt of capacity at Warrick County, Ind.; and one-half line with 22,000 mt of capacity at Wenatchee, Wash. With these curtailments, Alcoa will have 310,000 mt of U.S. smelting capacity idle. The company's total U.S. smelting capacity is 1.3 million mt. In January Alcoa closed 42,000 mt of capacity at its Wenatchee smelter.
 Announcing the action, Alcoa Chairman Paul H. O'Neill said it was the direct result of a "lack of any mechanism to deal with the economic consequences of the dissolution of the former Soviet Union." He called for the U.S. Government, the G-7 and other relevant international institutions to accept as a top priority "accommodating the entry into world commerce of the CIS and former satellite nations of the Soviet Union."
 The following is the full text of a statement by O'Neill announcing the cutbacks and layoffs, including background information on current inventory and pricing levels for primary aluminum, and his call for governmental actions to deal with the continuing effects of Russian and CIS exports of basic materials into Western markets:
 "The action Alcoa is taking today to reduce our production of primary aluminum and the resulting job impacts are a direct casualty of the lack of any mechanism to deal with the economic consequences of the dissolution of the former Soviet Union.
 "Until the demise of the Soviet Union, the free-world aluminum industry was in reasonable balance. The Soviet aluminum industry was largely self-contained, having 20 percent of the world production capacity, but very little involvement with commerce in the rest of the world.
 "Between 1987 and 1991, free-world market prices for primary aluminum ingot were at a level that covered the replacement costs of efficient smelters. As the Soviet Union crumbled, their internal aluminum industry was confronted with severely eroding demand because of defense industry cutbacks and a collapsing Soviet consumer economy. The Soviet aluminum industry responded in a robust, free-market way by sending more than one million metric tons of their product to Western markets in 1992 alone. The consequence has been a relentless increase in London Metal Exchange stocks, surplus to the needs of world markets. Not surprisingly, as stocks on the LME have grown from nil amounts in 1990 to 1.8 million metric tons today, prices have plunged to the lowest ever real levels. At recent levels of about 52 cents a pound, prices are 25 cents to 30 cents under replacement cost pricing for the smelters that make the product.
 "In fact, we believe at these price levels, some world smelters are cash negative. That is, their cash costs are higher than their realized prices.
 "Under these conditions, there is no way for an industry to advance through research and development and product innovation because the strong are forced to curtail or abandon such activities in order to compete at the level of the weak.
 "We see no relief from this situation until the surplus metal stocks begin to recede. That is the reason we have taken our independent, unilateral curtailment action today. We take our action from a position of strength. We have remained profitable while most companies in the world industry have not. Our balance sheet is the strongest in the world industry with debt at less than 20 percent of total capital.
 "Before taking our action, we contemplated asking the U.S. Government to take protectionist steps on our behalf as many other industries have done when confronted with similar market problems.
 "Certainly, one could make an emotional argument that U.S. jobs should not be sacrificed to the C.I.S. It is a real paradox to find former communist-country producers causing such substantial dislocation in the capitalist world. Without their exports the world aluminum industry would be in balance. But it seems genuinely unjust to ask them to retreat from the world market simply because they are an unsettling presence.
 "How ironic to even think about urging the C.I.S. to retreat to their former economic isolation, especially when they could make a legitimate case that they are among the world's low cost producers. Their position is enhanced by the availability of low price hydroelectric power and by very low labor rates, as compared to Western world standards. Of course, hydroelectric power exists in other parts of the world, but in most other places there is competition for the power which drives up the price of the power to aluminum producers. That is not the case in the C.I.S.
 "Some would say we should seek to bar their product from world commerce because their labor rates are lower than ours. But there is no world enforcement process for labor rates, and if we were to bar C.I.S. products on this basis, what would we do about other countries which have significantly lower labor rates than ours?
 "A case could also be made that C.I.S. metal should be banned from world commerce because many of their plants are environmental and safety nightmares, with few effective operating controls to protect the people and the environment. But again, there are no agreed world standards for environmental and safety responsibility and, even if there were, a careful examination would not find the C.I.S. to be the only lagging nation.
 "Further, if we were to bring a successful trade action against the C.I.S. producers, we would damage their ability to feed themselves through productive work and we would find them lined up at the financial aid window or find that we had contributed to the retrogression of their society toward a condition worse than that from which they have only recently escaped.
 "In sum, we have not asked the U.S. Government to take protectionist trade action. Rather, we decided to take an action within our control which we hope will contribute to an earlier end to the world oversupply of product than would otherwise occur.
 "At the same time, we will now seek a hearing from top U.S. Government officials to urge them to do three things.
 "First, to recognize that the problem that besets our company and our industry is only the tip of the iceberg. We believe the facts of our case apply today to several other basic materials companies and industries. Looming on the horizon are the same circumstances for fabricated and finished goods, including such high technology products as commercial aircraft.
 "We believe the issues associated with accommodating the entry into world commerce of the C.I.S. and former satellite nations of the Soviet Union should be a top priority item for the U.S. Government, for the G-7 and for the relevant international institutions. In time, market forces will grind out a "solution" to these problems. But the scale of the problems associated with absorbing the economic energy of 290 million people demands concerted attention now.
 "Without such attention, these issues are going to fester into a major economic and political crisis for the world community.
 "Second, we urge as we have for the last eight years, that the Government conclude the GATT negotiations, including a provision that eliminates all trade and tariff barriers in the world aluminum industry.
 "Third, we will ask the U.S. Government to begin talks immediately with European Community officials in Brussels. The EC, at the urging of aluminum producers in member countries, has indicated an intention to take some action in early August. We are concerned that the EC may take protectionist action to erect barriers around the Community which would only serve to worsen the plight of the industry in the rest of the world. We do want our government to intervene on our behalf to insure against this outcome."
 /delval/
 -0- 6/28/93
 /CONTACT: A.T. Posti, in New York, 212-759-3000, or J.F. McMahon, in Pittsburgh, 412-553-3704, both of Alcoa/
 (AA)


CO: Alcoa ST: Pennsylvania IN: MNG SU:

CD -- PG008 -- 6402 06/28/93 16:19 EDT
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Date:Jun 28, 1993
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