Lower aluminum prices -- in part caused by competition on the London Metal Exchange -- have brought about major layoffs in the Canadian aluminum industry this summer. Alcan, the largest aluminum company in the world measured by its capacity to produce ingot, is releasing 1,100 employees in North America, most of them in Canada, in an effort to get costs down. Alcan passed Alcoa in ingot capacity in 1983 when it bought the Arco mills in the United States from Atlantic Richfield.
The London Metal Exchange has been a big problem for Alcan and Alcoa. Since the LME started trading an aluminum contract in October 1978, it has been almost impossible for the two big producers to set a price.
The LME opened its aluminum contract to handle extra production from new producers such as Egypt, Australia, Argentina, and Venezuela. Those producers did not have the international sales organizations of Alcan and Alcoa. The LME made selling ingot easy, and prices were determined by the market.
The exchange contracts made prices fluctuate, however, and that affected the fortunes of the big integrated aluminum producers. Aluminum ingot hit a high of $2,120 a ton (all figures are US dollars) in early 1980. It touched $950 a ton in June 1982, and that low sparked a first round of austerity measure at Alcan. The price bounced back to $1,650 a ton in early 1983 but is now trading at $1,040. The price dropped 7 percent in June, even though supplies of the metal have been falling for the last
Alcan already has low production costs, and its payroll had grown heavy. The company owns its own hydroelectric facilities in Canada and thus has access to cheap power. (The biggest expense in changing bauxite to aluminum is electricity.) But the company was oriented toward production, not profits.
Alcan's austerity measures now aim to change that. The company says the recent layoffs are ``to eliminate levels of management.'' Alcan also negotiated a lean settlement with unionized workers at its smelter in Kitimat, British Columbia.
``Alcan has a real cost advantage in making ingot,'' says Nicholas Toufexis, an aluminum analyst with the Oppenheimer & Co. brokerage in New York. ``Now you're going to see cost cutting in fabrication.''