Yikes, what does this mean for us manufacturers?

January 6th, 2009 at 09:22pm Bob Trojan

I hate to show these type of stories, but when we think about what our customers are doing, it is one of the best forms of Market Research.  So despite the gloom and doom of some of these industries, it also gives us clues as to what we could be seeing in the short term.  “Better warned and forearmed than have our head in the sand”…here is the story from Britain:

“America’s largest aluminium maker, Alcoa, is to cut 15,200 jobs as it struggles to cope with a slowing global economy and sagging prices for metal.The Pittsburgh-based company last night announced that it was reducing its smelting capacity by 18% in a wide-ranging downsizing intended to save $450m (£300m) annually which will involve one-off costs of between $900m and $950m.

Its decision is likely to sound alarm bells throughout heavy industry. Alcoa is widely considered a barometer of the fortunes of industrial and raw materials companies.

“These are extraordinary times, requiring speed and decisiveness to address the current economic downturn,” said Alcoa’s chief executive, Klaus Kleinfeld. The “aggressive but prudent” measures would “ensure Alcoa maintains its competitive lead in today’s challenging markets”.

Alcoa’s global workforce will fall by 13,500 people, a reduction of 13%. The company will also shed 1,700 contractor positions and will impose a freeze on salaries and hiring.

Troubles afflicting the motor manufacturing industry have affected demand for aluminium, as has a broader downturn in electrical appliances. The price of ­aluminium fell by more than a third last year on the London Metal Exchange and is at its lowest point since 2002.

Alcoa intends to sell four operations: its electrical and electronic systems ­business, its global foil arm, a car wheels operation and its European transport products division. These employ 22,600 people at 38 locations but lost $105m after tax last year.

There was no immediate indication of the impact on Alcoa’s operations in Britain, where the company has seven sites including a sheet and plates plant in Birmingham, a castings and forgings operation in Exeter and an automotive design shop in Essex.

Some believe that more cuts could follow. Tony Robson, an analyst at BMO Capital Markets in Toronto, told Bloomberg News: “The news is pointing in the right direction but we believe Alcoa has to take even more drastic action in cutting high-cost smelters.”

In October, Alcoa revealed that its third-quarter profits had slumped by 52% to $268m.

The company owns a 12% stake in London-listed Rio Tinto in partnership with Chinalco, a Chinese producer of aluminium.”

Source: Guardian, UK

Entry Filed under: Economy