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An Alcoa smelter in Baie-Comeau, Que.

REUTERS

With an aluminum market weighed down by surpluses, Alcoa Inc. and Rio Tinto Alcan are postponing billions in upgrade and expansion plans to their smelters in Quebec.

While some 750 Rio Tinto Alcan employees will get to keep their jobs longer, 500 Alcoa workers will be pushed into early retirement.

Alcoa is deferring by three years the $1.2-billion modernization of its Baie-Comeau smelter. But the aluminum producer is still going ahead with plans to shut down two of the plant's old potlines. The dismantling of those Soderberg potlines, which will take place over the next two years, will eliminate 500 positions, or about a third of the smelter's 1,400-employee work force.

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This is the second time the American producer has reviewed its plans for the upgrade of the Baie-Comeau smelter, which was built in 1957. The Pittsburgh-based company first unveiled plans to modernize the smelter in 2008, but gave the final go-ahead on Nov. 7, 2011, after securing a 25-year electricity procurement deal with the Quebec government.

For its part, Rio Tinto Alcan is also pushing back, by three years to 2019, completion of the $2.1-billion investment plan it unveiled in 2006.

The producer has invested $1.5-billion so far, most notably in the first phase of the new Jonquière production centre. But it still has to complete the second and the third phase of the new Saguenay-region smelter and possibly expand its facility in Alma, in the Lac-Saint-Jean region, said spokesperson Claudine Gagnon.

In the meantime, Rio Tinto Alcan will keep open its dated and polluting Arvida smelter for an additional two years. This plant, which employs close to 750 employees, was scheduled to close by the end of 2014 at the latest.

To secure electricity deals with the Quebec government, both multinationals had promised to complete their expansion plans on schedule. But market conditions have changed, with faltering consumption by the automotive and aerospace industries, among other industrial users. The price of aluminum has fallen by a third since 2011; it now trades at $1,800 (U.S.) per metric ton on the London Metal Exchange, an amount that barely covers production costs.

Given the economic environment, the Quebec government accepted the need for a temporary delay in investments. "We are giving them more time and flexibility, so that they will be in a position to complete their investments," Quebec Finance Minister Nicolas Marceau said in a press release.

Russia's UC Rusal, the world's biggest producer by volume, has already announced plans to cut its output by 7 per cent this year.

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Earlier this month, Alcoa said it was reviewing 460,000 metric tons of smelting capacity, with an eye to cutting its aluminum production by 11 per cent. The two lines the company is dismantling represent 105,000 metric tons of capacity, or close to a third of the output of the Côte-Nord region plant.

All the job cuts will be achieved through voluntary departures, said company spokesperson Lysane Martel, in accordance with an employment clause secured by the Quebec government in 2011 when it promised 325 megawatts of electricity at the cheap industrial rate. Early retirement packages will be offered to all unionized plant employees. Their average age is 51, said Francis Truchon, president of the National Union of Aluminum at Baie-Comeau, who is waiting to see the exact terms of the packages.

"Alcoa believes in Baie-Comeau," said Ms. Martel. "This is only a delay."

Union leader Mr. Truchon said he is not overly concerned by the three-year lag, and believes Alcoa will keep its promise to modernize the Baie-Comeau facility. The company's Quebec operations – three smelters and a plant – operate as an ecosystem, he said. And Alcoa will invest $100-million over the next three years in preparation for the upgrade. But he acknowledges the postponement is bad news for the Côte-Nord region.

"A lot of subcontractors were waiting for this work," Mr. Truchon said.

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