Alcoa May Build New Brazil Smelter, Shut Down Others (Update2)

SAO PAULO, May 19 -- Alcoa Inc., the largest U.S. aluminum producer, said it may invest $3 billion in a new smelter in Brazil and shut other units in the South American country because of "prohibitive" energy costs.

Energy costs at its plants in the northeastern state of Maranhao are the highest among Alcoa's plants worldwide, said the company's managing director in Brazil, Franklin Feder. Alcoa may build a hydroelectric dam to power the new plant in Para state, which would produce a minimum of 300,000 metric tons of aluminum a year, Feder said.

"The new investment depends on demand and energy costs," Feder told reporters today in Sao Paulo. "Energy costs became prohibitive in Brazil."

Alcoa, based in New York, is shifting production to low- cost energy sites from Iceland to Saudi Arabia as it seeks to compete with rivals Aluminum Corp. of China Ltd., or Chalco, and Norsk Hydro ASA. Electricity accounts for about one-third of the cost to produce aluminum, used in airplanes and soda cans.

The U.S. aluminum producer operates eight plants in Brazil, which represent about 25 percent of Alcoa's assets.

Alcoa fell 2.4 percent to $11.81 at 3:33 p.m. in New York Stock Exchange composite trading. The stock has dropped 25 percent this year.