Network Metals LLC

The big news yesterday in aluminum was that Alcoa (NYSE:AA) cut its dividend 83% with plans to reduce costs by more than $2.3 billion by 2010. The company will raise a further $1.1 billion in capital through the sale of common stock and bonds. The dividend cut from $0.17 to $0.03 comes in the face of the larger failure of the aluminum industry, where aluminum prices have dropped to trading around $0.60 a pound. These low prices are leaving most companies just barely treading water in production, and most producers are losing money trying to stay in business.

That Alcoa is taking such drastic steps to continue cutting costs (after production cutbacks and some worldwide shutdowns) does not bode well for the aluminum industry in the near future. Production is down, consumption (especially of flat-rolled products) is down and will continue to drop, and Alcoa expects aluminum and aluminum prices to see further declines (26% and 34% declines respectively).