Cut to Compete

For the first time in 17 years, the basic price of aluminum is on the way down. Without warning last week. Aluminium Ltd., Canada's giant producer, announced that it would cut prices 2-c- per Ib. to 24-c-, thus undercutting all free-world competition. No one was more surprised than the three dominant U.S. producers--Alcoa, Kaiser and Reynolds--who expected to maintain the price of primary aluminum at 26-c- per Ib., perhaps even raise it because of an impending wage hike. Yet within 24 hours, the top brass of each company hastily gathered, and one by one cut their price to 24-c- per Ib., announcing that "we will meet the competition.'"

Behind Aluminium's cut were two factors: Russian competition and shrinking demand. By underselling Aluminium by 2-c- per Ib. in British markets, the Russians have cut deeply into the Canadian company's sales. Meanwhile, consumption, which has been steadily rising for years, leveled off as aluminum-using industries slowed their expansion. Aluminium deferred plans for 240,000 additional tons of capacity, dropped its operating rate to 80% of its current capacity of 770,000 tons.

The U.S. producers, who export less and are not quite so worried about Russian competition, have not retrenched as much as Aluminium. Reynolds is operating at 95% of capacity, and expects to add 112,500 tons additional capacity this year. Kaiser, running at 90%, recently brought in half of its new 145,000-ton Ravenswood plant, has deferred inauguration of the other half. Alcoa has postponed ail of its expansion plans, dropped its operating rate to 75%, "barely enough to keep the pipeline filled."

U.S. producers are unhappy about the price cut, feel that it will not bring in many new customers for aluminum. But Aluminium's President Nathanael V. Davis disagrees. He feels that when demand is soft, a price cut may help aluminum expand its inroads into other metals such as copper. "This." he says, "will encourage engineers and manufacturers to design their products for more aluminum, and thus will open up new applications for our product."

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