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Alcoa sees brighter 2013, but remains cautious
January 10, 2013
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NEW YORK: Alcoa, the largest aluminium producer in the United States, is cautiously optimistic demand for the metal will continue to grow in 2013, helped in part by strong sales to aerospace and construction customers.

Executives offered a positive outlook for 2013, but kept a cautious tone as worries lingered over a looming US budget confrontation.

Alcoa expects global aluminium consumption to grow 7 per cent in 2013, up slightly from 6 per cent in 2012, and maintains global aluminium demand will double between 2010 and 2020.

It forecast global consumption growth in the aerospace sector to dip to 9 per cent - 10 per cent in 2013 from 13 per cent - 14 per cent in 2012, and pegged growth in the automotive sector at 1 per cent -  4 per cent, well below 16 per cent - 17 per cent in 2012.

“There is one uncertainty still there, which is the uncertainty around the US budget, and that potentially has an impact, obviously, on the defense spend,” Chief Executive Klaus Kleinfeld said on a conference call with investors.

The company posted a fourth-quarter profit, in line with Wall Street expectations, and handily beat expectations on revenue, helping calm investors’ nerves after a rocky 2012.

Shares of Alcoa rose 1.3 per cent in after-hours trading.

Analysts breathed a sigh of relief from the results of the first S&P 500 company to report fourth-quarter results, hoping it was a sign of things to come.

“I think it was a good solid quarter. Not a barnburner but a good quarter,” said Tim Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills. “It’s certainly important in this type of environment to look at revenues.”

Investors tend to scrutinize Alcoa’s results for hints on where the overall economy is headed, as the company’s aluminium products are used in the automotive, appliance and airline industries.

Alcoa has pushed hard over the last four years to increase productivity and cut overhead costs in an effort to ease the impact of stubbornly low aluminium prices. The company is eyeing $750 million in productivity gains in 2013, down from $1.3 billion in 2012.

The earnings were a positive turn for Alcoa, whose core business of mining bauxite and producing aluminum has been hit in recent years by a persistently low metal price.

The company’s realized price for aluminium fell roughly 11 per cent in 2012.

“It’s difficult to make money with aluminum prices at these levels, but consumption is holding up well,” said Bridget Freas, an analyst with Morningstar Inc in Chicago. “Aluminium prices averaged $2,000 a ton in the fourth quarter and they need higher prices for consistent profitability.”

Economic sentiment, rather than market fundamentals, will drive a rebound in aluminum prices, said Kleinfeld, noting a recovery in Chinese growth and a US budget deal would likely have a positive impact on prices.

“The LME price these days is very much trading on general economics,” he said. “When people started to gain confidence again that the fiscal cliff would be avoided, you actually saw the rebound in the metal. That’s what driving it these days.”

For the fourth quarter, the company reported net income of $242 million, or 21 cents per share, compared with a net loss of $191 million, or 18 cents per share, in the year-ago period.

Reuters
 

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