Alcoa See Strong Aluminum Demand
New York. Alcoa, the largest US aluminum producer, expects global demand for aluminum to hold up into the fourth quarter despite a falling metal price and fears the global economy may slip back into recession.
“Alcoa remains a confident company in a very nervous world,” chief executive officer Klaus Kleinfeld said on Tuesday.
He was speaking to analysts after the aluminum producer reported third quarter net income and revenue that were higher than a year ago.
Kleinfeld said fears of slowing economic growth and speculative selling knocked prices for the industrial metal lower. The Pittsburgh-based metal producer’s earnings were lower than expected. But the CEO reiterated the aluminum giant’s 12 percent demand growth outlook for the year and estimated total consumption of 44.3 million tons. In 2010, global demand for the metal grew by 13 percent.
Kleinfeld warned of weak economic conditions through the end of the year, particularly in Europe, “as confidence in the global recovery faded.”
That has sapped aluminum demand from the automotive, industrial products, construction and packaging sectors since the second quarter.
Third-quarter profit jumped from a year ago but was lower than the second quarter and fell short of Wall Street expectations, which had already been lowered because of a slump in global metal prices.
Kleinfeld said that battered confidence was the biggest problem. “We’ve seen strength in many of our markets, despite the sharp slowdown in Europe,” he said.
He said Alcoa was sticking with its forecast for global aluminum demand growth of 12 percent this year, although it expected a decline in Europe, North America and Brazil.
But that decline will be made up by strength in emerging markets and he increased the growth forecast for China from 15 percent to 17 percent.
Still, one analyst said things could get worse. “There’s a bigger decline in price so far in the fourth quarter and seasonally it’s worse,” said Charles Bradford of Bradford Research in New York.
“You get the holidays toward the end of the year and that slows everybody down. It’s going to be much worse.”
Alcoa, a Dow component company, said net earnings were $172 million, or 15 cents per share, compared with $61 million, or 6 cents per share, a year earlier.
Aluminum prices fell almost 20 percent in the third quarter on global economic concerns and Alcoa’s share price fell 41 percent during the same period.
Still, aluminum prices could easily rebound if the sentiment around the European economy shows any improvement, analysts said, which would immediately benefit Alcoa.
“Visibility is very low, so it’s hard to know what’s around the corner, but even with earnings coming in below consensus, we shouldn’t overreact,” said Bridget Freas, an analyst with Morningstar in Chicago.