Alcoa Forecast good Demand outlook And Steady Prices For Aluminum In 2012

Aluminum Company of America (Alcoa), the world’s largest producer of aluminum, has announced its first quarter results in New York. These have been better than the market expectations with the company posting revenue of USD 6 billion, marginally up by 0.81 per cent on a YoY basis. The growth was despite a 13 per cent fall in the realisation of alumina which contributes 13 per cent to the total revenue of the company. During the quarter, due to weak global demand the realisation of alumina and aluminum declined by 13 per cent and 9 per cent on a YoY basis. However the lower realisation was partially offset by higher third-party shipments in the upstream business, better volumes and a mix of the mid-stream and down-stream businesses.

Despite lower sales and fallen realisations, the company was able to post decent operating profit of USD 94 million as compared to the loss of USD 191 million in the fourth quarter 2011. This was mainly on account of higher productivity across all businesses and an improvement in the volumes and mix.

As regards the outlook, Alcoa has reaffirmed its forecast that the global primary aluminum consumption would grow at 7 per cent to 46.8 million tonnes in 2012, lower than that of 10 per cent growth seen in 2011. Country-wise, China, which is the largest consumer of aluminum (43-45 per cent), may see a consumption growth of 11 per cent versus that of 15 per cent in 2011. And India’s consumption growth in 2012 will remain the same at 10 per cent as reported in 2011. The consumption growth has been lowered down for all the other major countries on the back of a weakening global economy.

However, it remains upbeat for countries like Brazil and Russia which will see a marginal jump in consumption in 2012. The growth for the company in 2012 will come from the US region as it is foreseeing a demand pick up in the auto and aerospace sectors. However, packaging, building & construction and industrial gas turbine sectors will show marginal growth due to the weak economic scenario all across the globe.

The good thing is that the global demand for aluminum will remain higher than the supply, leading to a deficit scenario in 2012. However, for alumina, the key ingredient to make aluminum, will remain in the surplus position of 1 million tonnes. To balance the situation and maintain the alumina prices, Alcoa has announced a plan to cut its alumina production by 4 per cent along with introducing measures aimed at reducing over-supply. It has also lowered the prices to around USD 300 a metric tonne. This also indicates that the aluminum price in 2012 will remain at the same level if we do not see any further downfall in the consumption across the globe.