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Alcoa Says Chinese Auto Demand Driving Growth in Aluminum Use

Jul 20th 2015 at 6:23 AM

Pure Nickel

Alcoa Inc., the largest U.S. aluminum producer, reported profit that beat analysts’ estimates and said growing Chinese demand will help boost global use by 13 percent this year.


Alcoa gained in New York trading late yesterday after raising its prediction for aluminum consumption from 12 percent previously, citing higher demand also from Brazil, Russia and India. The New York-based company posted third-quarter earnings excluding certain items of 9 cents a share, topping the 5-cent average estimate of 16 analysts surveyed by Bloomberg.


“What did really jump out at me was the strength in commercial transport,” Anthony Rizzuto, a New York-based analyst at Dahlman Rose & Co. who rates Alcoa shares “hold,” said yesterday in a telephone interview. “Prospects for the company at least over the coming quarter should improve with higher metal prices.”


Aluminum sales to makers of heavy trucks and trailers will rise globally by as much as 40 percent this year, Chief Executive Officer Klaus Kleinfeld said yesterday in a conference call with investors. Aluminum sales to the automotive industry are forecast to grow as much as 8 percent, with Chinese sales up 15 percent to 20 percent.


Alcoa, the first company in the Dow Jones Industrial Average to announce quarterly earnings, reported its profit after the close of regular trading on the New York Stock Exchange, where the shares rose 34 cents, or 2.8 percent, to $12.54 as of 7:59 p.m.


Russian Demand


Aluminum for delivery in three months on the London Metal Exchange averaged 15 percent higher in the third quarter than a year earlier while global inventories fell 3.3 percent. A weaker dollar improved the affordability of commodities in countries with stronger currencies, Rizzuto said.


“In countries such as China, Brazil, India and Russia, more and more people are moving into the middle class, driving demand,” Kleinfeld said in Alcoa’s earnings statement.


Net income fell to $61 million, or 6 cents a share, from $77 million, or 8 cents, a year earlier, Alcoa said yesterday in the statement. Sales climbed 15 percent to $5.3 billion. The company shipped 1.22 million tons of aluminum in the quarter, 0.6 percent less than a year earlier.


The decline in profit was partly due to a weaker dollar, which increased costs at Alcoa’s foreign plants, the company said.


Alcoa smelts aluminum and refines alumina, a raw material used to make the metal, in Australia, Europe and Brazil. The Australian dollar climbed 15 percent against its U.S. counterpart in the third quarter, the second-largest gain among a basket of 16 major currencies tracked by Bloomberg. The euro was third, strengthening 11 percent, while the Brazilian real climbed 7 percent.


Dollar Weakness


The company loses $75 million of annual net income for every 10 percent increase in the Australian dollar, the company said in the presentation. It also loses $40 million for a 10 percent increase in the euro.


Alcoa also may see higher demand for its metal because some Chinese aluminum smelters have been ordered to cut production to meet energy-usage requirements, said Charles Bradford, a partner at Affiliated Research Group LLC, a New York-based consulting firm.


Aluminum prices on the LME averaged $2,110 a ton in the third quarter compared with $1,836 a year earlier. Global stockpiles monitored by the LME, the world’s largest metals bourse, fell 0.1 percent to 4.34 million tons yesterday.


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