New York - Alcoa, the largest US aluminium producer, forecast a global oversupply of the metal for 2015 and the slowest rate of growth in global consumption in three years amid rising Chinese output.
Demand will increase 6.5 percent this year, compared with 9 percent in 2014, the company said Wednesday as it reported first-quarter earnings. Alcoa also said worldwide output will exceed consumption by 326 000 metric tons this year, compared with its January projection for a 38 000-ton deficit.
Alcoa traded at 12.355 euros in Frankfurt as of 9.23am on Thursday. That’s equivalent to $13.29, a 2.8 percent decline from Wednesday’s closing price in the US. While the company posted better-than-expected earnings, sales trailed analysts’ estimates.
Alcoa is among aluminium producers that have shut or idled high-cost capacity in recent years, most recently announcing the curtailment of a Brazilian plant. Still, China, the largest supplier and user of the metal, keeps increasing output. The country’s production rose 9.1 percent last year, according to data compiled by Bloomberg.
Revenue impact
“When you’re deliberately exiting businesses and shutting down high-cost businesses, you’re going to have revenue go down” compared with market expectations, Lloyd O’Carroll, a Richmond, Virginia-based analyst at NorthCoast research, said in an interview.
First-quarter net income was 14 cents a share, compared with a 16-cent loss a year earlier. Excluding the cost of curtailing smelters in Brazil and other one-time items, first- quarter profit was 28 cents a share, exceeding the 26-cent average of 17 estimates compiled by Bloomberg.
Sales rose to $5.82 billion from $5.45 billion, missing the $5.94 billion average estimate.
The company, the first in the Standard & Poor’s 500 Index to report earnings for the period, is moving up the value chain to capitalise on rising demand for specialised aluminium from the aerospace and auto industries.
Last month it agreed to buy Pittsburgh-based RTI International Metals for about $1.32 billion to expand its titanium and specialty-metals products business for the aerospace industry. Less than a year earlier, it paid $2.85 billion for Firth Rixson Ltd, a UK producer of specialty components used in jet engines.
Capacity shutdowns
Alcoa has permanently closed about 1.4 million tons of smelting capacity since 2007 and has idled a further 740 000 tons. The company said in March it’s reviewing 14 percent of its remaining capacity as well as some of its capability for refining alumina, a raw material.
Alcoa said 2015 aluminium demand outside China will be 28.3 million tons, slightly lower than its January forecast of 28.4 million tons.
Profit in the quarter was helped by higher metal prices year on year. Aluminium for delivery in three months on the London Metal Exchange rose 3.4 percent to average $1,814 a ton in the first quarter.
The so-called premium charged to deliver metal from warehouses in the US, which affects Alcoa’s realised metal price, climbed 20 percent to average $510 a ton in the first quarter, according to data compiled by Bloomberg. The company said on Wednesday it sees premiums retreating, although they will remain above 2014 levels.
“We’re going to see this thing falling back exactly where it belongs, showing regional supply and regional demand,” Chairman and Chief Executive Officer Klaus Kleinfeld said on a conference call with analysts.
Bloomberg