BLBG:Alcoa Sees Aluminum Use Climbing on China Recovery: Commodities
Alcoa Inc. (AA), the largest U.S. aluminum producer, sees global demand growth for the commodity recovering to 7 percent in 2013 as China’s economic rebound drives demand for cans, cars and office buildings.
Aerospace demand will increase by as much as 10 percent as planemakers face record backlogs, the company said yesterday in its fourth-quarter earnings presentation. It also predicted aluminum consumption may climb 19 percent in China’s heavy-truck and trailer industry while U.S. commercial building and construction expands for the first time in four years.
“The fundamentals are pretty positive,” Chief Executive Officer Klaus Kleinfeld said on a conference call. “I think we will absolutely see the rebound” in aluminum prices.
Demand in China, the world’s largest aluminum user, will grow 11 percent this year to 23 million tons as stimulus spending announced by the country’s new leadership begins to show its effect, Kleinfeld said. He also forecast an acceleration of consumption in Brazil, India, and Russia. Global demand advanced 6 percent in 2012, according to Alcoa.
China’s economic growth probably accelerated to 7.8 percent in the quarter from a year earlier, up from a three-year low in the previous period, according to a Bloomberg News survey last month. The government will release fourth-quarter gross domestic product as well as December industrial production, retail sales and fixed-asset investment on Jan. 18.
Rising Prices
Aluminum for immediate delivery on the London Metal Exchange averaged $2,021 a metric ton in 2012. The metal will average $2,125 this year, according to the median of 19 analysts’ estimates, and keep rising for at least three years. The price is seen advancing to $2,292 in 2014 and to $2,400 in 2015, the estimates show.
“Every commodity six months from now will be higher than today because China’s on an upturn,” said Lloyd O’Carroll, a Richmond, Virginia-based analyst at Davenport & Co. who recommends buying Alcoa shares. “LME prices have rebounded and that should continue.”
Alcoa said yesterday that its fourth-quarter sales fell to $5.9 billion from $5.99 billion, beating the $5.6 billion average of 11 analysts’ estimates compiled by Bloomberg.
The New York-based company’s net income rose to $242 million, or 21 cents a share, compared with a loss of $191 million, or 18 cents. Profit excluding a gain on the sale of a power plant and other one-time items was 6 cents a share, matching the average of 20 estimates compiled by Bloomberg.
Higher Volumes
Alcoa rose 1.6 percent to $9.25 at 5:21 p.m. yesterday in New York after the close of regular trading. The shares have declined 0.7 percent in the past 12 months while the Dow Jones Industrial Average rose 7.6 percent. Alcoa is the first company in the index to report earnings.
The company said it achieved $1.3 billion in productivity and overhead savings in 2012, surpassing its $850 million target. Alcoa saw better prices and volumes at its global rolled-products division, which produces aluminum sheets for airplane wings, beverage cans and car parts. The unit’s shipments rose 10 percent to 448,000 tons and third-party sales gained 4.7 percent to $1.77 billion.
Still, worldwide aluminum supply will exceed demand by 535,000 tons, the company said. Global inventories of aluminum held in warehouses monitored by the LME are 5.2 million tons, little changed from the record level recorded in December.
Global Stockpiles
Kleinfeld said Alcoa estimates total worldwide stockpiles are about 10 million tons. Most of that metal is tied up in financing deals, the CEO said.
The LME price is “largely influenced by large-scale investors” who mostly base their decisions on macroeconomic news,’’ he said. “There’s a strong correlation of metal price and general economic news.”
Demand in Brazil will grow by 9 percent and North American demand will climb by 4 percent, as India and Russia grow by 7 percent and 6 percent, Alcoa said. North American demand will expand at an unchanged pace of 4 percent, it said.
“They continue to see consistent growth going forward,” said Kuni Chen, an analyst at CRT Capital Group in Stamford, Connecticut. “That’s a good indicator for other sectors that are reliant on those end-markets as well.”
To contact the reporters on this story: Sonja Elmquist in New York at selmquist1@bloomberg.net;
To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net
