Alcoa Earnings Beat Q2 Estimates

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July 8 (Bloomberg) –- Bloomberg’s Ken Hoffman discusses Alcoa earnings beating Q2 estimates with Julie Hyman on "Street Smart." (Source: Bloomberg)

Investors were relatively optimistic but alcoa came in even above those increased estimates here, and i know part of it has to do with the premium that customers in north america pay for aluminum.

Can you tell us more about how that premium orcs?

Sure, when i buy aluminum, my contract says i have to pay the price of aluminum that we see at the exchange which is the london metal exchange, plus the shipping and handling charge.

For many years that was 50 or $60 per metric ton, but what happened was a number of the large traders sort of seized upon the fact that most of the warehouses have been shut and there is really all more and -- only one major warehouse in the united states which is in detroit, and they began to squeeze the amount of metal coming out of the warehouse.

At the beginning of the year you are paying 200 dollars -- $200 per metric ton to get that out, now you pay $400 per metric ton and that is helping alcoa.

How much of the earnings growth is accounted for in the premium?

If you look at the numbers, it looks like quite a bit of the numbers didn't come through, about $100 million but year-over-year about $180 million came from cost reduction.

Alcoa has been very aggressive in shedding the high cost facilities, and so those things -- and reducing the headcount so those things were a big part of the earnings but what has not come through yet is the raw material business is still suffering even though the price of box item is starting to trend up pretty strongly.

That probably comes in the second half of the year as what everyone is waiting for, the aluminum truck that hits with the ford f1 50. that speaks to the engineered side of the business, alcoa has stuff made -- it is helping acquisitions at that front, how much is is this going to help growth?

For the people who really like alcoa, this is what they are pending their hopes on, they have a net -- a nice outline about the dreamliner using $4 million worth of aluminum, and then you have the ford f1 50, which can add three and a half million tons to north american aluminum demand, which is a huge positive, we're seeing about five times the earnings power from the steel and aluminum that goes into a car versus what goes into a beverage can.

It sounds like this is good for the future of alcoa.

Ken hoffman, thank you for

This text has been automatically generated. It may not be 100% accurate.

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