Alcoa Sees Aluminum Use Climbing on China Recovery: CommoditiesSonja Elmquist
Alcoa Inc., 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, transport 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. “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 metric 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 last year, according to Alcoa.
China’s economic growth probably quickened to 7.8 percent in the fourth 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 quarterly gross domestic product data as well as December industrial production, retail sales and fixed-asset investment on Jan. 18.
Aluminum for immediate delivery on the London Metal Exchange averaged $2,021 a ton in 2012. The metal will average $2,125 this year, according to the median of 19 analyst 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 fourth-quarter sales fell to $5.9 billion from $5.99 billion, beating the $5.6 billion average of 11 analyst estimates compiled by Bloomberg.
Net income was $242 million, or 21 cents a share, compared with a loss of $191 million, or 18 cents, a year earlier. 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.
Alcoa fell 0.2 percent to $9.08 at the close in New York. The shares have declined 3.7 percent in the past 12 months, while the Dow Jones Industrial Average rose 8.1 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 this year, the New York-based 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.
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 usage will climb by 4 percent, as India and Russia grow by 7 percent and 6 percent, Alcoa 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.”