Alcoa Inc (NYSE:AA) profits on a slight roll- Aluminum prices will plateau

by Fiona Gabriel | Wednesday, Apr 10, 2013 | 653 views

Northern, WI 04/10/2013 (usastockreport) – The largest producer of aluminum, Alcoa Inc (NYSE:AA) (Closed: $8.39%) has reported a higher profit for the quarter. This has been attributed partly to a boost in its raw materials unit. However, the company revenue did not meet projected estimates and uncertainty in the market had brought down its share prices. The company mines bauxite, refines it into alumina, smelts it and turns it into aluminum. The prices of the light metal have been stuck at an all-time low. In the current scenario, analysts are bound to lower their 2013 estimates for the company as aluminum prices have been on the downtrend for quite a few weeks in succession.

Rolling steady

Alcoa is the first S&P 500 companies to have reported its first quarter results and is a beacon of sorts for the materials industry and its health is generally an indication of the state that the broader economy is in. The company’s projected forecast was 7 percent which will be maintained by it. The company is anticipating a pull-back in supply and projects a tightening in the market. Alcoa’s most recent growth has been largely attributed to its engineered products segment. This unit makes aircraft parts, wheels in addition to several other products. In the quarter that ended in March there was a rise in its operating income including taxes. Since the beginning of March, the price of aluminum has stagnated at a three-month plateau of $2,000 per metric ton.

Production cost Vs market price

This price is almost what the production cost for most smelters is. An increase in supplies and an overall global decrease in demand has been the reason for this stagnation. However, what has caused the most current downtrend is that aluminum prices have now touched a low of $1,900 per ton and the chances of garnering any significant profits at that rate are a very difficult proposition for Alcoa. This slump in prices of the metal has led to some speculation in the market that the company will be offloading some of its raw material assets. Klaus Kleinfeld the Chief Executive Officer has neither confirmed nor ruled out the possibility of that happening and said that this was not the moment for speculation.

Over-stocked

William Oplinger the Alcoa Chief Financial Officer said that in the current quarter, the company is looking forward to a higher demand for rolled products from the automotive and aerospace industries but added that excessive inventory has hurt its prices. He said that there is expected to be a rise of 5 percent in earnings from engineered products and a 15-20 percent rise in earnings from rolled products. In comparison to the first quarter the alumina and alumina combined earnings would remain standstill he said.

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