Alcoa Inc., the largest U.S. aluminum producer, cut its forecast for global consumption of the metal by 1 percentage point on slowing Chinese demand, triggering a decline in Asian stocks for a third day.
Demand will climb by 6 percent this year, the New York- based company said yesterday in its third-quarter earnings statement. That’s 14 percent less than its July forecast that usage would rise 7 percent.
“We do see a slight slowdown in some regions in end markets, and the main driver for this is China,” Chairman and Chief Executive Officer Klaus Kleinfeld said in a conference call with analysts. Chinese demand may pick up at the end of the fourth quarter because of stimulus spending, he said.
The forecast cut by Alcoa, typically the first company on the Dow Jones Industrial Average to report earnings, comes a day after the International Monetary Fund and Rio Tinto Group, the world’s third-biggest mining company, trimmed their growth outlook estimates for China. Aluminum prices in London touched a 34-month low in August as global supply exceeded demand.
“The global economy is clearly slowing,” Lloyd O’Carroll, a Richmond, Virginia-based analyst for Davenport & Co., said yesterday in an interview. “That’s what the IMF said today and so I think what Alcoa is doing is consistent with that.”
Alcoa fell 0.9 percent to $9.05 at 7:49 p.m. yesterday after the close of regular trading in New York. The MSCI Asia Pacific Index slipped 0.8 percent at 12:11 p.m. in Tokyo, while Aluminum Corp. of China Ltd., the nation’s biggest producer, declined as much as 2.1 percent in Hong Kong.
Demand from heavy-truck and trailer manufacturing will fall in 2012, Alcoa said. It now sees Chinese truck and trailer output declining as much as 21 percent, compared with a drop of as much as 8 percent projected three months ago. Chinese can and packaging growth may be 8 percent, down from Alcoa’s July forecast of as much as 20 percent.
The IMF yesterday cut its global growth forecast and lowered its projected expansion for China, the world’s biggest aluminum user, by 0.2 percentage point annually, to 7.8 percent this year and 8.2 percent in 2013. London-based Rio, which has pulled back from projects as sluggish global growth reduced demand for metals, yesterday lowered its estimates for China’s growth to below 8 percent.
Alcoa had a third-quarter net loss of $143 million, or 13 cents a share, compared with net income of $172 million, or 15 cents, a year earlier as sales dropped 9.2 percent. Excluding costs related to environmental remediation and the settlement of a lawsuit brought by Aluminium Bahrain BSC, Alcoa had per-share profit of 3 cents. The average of 18 estimates compiled by Bloomberg was for break-even earnings per share.
“We are clearly seeing the impact of a Chinese slowdown globally and it’s indicated in Alcoa’s numbers,” said Nader Naeimi, Sydney-based head of dynamic asset allocation at AMP Capital Investors Ltd., which manages almost $100 billion.
Alcoa reiterated that demand will increase this year in the global aerospace, autos, packaging and construction industries.
Alcoa said it improved productivity across all four business units. Its rolled products business posted the highest ever after-tax operating income and the engineered products and solutions segment had a record margin on earnings before interest, taxes, depreciation and amortization.
Total sales fell to $5.83 billion from $6.42 billion, beating the $5.56 billion average of 10 estimates.
Alcoa settled a four-year-old racketeering lawsuit brought by Aluminium Bahrain, the state-owned smelter also known as Alba, both companies said yesterday. Alba filed the civil suit in 2008 alleging that Alcoa bribed officials in Bahrain in order to charge more for alumina. Alba said it paid $500 million more than it should have.
Alcoa will pay Alba $85 million in two cash installments and agree to a long-term sales agreement, without admitting liability. Alba said the settlement has a total value of $447 million.
Alcoa, London-based Rio Tinto Group, Norway’s Norsk Hydro ASA and closely held Zeeland Aluminum have cut 1.21 million tons of production capacity since mid-2011, according data compiled by Bloomberg.
Aluminum for delivery in three months on the LME averaged $1,950 a metric ton in the third quarter, 20 percent less than a year earlier. It traded at $2,042.50 a ton at 2:12 p.m. Sydney time.
Prices below $2,000 may drive more production cuts, Ken Hoffman, a Bloomberg Industries analyst, said last week.
Kleinfeld said that Alcoa predicts global demand will exceed supply by 262,000 tons this year.
The aluminum price is “decoupled” from the supply and demand “fundamentals” of the market, and instead is being influenced by investors’ concerns about the European debt crisis and the slowdown in China, he said on the call.
“The macro factors are currently dominating the pricing situation,” he said. “But it can reverse very, very quickly.”
Aluminum will average $2,212 a ton next year, according to the median of 22 analyst estimates compiled by Bloomberg. The metal traded at over $3,300 in 2008 before the financial crash, and reached a 2011 intraday high of $2,803 a ton.
Alcoa is organized into four segments: alumina, which mines bauxite and processes it into the precursor to aluminum; primary metals, which smelts aluminum; flat-rolled products, which makes sheets used in beverage cans as well as airplane wings and car parts; and engineered products and solutions, which makes aerospace fasteners, turbine blades and truck wheels.
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