Alcoa pins hopes on stimulus plans

ALCOA, the largest US aluminium producer, expects government economic stimulus spending in China and the US to boost metal demand enough to help the company start generating cash again. China's measures have spurred infrastructure projects and increased consumer spending, pushing domestic aluminium demand beyond supply for the first time since the global recession forced metal producers to curtail output, chief executive Klaus Kleinfeld said yesterday. "One of things that the Chinese Government very smartly does these days is that they are stimulating people that it's good to not have too much savings and to buy new cars and get a new air-conditioner," Mr Kleinfeld said. Alcoa, the first company in the Dow Jones Industrial Average to announce results for the three months to June, yesterday reported a second-quarter loss, excluding certain items, of US26? a share. The result was smaller than analysts' average estimate in a Bloomberg survey for a US38? loss. But according to chief financial officer Charles McLane the company will be "free cash-flow positive very soon." The loss was New York-based Alcoa's third straight, the first time that has happened since 1992. Alcoa rose US38?, or 4 per cent, to $US9.84 in trading after the official close of the New York Stock Exchange. The shares have fallen 16 per cent this year. The Chinese Government is spending 4 trillion yuan ($A746 billion) to stimulate its economy, the world's third-largest. The US Government's economic stimulus plans, including incentives for consumers to trade in older cars, would help revive aluminium demand, Mr Kleinfeld said. Investors hoping that Alcoa will buoy the sharemarket during the earnings season may be in for a disappointment. During the past 16 quarters, the company's results predicted the direction of the Standard & Poor's 500 Index only half the time. When Alcoa beat analysts' estimates, the S&P 500 rose four times, while the index dropped four times after lower-than-expected results. Alcoa was as valuable as a "coin toss", said Philip Orlando, chief equity market strategist at Federated Investors Inc in New York. Stimulus programs had "artificially boosted demand for cars", Gijsbert Groenewegen, a partner at Gold Arrow Capital Management in New York, said. source:business.smh.com.au