Alcoa sees aluminum consumption drop

NEW YORK (Reuters) - Global consumption of aluminum is expected to decline 6 percent to 7 percent this year and further production cuts are possible, the chief executive of Alcoa Inc (AA.N: Quote, Profile, Research, Stock Buzz) said on Tuesday. Klaus Kleinfeld also told the Reuters Global Mining and Steel Summit that Alcoa expects to be cash flow neutral in the second half of 2009 and that the U.S. aluminum producer is looking at strategic opportunities with Chinese companies, including Chinalco. Just two months ago, when Alcoa reported a fourth-quarter loss -- its first in six years -- Kleinfeld told Wall Street analysts the company expected aluminum consumption to decline by 2 percent this year. But on Tuesday, he gave a gloomier forecast. "I would say we're probably more today in the minus 6 to minus 7 percent range. I'm talking global consumption. That's year over year." He said demand from the aerospace industry had held up, but not in the automobile and construction sectors. The price of aluminum has fallen some 60 percent in the last six months, in what Kleinfeld called "a perfect storm." Alcoa has curtailed production by about 18 percent, slashed 15,000 jobs worldwide and cut capital expenditure. Asked if there would be further production cuts, he said the company would consider all options, if the current economic environment does not improve, "but it's possible." He said global supply and demand for aluminum was "pretty balanced, but not when you separate China from the rest of the world." China has become a net importer and the West basically has an overhang, or surplus of more than 1 million tons, Kleinfeld said. He said Alcoa was interested in strategic ventures with Chinese companies, including Aluminum Corporation of China, or Chinalco. Last month, Chinalco agreed to pay Alcoa just over $1 billion for Alcoa's stake in Rio Tinto (RIO.L: Quote, Profile, Research, Stock Buzz). "We have some investment in China but I'm open to having other opportunities in the Chinese market or with Chinese players," he said. "We have strengths in our cooperation with Chinalco, but there are also cooperations that we have in place." Kleinfeld said most of the jobs cuts announced in January will be completed by the end of the first quarter. "The measures are all in place ... we will be cash neutral (in the second half). We are managing the company for cash." Alcoa's stock, which hit a 52-week low last week, rose 13.5 percent on Tuesday to close at $6.12 on the New York Stock Exchange.