Price rise fails to eliminate Alcoa's losses

A 9% rise in aluminium prices in the final quarter of 2009 failed to boost Alcoa’s results yesterday, which showed narrowed, but continued, losses due to “significant energy and currency headwinds”. Revenues for the Pittsburg-based aluminium producer rose 18% from the third quarter to $5.4 billion. But it announced a net loss of $277 million, compared to $77 million in the previous quarter and $1.19 billion in Q4 2008. Alcoa posted losses of $65 million related to higher power and currency costs. A recent European ruling on electricity tariffs also resulted in charges of $250 million for the company and has forced it to temporarily shut down its smelters in Italy. Leo Larkin, equity analyst at Standard & Poor’s, said the strength of the revenue figures was surprising, but that overall the results fell short of Wall Street expectations. Commenting on Alcoa’s Q4 revenues, Larkin said: “Partly it was the aluminum price and partly they had a higher volume of shipments for both aluminum and alumina, so there was an upside surprise on the volume, as well as the price.” Such trends are likely to be seen across the sector, according to Larkin. “In 2009 there was a lot of destocking of inventory by end-users, the companies themselves were working down their own inventories and sold out rather than producing more,” he explained. “A combination of a stronger global economy, plus some ordinary replenishment of inventories throughout the system should result in a higher volume of alumina and aluminum in 2010.” Speaking to analysts about the Q4 09 results yesterday, Alcoa’s president and chief executive officer, Klaus Kleinfeld, said the company had to “pull every lever” in order to cut costs in the face of a price crash and the demand destruction experienced earlier in 2009. The price of Aluminium hit a low of $1,253 per ton in February of 2009 but had risen to $2,320 per ton by Monday January 11, 2010. Michael Gambardella, equity analyst for North America metals and mining at JP Morgan, believes the aluminium price will continue to show strength, forecasting a 2010 price of $0.99 per lb as the economy recovers. In note published today he said Alcoa shares provided an attractive way to play a global economic recovery in 2010. Alcoa’s Kleinfeld said the company would also benefit from a 10% growth in demand this year, but predicted some key areas, such as aerospace and industrial gas turbine manufacturers, would continue to underperform. “Overall, we expect to see a relative improvement on 2009, but levels remain below historic norms,” he said.