Alcoa Seeks Refinery Extension

Aluminum producer, Alcoa Inc. (NYSE:AA - News) applied for a five-year extension of its environmental approval to expand its Wagerup refinery in Western Australia as the previous consent period has expired.

 

 

Alcoa suspended its proposed expansion of the Wagerup refinery in November 2008 after the global credit crisis curbed demand.

 

 

The Alcoa World Alumina & Chemical, or AWAC venture, 60% owned by Alcoa and 40% controlled by Melbourne-based Alumina, produces alumina, which is refined into aluminum, used in making aircraft and beverage cans.

 

 

Recently, Alcoa announced at its Investors Day at Davenport, Iowa, that its technology and innovative products are being positioned for profitable growth, particularly in the aerospace and automotive markets.

 

 

For rolled products Alcoa expects to add $2.5 billion to the top line by 2013. The company expects to achieve 50% to 60% of this revenue growth in 2011.

 

 

Most of the growth for Alcoa has come from the auto industry, where new fuel efficiency requirements are driving demand for lighter-weight car and truck bodies. Sales growth was also witnessed in the aerospace sector. The company’s aerospace business is expected to grow by 9% over the next four to five years due, in part, to increasing build rates in the aerospace industry.

 

 

The company is targeting to boost its engineered products business, which provides specialized aluminum products for various industries. Alcoa has set a revenue growth target of $1.6 billion by 2013 and forecasts to grow 40% to 45% growth in 2011.

 

 

Alcoa is lowering its cost position in the upstream businesses to capture increased value from growing aluminum demand, while driving profitable growth in the mid- and downstream businesses through innovative products and unique partnerships.

 

 

The company expects to generate more revenue from alumina as the company moves away from London Metal Exchange pricing to a system based on alumina spot price indexes. Alcoa expects its primary metal costs to come down once its new Ma'aden smelter in Saudi Arabia comes online in 2014.

 

 

Alcoa reiterated its estimate that global demand for the lightweight metal will grow by 12% in 2011 and double by 2020, driven by strong usage in developing nations.

 

 

Like in Alcoa’s other businesses, there is potential growth for the rolled products in the new emerging markets.

 

 

In October 2011, the company reported adjusted earnings of 15 cents per share, missing the Zacks Consensus Estimate of 22 cents. Adjusted earnings more than doubled from 6 cents reported in the year-ago quarter, but were 46.4% lower than the sequential quarter earnings of 28 cents due to lower metal prices, seasonal factors and weakness in Europe.

 

 

Revenues for the quarter were up 21% year over year to $6.419 billion, and were down from $6.585 billion in the sequential quarter. Alcoa’s end-markets demonstrated strong revenue growth, on a year-over-year basis whereas, sequentially the company experienced mixed market conditions.

 

 

Revenue was lower for both alumina and aluminum, down 5% and 1%, respectively, driven by lower alumina shipments and lower realized pricing in both businesses. In the end-markets, revenue increased in commercial transportation (6%) and aerospace (2%), while declines were seen in automotive (7%), industrial products (6%), building and construction (5%), and packaging (4%).

 

 

The company’s adjusted EBITDA was $821 million, up 36% from third quarter 2010, but down 21% from second quarter 2011.

 

 

Currently, Alcoa has a short-term (1 to 3 months) Zacks #5 Strong S4ell rating and a long-term (6 months) Neutral recommendation.

 

 

Alcoa faces stiff competition from Aluminum Corporation Of China Limited (NYSE:ACH - News) or Chalco.