Alcoa bounces back as global aluminum consumption continues to improve

After nine months of losses, the financial picture for Alcoa has finally improved as the company reported a $77 million net income for the third quarter.

RENO, NV - 

Alcoa finally bounced back to profit for the first time in nine months, as corporate officials gave a rosy forecast for global aluminum consumption in the second half of this year.

The Pittsburg-based company Wednesday predicted an 11% growth rate in global aluminum consumption during the second half of this year, partially attributed to tight scrap conditions in the western world and emerging market demand.

In a conference call with analysts to discuss financial result, Alcoa CEO Klaus Kleinfeld predicted global alumina supply and demand will also be in balance for the second half of this year.

Even China's aluminum surplus is expected to disappear once that nation's economy "comes to full speed," Kleinfield suggested. The Chinese government ban on new licenses for smelters for the next three years is also expected to limit the growth of aluminum supplies.

Meanwhile, Kleinfeld noted that destocking has left the supply chain depleted of the months of accumulated inventories that had piled up. In fact, he added, producer and Japanese stocks are at an all-time low.

Alcoa forecast a 5% to 10% increase in global automotive sales during the second half of this year, which will be countered by a 5% sales decline in commercial building and construction. Kleinfeld also predicted that aerospace deliveries will remain flat as will beverage can packaging sales.

The company reported a net income of $77 million or eight-cents per share for the third quarter, compared to a net profit of $268 million or 33-cents per share during the third quarter of 2008. However, for the first nine months of this year, Alcoa reported a net loss of negative $874 million or negative 95-cents per share, compared to a net profit of $1.1 billion or $1.36 per share.

Restructuring and special items in the third quarter of this year totaled $34 million or 3-cents per share. These items include a gain on the completion of a transaction to acquire bauxite and alumina refining interests in Suriname and restructuring charges of $17 million before tax.

Alcoa underwent substantial cost-cutting, cutting about 20,000 jobs since the global economic downturn began. The company has also reduced production capacity by 20%. "The financial and operational measures we took in the first half of the year are having a strong positive impact on our cash position and profitability," Kleinfeld said. "Despite unfavorable currency and energy headwinds, our performance indicates that Alcoa is weathering the economic storm and is in excellent shape to benefit when the market recovers."

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