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Aluminum price rise should help Alcoa in qtr.

Keywords: Tags  Alcoa, earnings results, Davenport, Tim Hayes, Barclays Capital, Dahlman Rose, Jefferies, Credit Agricole Standard & Poors

NEW YORK — Analysts anticipate Alcoa Inc. will kick off the earnings season with improved results over the prior quarter, largely due to a 4-percent uptick in the price of aluminum on the London Metal Exchange.

"Aluminum prices were higher sequentially. LME cash averaged $2,001 per tonne in the fourth quarter vs. $1,920 per tonne in the third (quarter). That will be enough to offset some very small headwinds from seasonal weakness in the downstream business and currencies," Tim Hayes, analyst at Richmond, Va.-based Davenport & Co. LLC, told AMM.

Davenport & Co. and Barclays Capital Plc estimate Alcoa will report net income of 7 cents per share. Meanwhile, Dahlman Rose & Co. LLC, New York, is forecasting 10 cents; New York-based Jefferies & Co. Inc., 6 cents; and France’s Crédit Agricole SA, 5 cents.

In the third quarter, Pittsburgh-based Alcoa reported a net loss of 13 cents per share, while in the fourth quarter of 2011 it recorded an 18-cent-per-share loss.

A second analyst agreed that the LME price increase should overshadow typical seasonal weakness. "I think the fourth quarter was a little worse for the downstream business, mostly because of seasonality but also because Europe’s still weak. It’s not much though," he said, estimating earnings at slightly above 6 cents per share.

Not all analysts agree, however. Leo Larkin, equity research analyst at New York-based Standard & Poor’s, said the rise in the LME aluminum price was too late in the quarter to have a significant impact on Alcoa’s earnings. He sees the producer breaking even in the fourth quarter.

A general consensus of 6 cents per share "may be right but there can be a lag, and the direction of the price was only positive in December," he said. "Considering how weak everything else seemed to be and how static the global economy was, (I think) people put more weight on (the LME price) than they should."

But Alcoa could revise its global aluminum demand numbers in its earnings results Tuesday. "I wouldn’t be surprised if they cut their estimate for global aluminum demand growth for 2012 from 6 percent to 5 percent," Hayes said. "They may also revise their view of the market balance (and) cut their deficit numbers. I don’t know if they’ll put markets into a surplus, but it will be closer to being in balance."

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