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Alcoa bullish on downstream in 2013

Keywords: Tags  Alcoa, Klaus Kleinfeld, aluminum, automotive, aerospace, downstream

CHICAGO — Alcoa Inc. remains optimistic about prospects for its end markets, revising growth expectations upward for the automotive sector despite low aluminum prices.

Alcoa boosted its production forecast for the U.S. automotive market as new vehicle sales continued to be strong through June, pushing inventories down and prompting U.S. automakers to scale back seasonal summer plant shutdowns, Alcoa chairman and chief executive officer Klaus Kleinfeld said during the company earnings conference call July 8, stressing gains by aluminum, especially in passenger vehicle bodies.

Alcoa revised its North America automotive production growth forecast up to between 2 and 5 percent for 2013 vs. 2012 from zero to 4 percent previously.

Aluminum is moving from luxury vehicles into higher-volume, mass-production cars and trucks, a trend that “opens up enormous opportunities,” Kleinfeld said. Aluminum body sheet content per vehicle in North America, for example, is expected to increase from 14 pounds in 2012 to more than 55 pounds by 2015 and to surge to 136 pounds by 2025, he said. “We are talking 1 million tonnes (in additional demand) from auto sheet alone.”

Alcoa is also bullish on the North American commercial building and construction markets, Kleinfeld said, suggesting that the sector is “really picking up.”

On the aerospace front, Alcoa continues to expect 9 to 10 percent sales growth in 2013 as major airline producers Boeing Co., Chicago, and Toulouse, France-based Airbus SAS have seen their backlogs grow to 8,900 planes, or eight years of production, Kleinfeld said.

Long aircraft backlogs are also translating into more than 1,000 orders for new engines from companies like Pratt & Whitney Corp., East Hartford, Conn., and General Electric Co., Fairfield, Conn., he said, adding that even the struggling regional jet market is “rebounding.”

“The only uncertainty we have in the aerospace market these days is the defense side. Everything else is really pointing in the right direction, meaning up,” Kleinfeld said. Alcoa is also seeing gains on carbon fiber reinforced polymer aircraft, which do not use aluminum “skin,” thanks to next-generation fastening systems, castings and coatings, he said.

But the outlook for other end markets was more moderated, Kleinfeld suggested.

Alcoa expects a weaker market for industrial gas turbines in the second half of 2013, Kleinfeld said. That sector has been hurt in Europe by lower-priced coal and “subsidized” renewables while in the United States higher gas prices have enabled coal to “claw back” some market share it had lost, he said. Still, turbine utilization is up, which means increased demand for replacement parts if not for new turbines, Kleinfeld said.

In addition, Alcoa has narrowed its forecasted production decline in the heavy truck and trailer sector to 9 to 13 percent from 15 to 19 percent previously, Kleinfeld said. But while orders are up year-over-year and inventories down, stocks still remain higher than historical norms, he said.

And in the North American beverage can and packaging sector, Alcoa now expects a year-over-year sales decline of 2 to 3 percent in 2013 compared to previous expectations of a roughly flat market in part because the region “struggled” in May, he said.

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