Alcoa profit rises, but price concerns linger

Mon Apr 8, 2013 8:17pm EDT
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By Allison Martell

(Reuters) - Alcoa Inc (AA.N: Quote), the largest U.S. aluminum producer, reported a higher quarterly profit on Monday thanks in part to strength at its raw materials segment, but lower-than-expected revenue and an uncertain outlook dragged down the company's share price.

Stubbornly low aluminum prices have weighed on the company's business of mining bauxite, refining it into alumina and smelting alumina to produce aluminum.

"Most analysts when they update their spreadsheets probably will reduce their 2013 estimates (for Alcoa) because the metal price plunged so much in the last several weeks," said John Tumazos, an analyst at Very Independent

Alcoa, the first of the S&P 500 companies to report first-quarter results, is viewed as a bellwether for the materials sector, and some look to it as a gauge of the health of the broader economy.

The company maintained its forecast of 7 percent growth in global aluminum demand this year, and said it sees a tighter market, with supply falling.

Recent growth at Alcoa has come from its engineered products segment, which makes wheels, aircraft parts and other goods. In the just-ended quarter, after-tax operating income also rose in the hard-hit alumina and aluminum segments, where Alcoa has cut higher-cost capacity.

Since the start of March, the three-month aluminum price has hovered under $2,000 a metric ton (1.1023 tons) - a level close to the cost of production at many smelters - due to sluggish global demand and plentiful supplies.

"Aluminum prices are now down around $1,900 a ton," said Bridget Freas, an analyst at Morningstar in Chicago. "It's very difficult for the company to make any meaningful improvement in their earnings around that level."   Continued...

Klaus Kleinfeld, Alcoa Chairman and CEO arrives to meet with U.S. President Barack Obama and other CEOs at the White House in Washington February 5, 2013. REUTERS/Joshua Roberts