Alcoa posts 4Q loss on weaker aluminium demand

Alcoa Inc on Monday started off the earnings season by posting its first net loss in more than a year.

The New York manufacturing giant's profits dwindled in the fourth quarter with fewer orders for its products as uncertainty grew about the impact of Europe's debt crisis on the global economy.

Also, manufacturing activity declined in China, the world's second biggest economy behind the United States.

Aluminium prices dropped by about 12 per cent in the fourth quarter, and the price has fallen more than 27 per cent from its peak in April.

Days ahead of the release of its earnings report, Alcoa announced it would be shutting down or curtailing 531,000 metric tonnes of smelting capacity.

Alcoa's performance can reflect global economic trends because its products are used in a wide range of businesses such as aircraft, automobiles, commercial vehicles like semitrailers, construction and pipes for the oil and gas industry. About half of its sales are in the US and an additional 27 per cent are in Europe.

As a result, Alcoa has looked for ways to reduce costs. It plans to cut global smelting capacity 12 per cent by closing a smelter in Alcoa, Tennessee, and curtailing operations in Texas, Italy and Spain.

Alcoa said that its net loss was US$191 million, or 18 cents a share, in the October-to-December quarter. That compares with income of US$258 million, or 24 cents a share, a year ago. It marked the company's first net loss since the first quarter of 2010.

The most recent quarter included US$185 million in one-time charges, the bulk of which came from its plan to close and curtail some smelting operations. Excluding that, the loss was US$34 million, or three cents a share.

Alcoa also said its earnings suffered from higher energy and transportation costs.

Rise in revenue

Revenue rose to US$6 billion from US$5.65 billion, although business was down in most areas, including construction, industrial products, packaging and commercial transportation. Sales to automobile manufacturers fell two per cent.

Alcoa had record higher revenue from its aerospace and industrial gas turbine businesses.

Argus Research analyst Bill Selesky said many customers used aluminium that they had on hand rather than order more, because they were concerned about the global economic environment. He said he has seen similar trends among chemical, steel and copper companies.

Selesky does not expect aluminium demand to pick up until customers feel more comfortable about the economy. He said that could happen around the middle of this year.

For all of 2011, Alcoa reported net income of US$611 million, or 55 cents a share, compared with US$254 million, or 24 cents per share, in 2010. Revenue rose to US$25 billion from US$21 billion.

Looking ahead, Alcoa CEO Klaus Kleinfeld predicted that cutbacks in aluminium production will create a global deficit in aluminium supplies of about 600,000 metric tonnes this year.

He also forecast that global aluminum demand will increase seven per cent in 2012.

In the coming year, the company expects that European sales will remain weak and that high costs for energy and raw materials will continue to drag on earnings. Global aerospace and automotive demand for aluminium is seen staying strong.

While European markets may be weak, Alcoa sees improving demand this year in China, especially for beverage-can packaging, automotive and commercial vehicles, and construction.

Alcoa released its earnings after the market closed Monday. Its shares ended the day up 27 cents at $9.43 a share. In the past 52 weeks, the stock has ranged from $8.45 to $18.47 a share.

Alcoa was the first company listed in the Dow Jones industrial average to report fourth-quarter results.