When the world’s largest producer of a commodity is barely able to make profit, its performance reflects on results of other smaller companies that will be announced. Alcoa, the largest producer of Aluminium announced a 81 per cent drop in net profit for the June 2012 quarter. The company posted a net loss of $2 million for the June quarter after taking a hit of $63 million on account of settlement damages. Alcoa had reported a profit of $94 million in March 2012 and $322 million in June 2011.
It is clear that the aluminium industry is not in the best of its health despite a series of capacity shutdown by most of the major players. Investors will keenly be watching results of larger Indian companies in the space like Hindalco and Sterlite.
Following are the takeaways from Aloca’s results
- Aluminium prices at a two year low affected the company’s profitability resulting in the company barely breaking even.
- High inventories and a 20 per cent drop in prices of aluminium since March 2012, has resulted in a number of players making losses
- Companies globally are cutting down production and reducing inventories as China has slowed down.
- Recent production cuts has resulted in aluminium market back in deficit, however, prices might not rise as was witnessed in earlier cyclical markets, due to the sharp slowdown. Alcoa had announced a cut in production to the extent of 12 per cent in January, Rio Tinto Group, world’s second largest producer reduced its output at a New Zealand plant by 15 per cent. Norway’s Norsk Hydro ASA, the fifth largest producer announced last month a shutdown of 120,000 tonnes capacity in Australia.
- Alcoa Chief Executive Klaus Kleinfeld hopes that general economic sentiment has overtaken market fundamentals
- Global aluminium demand to grow by 7 per cent and China to grow by 11 per cent.
- Aerospace market to grow by 13-14 percent, automobile to grow by 4-8 per cent with US demand picking up by 14 per cent, beverage cans to grow by 2-3 per cent.
- Cut down in production in China has resulted in alumina market’s supply matching demand