New York - Alcoa, suffering under the weight of a global aluminium glut, reported earnings that missed analysts’ estimates after the price of the metal fell for a fourth straight quarter.
The largest US aluminium company plans to split into two in a move analysts have said could help protect the manufacturing sector from the volatility of commodity prices. In the meantime, third-quarter net income fell to 2 cents a share from 12 cents a year earlier. Earnings excluding one-time items were 7 cents a share, trailing the 13-cent average of 12 estimates compiled by Bloomberg.
Alcoa’s plan will separate its units that supply car and aerospace companies from a legacy smelting and refining business. The lightweight metal, which is trading at less than half its July 2008 peak in London, has fallen 19 percent in the past year to average $1,623 a metric ton in the third quarter.
At the same time, average prices for alumina, the aluminium precursor that Alcoa refines from bauxite ore, dropped 5.9 percent.
“Aluminium prices still keep dropping,” Jorge Beristain, a Greenwich, Connecticut-based analyst at Deutsche Bank, said in an interview before the results were announced. “They’ve literally announced over $2 billion of contracts over the last three days so that’s great. But the reality is that they’re still saddled with a lagging downward pressure from their commodities business.”
Alcoa this week announced contracts with Airbus Group and Lockheed Martin worth a combined $2.1 billion, bolstering the manufacturing side of the business. On the upstream side, while the company has predicted that demand for the lightweight metal will grow this year by 6.5 percent globally, China has flooded the market, with shipments in the first seven months of the year surging 28 percent to 2.87 million metric tons, according to customs data compiled by Bloomberg.
At the same time, inventories of the metal that remained tied up because of high premiums, have careened back into circulation, eroding the surcharge that US and global warehouses charge to deliver the metal. The wait time for obtaining aluminium reached more than 700 days last year and was less than 300 days in Detroit and the Dutch city of Vlissingen last month, data on the London Metal Exchange website show.
BLOOMBERG