Buried in the poor first quarter results for Alcoa is the reason why it, Rio Tinto and BHP Billiton remain attracted to aluminium, and why the US economic slowdown won’t have any significant impact on the global market, if at all.
Demand from China is booming and this year could make up 36% of total world demand, compared to 31% in 2007.
Chinese demand will be more than twice that of the US, which is expecting to see a second year of contracting sales because of the economic slump and housing problems.
Alcoa, the world’s third largest aluminium company, reported a 54% drop in first quarter profits because of higher energy costs and the impact of the weak metal prices, and a lower US dollar on offshore costs (which offset the impact on sales of products in US dollars).
Alcoa was the first company in the Standard & Poor’s 500 Index to report results for the first three months of the year when it released its figures late Monday, US time.
Net profit fell to $US303 million from $US662 million in the first quarter of 2007.
That was worse than the market was expecting but analysts claimed higher metal prices and strong demand from Asia meant the first quarter results would be ignored.
Alcoa fell from being the world’s largest aluminium producer last year after a merger that led to the creation of Russia’s Rusal, and Rio Tinto’s $US38.1 billion takeover of Alcan Inc.
Alcoa and Aluminum Corp. of China agreed to buy a 12% stake in the Rio Tinto London-listed shares in February, but apart from reaffirming that move in yesterday’s briefing, there was little new information on where the duo now goes with the Rio holding.
The analysts’ briefing from Alcoa revealed it is looking at an 8.5% growth in world metal demand in 2008, to around 41.2 million tonnes, thanks to a 24% rise in demand from China to 14.9 million tonnes.
Indian demand will rise by 8.3% and Europe will be higher, as will the rest of Asia and countries like Russia and Brazil.
Chinese demand this year will be about 14.9 million tonnes, compared with 6.8 million tonnes for the US. US consumption is forecast to fall 5% this year as the recession bites, but that will be better than the 9.5% fall for 2007.
Chinese demand this year of 24% will be slower than the 37% gain in 2007.
Alcoa expects the world market to be in a small surplus of 100,000 tonnes of metal, compared to around 300,000 tonnes last year and the deficit of 600,000 tonnes in 2006.
World metal prices have picked up in recent weeks as investors have returned to the commodity sector.
