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Alcoa earnings expected to buoy Wall Street

Daniel R. Patmore/Associated Press/Daniel R. Patmore/Associated Press

Global aluminum producer Alcoa Inc. has given the world a sneak peak into a world where the outlook for global commodity markets may not be as bleak as some forecasters expect.

Instead of a widely expected loss for the first quarter, New York-based Alcoa said rising demand by end-product customers and stabilizing markets helped push it to a profit of $94-million (U.S.), or 9 cents a share. That was lower than profit of $308-million in the year-earlier period, but it was a huge improvement compared with the loss of $191-million in the fourth quarter.

As the first company in the Dow Jones industrial average to report quarterly results, Alcoa typically sets the tone for earnings in the U.S. raw-material industry. Its better-than-expected results will surely encourage Wall Street, where analysts had expected a loss of 4 cents a share for the company, according to consensus estimates compiled by Bloomberg.

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Alcoa, the world's fourth-largest integrated producer of aluminum, has been hit in recent months by rising operating costs, especially in energy and raw materials, even as oversupply depressed prices.

In January, the 120-year-old company took matters into its own hands and announced a decision to curtail its global aluminum-smelting capacity by 12 per cent in a bid to improve profit margins.

"Challenges remain in this economy, but we approach them better prepared than ever before," Alcoa chairman and chief executive officer Klaus Kleinfeld said Tuesday.

Alcoa is the world's largest producer of primary and fabricated aluminum and its businesses, which stretch into areas ranging from aerospace and automotive to packaging, building and consumer electronics, are a microcosm of the broader global commodities spectrum.

In its statement of results, Alcoa said it is raising its 2012 global growth forecast for the aerospace market, and that it sees global growth in the automotive, commercial transportation, packaging, building and construction, and industrial gas turbine markets.

Its results should encourage base metals producers whose shares were battered in recent weeks, hurt by a worsening outlook for demand from China, one of the world's largest consumers of most commodities, as well as continued debt woes in Europe and a slow economic recovery in its main market, the United States.

"In the U.S., when things pick up a little on the industrial side it has a big impact on sentiment around the world, a big impact on sentiment in Canada," said Patricia Mohr, vice-president, economics and commodity market specialist at Bank of Nova Scotia.

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China released data on Tuesday showing purchases of refined metal, copper alloy and overseas products fell in March against the month before, sparking a tumble in prices for copper, aluminum and other base metals that China voraciously consumes.

Copper futures, for example, hit 12-week lows on signals of slowing demand from the Asian giant.

"One of the triggers for all this was [Tuesday's]data from China, which was somewhat better than expected but certainly pointing to slower economic growth down the road," said Bart Melek, head of commodity strategy at TD Securities Inc. in Toronto.

China has been the biggest spark for commodity markets for the past decade, driving a so-called supercycle in prices that had been expected to grind to a halt three years ago.

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Mining Reporter

Pav Jordan is a mining reporter for the Report on Business. More

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