Alcoa Slammed by Weak Prices in Third-Quarter 2015, but Sees Growth on Manufacturing Side

Researched by Industrial Info Resources (Sugar Land, Texas)--Weak aluminum prices were just one factor weighing on aluminum giant Alcoa's (NYSE:AA) (New York, New York) third-quarter 2015 results, which saw a steep revenue decline after the company divested and closed several low-margin businesses. Industrial Info is tracking 49 active Alcoa projects worth $7.2 billion.

As part of its Global Metals & Minerals Project Database, Industrial Info is following two major Alcoa projects in Guinea: the expansion of a bauxite mine in Sangaredi, and the construction of an alumina refinery in Kabata, both valued at $1 billion. The Sangaredi project involves increasing production capacity at the mine from 12 million to 23 million tons per year of bauxite, which is to be used as feedstock at the proposed Kabata refinery, itself expected to produce 1.5 million tons per year of alumina. Both projects are in their planning phases, where plenty of factors could increase, decrease or eliminate the expected spending.

In the second half of 2016, Alcoa is expected to effectively split into two entities: a "value-add" company that will include the Global Rolled Products, Engineered Products and Solutions, and Transportation and Construction Solutions segments; and an "upstream" company that will focus on the bauxite, alumina, aluminum, casting and energy markets. Despite the market glut, Alcoa expects aluminum demand to grow 6.5% in 2015 and double between 2010 and 2020. For more information, see September 29, 2015, article - Alcoa CEO: Company Split to Create Separate 'Value Engines'.

The split is expected to protect Alcoa's manufacturing operations from the tough commodities market; aluminum is trading at less than half its July 2008 peak on the London exchange, and it has fallen 19% in the past year to average $1,623 a metric ton. A major addition to Alcoa's value-add side is RTI International Metals (Pittsburgh, Pennsylvania), now called Alcoa Titanium & Engineered Products, which was acquired for $10 million in the third quarter. The business supplies advanced titanium and other specialty metals products to the aerospace, defense, oil & gas and medical device markets, according to Alcoa's Web site.

Alcoa signed two deals in the third quarter that will use the new business's titanium capabilities to construct aircraft parts and systems: a roughly $1.1 billion contract with Lockheed Martin (NYSE:LMT) (Bethesda, Maryland) for F-35 Strike Fighters, and a roughly $1 billion contract with Airbus SAS (Blagnac, France) for high-tech fastening systems.

"Aluminum demand is going to grow 6.5% this year worldwide, [including] 9.3% in China, and we believe that this decade is a decade where demand is doubling--and everything that we see so far is actually ahead of this number," said Klaus Kleinfeld, the chairman and chief executive officer of Alcoa, in a conference call.

Alcoa also purchased aerospace-component makers Tital GmbH and Firth Rixson in the past two years, and is expanding and restarting automotive plants in response to demand. Among them is the company's flagship facility in Alcoa, Tennessee, where a $300 million expansion wrapped up last month and began shipments, four months ahead of schedule.

"As we look to the fourth quarter, we expect aerospace to remain strong with continued share gains driven by innovation in manufacturing and productivity improvements," said William Oplinger, the chief financial officer for Alcoa, in the conference call. "These gains will be offset somewhat by continued softness in the European industrial gas turbine markets, combined with a typical seasonal slowdown we experienced in the fourth quarter."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and ten international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.