Alcoa trims its aluminium demand outlook for China

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NEW YORK – Alcoa said on Tuesday it lowered by 1 percentage point its outlook for China's aluminum consumption growth in 2012, but kept its forecast for global demand growth at 7%.

In 2011, global primary aluminum use grew by 10%.

Alcoa now expects China's aluminum demand will grow by 11% in 2012, down from the 12% pace it projected in early January, chairperson and CEO Klaus Kleinfeld told analysts on the company's first-quarter conference call.

It also trimmed its projected 2012 outlook for Asian aluminum use minus China to 8% from 9% previously.

Consumption increased by 15% in China and by 10% in Asia excluding China during 2011.

The aluminum giant left its outlook for India's demand growth at 10%, matching last year's growth rate.

"We also remain confident about the consumption increase patterns that we're seeing in North America, Brazil, India and Russia. So, that's all good," said Kleinfeld.

Alcoa continues to project a primary aluminum deficit for 2012, but cut that as well to 435 000 t from a 600 000-t deficit estimated in early January.

It lowered the deficit it sees for China in 2012 to 350 000 t and now looks for a small 85 000-t shortfall for the rest of the world, where the company had previously predicted a 250 000-t surplus for this year.

For alumina, the key ingredient used to produce the shiny metal, Alcoa now expects a surplus of one-million tons, whereas it had previously looked for supply to match demand in 2012.

Last week, Alcoa announced that it planned to cut its own alumina production in the Atlantic region by 4 percent, becoming the first refiner to take measures aimed at reducing oversupply that has lowered prices to around $300 a ton.

Turning to China, the CEO pointed out that about 80% of its alumina refineries sit in the higher end of the global cost curve and that it imports about 60% of the raw material bauxite needed to make alumina and ultimately aluminum.

He added that over 90% of China's aluminum smelters and alumina refineries are coal powered, well above the industry norm, which, when combined with a falling metal price and rising input costs, suggest that about a third of China's smelting capacity is cash negative.

"If you add this all up you can see that this is not a very healthy and not a very competitive industry structure," the executive said, setting up for his reasons why China's plans to rapidly expand its aluminum industry into its western regions would unlikely improve its structural imbalances in the long term.

He argued that the massive $45-billion investment needed to set up smelting operations in the West and the environmental impact of using coal and scarce water resources would be too costly for the roughly 100 000 new jobs it would create.

Still, Kleinfeld said, Alcoa expects healthy sales and production increases for China in all of the main aluminum consuming market segments during 2012.

The company raised its 2012 global sales growth projections in only two of the six main aluminum market segments from the forecasts announced in January.

It left its outlook for beverage cans steady at 2% to 3% sales growth and barely lowered production growth targets for the automotive and heavy truck and trailer segments.

It lifted 2012 global aerospace sales growth outlook to 13% to 14% from the previously projected gains of 10% to 11% in early January, but cut commercial building growth outlook by 1.5 percentage points to 2.5% to 3.5%.

Though it whittled down its forecasts for China's 2012 sales and production growth in all segments except beverage cans, which it left at a hefty 15% to 20% pace, Kleinfeld said, "A little softer but still good, good growth (in China)."

Pittsburgh-based Alcoa surprised Wall Street with a first-quarter profit after a fourth quarter of 2011 loss. Results beat analysts' forecasts for a 4 cent per share loss.