Alcoa of Australia Ltd., jointly owned by Alcoa Inc. (AA) and Alumina Ltd., announced that it will review the future prospects of its Point Henry aluminum smelter in the state of Victoria due to tough global economic conditions.
As per Alcoa, the aluminum industry has been adversely affected by a number of factors, including metal prices, input costs and exchange rates, which have made Point Henry smelter unprofitable. Moreover, the smelter is under review due to the increasing value of Australian dollar, which is exerting pressure on the market
The review is expected to be completed by the end of June 2012. Point Henry operations include the smelter and aluminum rolling mill, having around 900 people. However, the aluminum rolling mill is not a part of the review.
Alcoa stated that it plans to continue operating the Point Henry smelter while achieving its profitability targets. However, it may reduce production as a result of the review.
Recently, Alcoa reported its results for fourth-quarter 2011. The company posted a loss from continuing operations of $193 million, or 18 cents per share in the quarter compared with a profit of $172 million, or 15 cents per share in the same quarter of 2010.
Excluding restructuring charge of $159 million and other items, Alcoa's loss came in at 3 cents per share, below the Zacks Consensus estimate profit of 1 cent. It is the company's first loss in the last nine quarters.
Though revenues for the quarter rose 6% year over year to $6 billion, business was down in most areas including construction, industrial products, packaging and commercial transportation. Besides, sales to automobile manufacturers fell 2%.
For 2012, Alcoa expects global aluminum demand to grow 7% due to the global deficit in primary aluminum supply.
Alcoa’s growth projection is ahead of the 6.5% rate, which is required to meet its forecast of doubling the global aluminum demand between 2010 and 2020. In addition, Alcoa believes that growing demand for aluminum, combined with market-related production cutbacks, will result in a global aluminum industry deficit of 600,000 metric tons in 2012.
Currently, Alcoa retains a Zacks #3 Rank indicating a short-term (1 to 3 months) Hold rating. Moreover, we are maintaining a long-term (more than 6 months) Neutral recommendation on the stock. Alcoa faces stiff competition from Aluminum Corporation Of China Limited (ACH), Rio Tinto plc. (RIO) and BHP Billiton Ltd. (BHP).
ALCOA INC (AA): Free Stock Analysis Report
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RIO TINTO-ADR (RIO): Free Stock Analysis Report
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