Alcoa Raises World Aluminum Forecast on China Demand

Sept. 3 (Bloomberg) -- Alcoa Inc. Chief Executive Officer Klaus Kleinfeld raised his 2009 forecast for global aluminum consumption because of demand triggered by China’s stimulus spending. The largest U.S. aluminum producer expects China’s consumption of the lightweight metal to rise 4 percent this year, compared with Alcoa’s previous prediction of zero growth, Kleinfeld said in an interview in New York. That alters the company’s outlook for global demand to a decline of 5.5 percent from a previous forecast of minus 7 percent, Kleinfeld said. Alcoa is counting on economic-stimulus spending in China to boost metal demand enough to help the company return to profitability after three consecutive net losses. Chinese imports of aluminum and aluminum products almost doubled in the first seven months of 2009 compared with a year earlier, according to the country’s customs data. "China is back," Kleinfeld said. "They had a lot of shovel-ready projects" planned for 2011, which the government is starting now in response to the global economic slowdown. "Also, the perceived deficiencies in the social network have been improved with the stimulus program, and that directly leads to people looking to upgrade from motorcycles to cars." Asked for a 2009 earnings forecast, Kleinfeld declined to provide a number, saying only that stimulus spending in the U.S. and China would affect Alcoa’s results "positively." The company is predicted to post a 2009 loss of 90 cents a share, the average estimate of 19 analysts surveyed by Bloomberg. Second-Half Forecast China’s second-half aluminum consumption will rise 8 percent from a year earlier, Kleinfeld said. Alcoa will be "free cash flow positive very soon," Chief Financial Officer Charles McLane said on July 8, after reporting a second-quarter loss. Alcoa fell 4 cents to $11.55 at 4:15 p.m. in New York Stock Exchange composite trading on Sept. 2. The shares have declined 62 percent in the past 12 months. The Chinese government is spending 4 trillion yuan ($590 billion) to stimulate its economy, the world’s third- largest after the U.S. and Japan. "Without China, things would be much worse," Luther Lu, an analyst at Friedman, Billings, Ramsey & Co. in Arlington, Virginia, said in a telephone interview. Aluminum futures in Shanghai have jumped 16 percent since April 1, prompting smelters to restart idled capacity and increasing demand for alumina, a raw material. ‘Bullish Sentiment’ "For the aluminum price to get a meaningful recovery, you need the rest of the world," Lu said. "When China’s demand is up, it certainly provides bullish sentiment for all commodities, and that will help Alcoa." Aluminum on the London Metal Exchange has slumped 32 percent in the past 12 months as the global recession curbed demand for raw materials.The price has rebounded 20 percent this year after a record 36 percent decline in 2008. The U.S. recession "is bottoming out" and poised for "a slow return," while Europe is "a mixed picture," Kleinfeld said in the interview. "Outside of China, the recovery is nonexistent," John Stephenson, who helps manage about C$1 billion ($910 million) at First Asset Investment Management in Toronto, said in a telephone interview. First Asset holds about 1 million Alcoa shares. Aluminum Inventories Aluminum prices may rise even as inventories monitored by the London Metal Exchange are near record highs because most of the stockpiled metal is locked into financial arrangements that make supplies inaccessible to users, Kleinfeld said. "Almost all of it is tied up in financing deals" creating short-term tightness in supplies, Kleinfeld said. The metal is tied up in so-called cash-and-carry trades, which let speculators sell forward futures when buying the commodity on the spot market. Aluminum inventories monitored by the LME have almost doubled this year to 4.61 million metric tons.

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