Alcoa Pares Aluminum Forecast as Trade-War Fallout Widens

(Bloomberg) -- Alcoa Corp. cited weakness in China in cutting its forecast for global aluminum demand for the second time in three months, adding to concerns that trade frictions are eroding the outlook for the industrial metal.

The company sees aluminum use this year growing 1.25% to 2.25%, compared with its previous estimate of 2% to 3%, as trade tensions and macroeconomic headwinds slower demand in China and the rest of the world, Alcoa said Wednesday when it reported second-quarter earnings.

Over the past year, Alcoa’s shares have fallen by about half amid demand concerns fueled by the U.S.-China trade war and declining prices for aluminum and alumina, which is used to make aluminum and is a high-margin business for the company. The results also come after analysts’ pushed their 12-month share-price target to the lowest in more than two years.

Aluminum supply will trail consumption by 1 million to 1.4 million metric tons, a narrower deficit than forecast in April, Alcoa said.

Still, stimulus in China, the biggest consumer of the metal, may help strengthen demand, Alcoa Chief Executive Officer Roy Harvey said Wednesday during the company’s earnings call.

Positive Impacts

“If you continue to see some of that slowdown inside of their economy, you’re going to see more stimulus that moves from financial to physical and to infrastructure,“ he said. “That will then give you a number of impacts positive impacts, particularly in aluminum.”

Aluminum rose 0.3% to $1,852 a metric ton at 1:44 p.m. on the London Metal Exchange.

The company estimates the global inventory of the refined metal at 10.7 million tons, about half of which are considered “unreported stocks,” Harvey said. About 2.5 million tons of the supply that’s not tracked by exchanges are in China, he said.

Alcoa also said it sees “return-seeking capital expenditures,’’ or spending on growth projects, at $120 million for 2019, down from the $150 million it projected in its first-quarter earnings presentation.

“We’re really tightening the belt to try to make sure that every capital dollar that’s spent makes a lot of sense,” Harvey said.

The earnings statement was released after the close of regular trading Wednesday. Alcoa fell 2.4% to $22.60 at 7:53 a.m. on Thursday, before regular trading in New York.

The Pittsburgh-based company reported a smaller adjusted loss for the second quarter than analysts had expected. It also posted adjusted earnings before interest, taxes, depreciation and amortization of $455 million, topping the $430.7 million average of analysts’ estimate compiled by Bloomberg. Lower pricing for alumina and aluminum was partially offset by higher energy sales and lower costs for raw materials, Alcoa said.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

To contact the editors responsible for this story: Luzi Ann Javier at ljavier@bloomberg.net, Joe Richter

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