Alcan returns to profit as aluminum prices rise

MONTREAL, Jan 31 - Alcan Inc. returned to profit in its fourth quarter on higher aluminum prices and by avoiding charges of the sort that caused a loss in the year earlier period, the company said on Wednesday.

Alcan, the world's second-largest maker of primary aluminum, said it earned $422 million, or $1.13 a share in the quarter.

That compared with a loss of $361 million, or 98 cents a share, a year earlier, when Alcan took charges for plant closures and write-downs.

Alcan said operating earnings were $406 million or $1.09 a share in the quarter, compared with $205 million or 54 cents a year earlier.

Stripping out noncash mark-to-market charges on derivatives of 17 cents a share, operating profit was $1.26 a share.

"They are in great shape if metal markets hold up, as we are predicting," said Victor Lazarovici, analyst at BMO Nesbitt Burns.

MONTREAL, Jan 31 (Reuters) - Alcan Inc. (AL.TO: Quote, Profile , Research) (AL.N: Quote, Profile , Research) returned to profit in its fourth quarter on higher aluminum prices and by avoiding charges of the sort that caused a loss in the year earlier period, the company said on Wednesday.

Alcan, the world's second-largest maker of primary aluminum, said it earned $422 million, or $1.13 a share in the quarter.

That compared with a loss of $361 million, or 98 cents a share, a year earlier, when Alcan took charges for plant closures and write-downs.

Alcan said operating earnings were $406 million or $1.09 a share in the quarter, compared with $205 million or 54 cents a year earlier.

Stripping out noncash mark-to-market charges on derivatives of 17 cents a share, operating profit was $1.26 a share.

"They are in great shape if metal markets hold up, as we are predicting," said Victor Lazarovici, analyst at BMO Nesbitt Burns.

Analysts were looking for Alcan to earn $1.30 a share, before exceptional items, according to a survey of 20 analysts by Reuters Estimates. Lazarovici said adding the 17 cents to Alcan's $1.12 income from continuing operations brings its profit figure to $1.29 a share.

Alcan said revenue rose to $6.22 billion from $5.05 billion, mainly because of higher aluminum prices and favorable pricing, products mix and volume in downstream businesses.

Cash flow from continuing operations was a record $1.1 billion, compared with $788 million a year earlier.

Chief Executive Dick Evans said he expects Alcan's cash from operations to top 2006's record $3 billion this year, provided aluminum prices keep rising.

"If the forward metals curves were to be correct, then we would expect slightly higher cash from operations," he told Reuters in an interview.

Alcan's 2006 cash from operations of $3 billion was double the 2005 figure of $1.5 billion.

Evans said cash generation is particularly important given the company's capital investment program, and dividend increase and share buyback plan, both unveiled in 2006.

"So far this year, metal prices have been quite strong, stronger than most people expected. That is obviously excellent news for us," Evans said. 

Alcan expects world primary aluminum consumption to rise by 6.7 percent this year, compared with a 6.8 percent rise in 2006. Production from new capacity and restarts is expected to increase world supply by 7.8 percent, compared with an estimated 6.3 percent rise last year.

That would result in a small aluminum inventory surplus of 200,000 tonnes, compared with a deficit of 160,000 tonnes last year, which means the market will remain close to being in balance for 2007, Alcan said.

Evans said a British Columbia utilities agency's rejection of a power sale agreement between the Canadian province and Alcan would likely delay a proposed $1.8 billion expansion of the company's Kitimat smelter by at least six months.

He said Alcan still hopes to reach a deal on the contract so it can proceed with plans to mod