April 24 -- Alcan Inc., the world's second- largest aluminum company, said first-quarter profit rose 30 percent to a record as improved aerospace and construction demand boosted prices. The shares jumped the most in two months.
Net income rose to $591 million, or $1.60 a share, from $453 million, or $1.21, a year earlier, Montreal-based Alcan said today in a statement. Profit was expected to be $1.55, the average estimate of eight analysts in a Bloomberg survey. Sales rose 16 percent to $6.42 billion from $5.55 billion.
Alcan received about 16 percent more for each ton of aluminum compared with a year earlier, fueling record profit at its primary-metals business. Higher prices are prompting Alcan to expand in Canada and South Africa where the company is taking advantage of cheaper power sources to increase output.
"Alcan had a very good quarter with earnings and revenue above expectations," Tim Ghriskey, who manages about $1 billion as chief investment officer at Solaris Asset Management LLC in Bedford Hills, said today in an interview. "The stock is reflecting the good results."
Shares of Alcan rose C$2.46, or 4 percent, to C$63.80 at 4:10 p.m. in Toronto Stock Exchange trading, the biggest gain since Feb. 13. The stock has climbed 12 percent this year, compared with a 13 percent gain for New York-based Alcoa Inc., the largest aluminum producer by sales.
Expansion Plans
Alcan, led by Chief Executive Officer Richard Evans, plans to spend $1.8 billion in Quebec to add as much as 450,000 metric tons of smelting capacity after the Canadian province offered tax and power incentives. The company also is building a $2.7 billion smelter in Coega, South Africa, that will be able to produce about 720,000 tons of aluminum.
Alcan expects a "modest" global aluminum surplus of 200,000 tons this year, compared with a 162,000-ton deficit in 2006. The surplus is about equivalent to 0.5 percent of estimated total world supply. World demand growth for the metal likely will increase by 8.9 percent this year, compared with 6.9 percent in 2006, the company said.
Inventories of the metal will probably remain at "historically low levels" of about five and a half weeks, Alcan said. The forecast echoes similar comments made earlier this month by Alcoa.
Prices Rose
The price of aluminum sold by Alcan rose 16 percent in the quarter to $2,835 a ton from $2,454 a year earlier, the company said. Shipments were unchanged at about 1.09 million tons.
Alcan is planning to increase output after aluminum prices doubled in the past five years. China, the world's largest aluminum consumer, may use 20 percent more of the metal this year as economic growth fuels construction of skyscrapers, power lines and bridges.
"Industrial demand for aluminum in Asia and Europe is completely countering the slowdown in North America," Scott Burns, a metals and mining analyst at MorningStar Inc. in Chicago, said yesterday. "Alcan is well-placed for earnings momentum."
Alcan is seeing "very strong" demand from the cable and electric-conductor markets as industrial users substitute the metal for copper, Evans said in January. Copper prices have surged more than fivefold in the past four years on the London Metal Exchange while aluminum has doubled. Copper closed yesterday at $8,010 a metric ton, more than twice the $2,863 price for aluminum.
Substitution Battles
"Chinese demand has been galloping ahead and handily absorbing excess metal," John Hill, an analyst at Citigroup Inc. in San Francisco, said in an April 5 note. "Longer term, aluminum is the likely winner in the substitution battles, given its more modest price appreciation and competitiveness with copper."
Earnings before interest, tax, depreciation and amortization at Alcan's primary-metal unit rose $86 million to a record $844 million. Profit increased in three of the company's four
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