Alcoa Expects ‘Giant Sucking Sound’ as Demand Returns (Update1)

May 29 (Bloomberg) -- Alcoa Inc., the largest U.S. aluminum producer, said distributors of the lightweight metal are showing renewed buying interest and will generate a “giant sucking sound” of demand when the global economy revives. Metal distributors, who have let aluminum inventories decline near to zero, have begun seeking aluminum price quotations on concern that they won’t be prepared to meet orders when demand returns, Alcoa Chief Executive Officer Klaus Kleinfeld said today in a presentation at a Sanford C. Bernstein & Co. conference in New York. Distributors “know if the green shoots turn over to become demand, they will not be able to supply,” Kleinfeld said. “The distribution chain will generate this giant sucking sound of demand.” Kleinfeld has idled about 20 percent of production, slashed 13,500 jobs and cut salaries since the second half of 2008 to contend with a drop in orders for the metal used in buildings, automobiles, drink cans and power grids. Aluminum on the London Metal Exchange has fallen 50 percent in the past year while LME- monitored inventories have almost quadrupled amid the worst recession in at least half a century. Alcoa has cut costs enough to stop losing money by the end of this year even if aluminum prices remain at current levels, Kleinfeld said. The company may be “cash-flow positive” by 2010, he said. Alcoa rose 13 cents, or 1.4 percent, to $9.22 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have declined 18 percent this year. U.S. prices for steel, used in many of the same products as aluminum, tumbled 6.7 percent in May to a five-year low, Purchasing Magazine said today in a monthly update. The average price of hot-rolled steel sheet, the benchmark product used in cars and appliances, fell to $392 a ton from $420 in April, the magazine said. That was the lowest since the spot-market price averaged $350 in January 2004, Purchasing said.