Alcoa loss narrows as markets improve

ALCOA reported today a first-quarter loss but matched expectations as the aluminium producer booked a raft of special charges.

Aluminium prices have climbed to 18-month highs in recent sessions, fuelled by demand from China, but Alcoa executives provided modest positive momentum for equity bulls as the company opened the US earnings' season.

"In 2010 we expect the economy to improve slightly," Alcoa chief executive Klaus Kleinfeld told analysts on a conference call.

Mr Kleinfeld said end-markets were recovering, led by the auto and industrial products sectors, but aerospace was expected to be flat and construction was seen down 25 per cent.

The company reported net loss of $US201 million ($217m) for the three months ended March 31, compared with a loss of $US497m in the year-earlier period. The loss per share of US20 cents compared to a year-ago loss of US61c. The quarter included $US295 million in mainly non-cash charges.

"Our markets are gradually improving and both policy trends and consumer sentiment bode well for aluminium demand," Mr Kleinfeld said.

Alcoa idled a quarter of its capacity and cut thousands of jobs last year as demand for aluminium for use in aircraft, autos, construction and consumer packaging declined by double-digit percentage rates. Utilisation is now running at around 75 per cent.

The loss from continuing operations narrowed to US19c from US59c, though Alcoa would have had a US10c profit absent the charges. Sales rose 18 per cent to $US4.89 billion as the average realised price for aluminium surged 49 per cent from depressed levels a year earlier.

Analysts surveyed by Thomson Reuters expected a profit of 10c before charges on revenue of $US5.24bn.

Shipments of aluminium products slid 3.5 per cent to 1.13 billion tonnes.

Before the release of its quarterly results, Alcoa shares pared gains to close up 1.3 per cent at $US14.57. The stock recovered an early dip in post-market trade, with no repeat of the 11 per cent decline seen after a disappointing fourth-quarter report. The shares were recently down 0.7 per cent at $US14.47.

United Co Rusal, the world's largest aluminium producer, said that it returned to profit last year and announced plans to lift aluminium production by 3 per cent and alumina by 11 per cent this year, with prices to remain above $US2000 a tonne.

The aluminium spot price reached another 18-month high today, closing above $US2400 a tonne as growing demand from China and India helped drive prices higher after a 38 per cent decline last year, though analysts remain cautious about a sharp drop should global demand start to soften.

A boom in investment-related products has led many observers to view the market as oversupplied, with large inventories stockpiled to back funds and derivatives.

"I am pretty confident that the supply/demand situation is highly biased towards (tightness)," said Mr Kleinfeld, noting that "normalised" annual growth would require annual investment of $US30bn and the construction of three large-scale smelters.

The first-quarter US reporting season is being closely monitored for commentary about the robustness of the global economic recovery.

Broader concerns about recent drawdowns in US manufacturing inventories and the impact of persistently high unemployment on consumer spending have split opinion about the strength of the rebound.

The debate has done little to sway the bullish sentiment among investors that helped push the Dow Jones Industrial Average above 11,000 as companies face weak year-ago comparisons.

Standard & Poor's expects earnings from S&P 500 constituents to rise 37 per cent from a year ago, though this excludes the impact of billions of dollars in one-off charges related to tax benefits withdrawn by the new US health-care legislation, as well as other restructuring costs.