Alcoa content the with the ups and downs of the LME

ALCOA has confirmed that its strategy is to maintain exposure to fluctuations in aluminium prices on the London Metals Exchange

The company, one of the largest aluminium makers in the world, also said it generally does not hedge foreign-exchange exposure.

"We don't take a position, except in very specific circumstances," Charles McLane, Alcoa's chief financial officer, said. "Our investors want us to be exposed to the LME."

He said that the company analyses its exposure to currencies and energy, and their correlation to movements in the price of aluminium.

"Changes to currencies have a direct correlation to movement in the LME price and, as a result, act as a natural hedge," said Mr McLane.

The London Metals Exchange is a main commodities exchange that deals in metals futures.

The aluminium maker, which has operations throughout South America, Russia, Australia, Africa, Europe, North America and Asia, says its takes into account London Metals Exchange prices, energy prices and its foreign currency exposure when it calculates its risk strategy.

"If we took any action, we would be increasing our overall risk," said Mr McLane.

"We don't sit around and guess where these currencies are going to go. If we were to hedge the cost components, we would need to hedge the revenue stream as well."

Aluminium sold on the London Metals Exchange is based in US dollars.

Selling aluminium through LME priced contracts, no matter where it is produced using local currencies, results in Alcoa's revenue being exposed to US dollars.

Mr McLane said that "99.9 per cent" of the company's revenue in its primary operations including alumina and primary ingot are in US dollars.

Mr McLane said that Alcoa continued to look to see whether any of those world's currencies are looking to break away from the pack.

Mr McLane questioned the benefit of trying to hedge in the first place, saying that the benefit is limited and the risk is too great.

"What is the purpose of actively hedging? We don't do it because, in my opinion, there is no long-term benefit," Mr McLane said(The Wall Street Journal