Alcoa Inc (NYSE:AA) Facing Turbulence On Aluminum Pricing Amidst Market Oversupply


Dallas, Texas 07/08/2015 (Financialstrend) – Alcoa Inc (NYSE:AA) has slashed its smelting capacity by 33% over the past 8 years as excess aluminum supply from China continues to pose challenges on the pricing front. When the company posts its second quarter earnings, investors will want to see if there is any hope of a rebound in prices. Aluminum alloy prices are down by 11% the lowest since 2009 and one of the reasons why the company might struggle on the earnings front.

Concerns over Pricing

Alcoa Inc (NYSE:AA) posted impressive first quarter earnings aided by the impressive performance of its production business. However, analysts do not expect it to reiterate a strong earnings forecast for its commodities unit. Commodities prices are down as well as other component prices.

Weaknesses on the pricing front continue to hit the market, seen by China ramping up aluminum exports. Russian producer Rusal has already reiterated plans to suppress aluminum production in a bid of countering softer prices. The weak pricing environment has already seen premiums slid by 65% this year alone

Expectations of Alcoa Inc (NYSE:AA) posting impressive results on Wednesday remains low analysts having slashed their revenue expectations to $5.8 billion from $6.4 billion. The stock is down by nearly a third since February as the effects of a slowing economy in China a key market for aluminum continues to be felt

Cost Cutting Measures

Bets against the stock are high even as Alcoa initiates major transformation as it moves to diversify its product offerings. AZ China, Paul Adkins, expects Alcoa Inc (NYSE:AA) to come under immense pressure as a result of metal prices. Alcoa has already curtailed its capacity in a move that has resulted in its cost curve moving down

Alcoa Inc (NYSE:AA) has also shut down its smelting operations in Pocos de Caldas Brazil having been curtailed since last year amidst unfavorable market environment. The closure removes a high-cost smelting facility from the company’s system even though it is to result in a 96,000 metric tons reduction.

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