The Whole World Is Anxiously Waiting For One Detail From Alcoa's Earnings Announcement

Alcoa aluminium

Photo: Sean Gallup/Getty Images

If you were thinking “supply,” then you were wrong.Sure, Alcoa’s investors will want to know when the global glut of aluminium will line up with demand.

But economists and strategists will be looking for information on something much bigger: China.

China is the world’s largest consumer of aluminium.

As most of the developed world sees growth slow, China is the one country that is both growing at a high clip and big enough to have a major impact on the economies of its trading partners.  Analysts will be asking the management of every multi-national company about what they see going on in China.

China Growth
Currently, there is little consensus as to just how fast China is growing.

The Chinese government is officially targeting 7.5 per cent GDP growth this year.

Some economists think that’s too conservative.  Bank of America’s Ting Lu sees China’s GDP growing 8.6 per cent this year.  Morgan Stanley’s Helen Qiao recently boosted her China GDP growth forecast to 9.0 per cent from 8.4 per cent.

However, last month’s presentation from BHP Billiton rejuvenated the bears in the China hard landing camp.  The iron giant warned that demand from China was flattening.

This brings us back to another metals giant: Alcoa.

Analysts will primarily be looking for how supply/demand dynamics have affected pricing and margins.  The Street is looking for a 4 cent per share loss from Alcoa.

From that we should be able to extrapolate what’s going in China.

Citi’s Brian Yu sees a 6 cent loss.  “Alcoa should provide updated projections for 2012E China and global surplus/deficits for alumina and aluminium. At the end of 4Q, Alcoa projected a 600k tonne global aluminium deficit in ’12 and a balanced global alumina market. The aluminium outlook included capacity curtailments of 1.1 mln tonnes in China and 700k tonnes in the rest of the world.”

From Morgan Stanley’s Hussein Allidina:

Fundamentally, we are bearish on aluminium owing to the large supply overhang, though we do expect price to rise as a result of the persistent pressure from rising production costs.

In our view, supply trends in the Chinese aluminium market hold the key to achieving a rebalanced market. Besides sustaining the capacity curtailments detailed above, Chinese production growth will also need to slow to help rebalance the market. In 2012, China will represent 44% of global smelting production, up from 33% in 2008.


Photo: Morgan Stanley


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