Alcoa posts fourth quarter loss on reduced capacity charges

Tuesday 12 January 2016 07.47
Alcoa announces $1.5 billion long-term deal with General Electric to supply components used in aircraft engines
Alcoa announces $1.5 billion long-term deal with General Electric to supply components used in aircraft engines

Metals company Alcoa last night reported a quarterly net loss after charges related to closing parts of its traditional smelting business. 

The New York-based company has been curtailing smelting capacity as the industry endures tumbling prices amid rising trade tensions with China. 

Alcoa said last week it would close a plant in Evansville, Indiana, which would bring US aluminium output to its lowest level in more than 65 years. 

London Metal Exchange aluminium prices which fell 18.6% in 2015, are hovering near six and a half year lows as demand wanes in top-consumer China.

In September, Alcoa announced it would split in two, spinning off its value-added aerospace and car parts business from its traditional aluminium smelting business that includes bauxite and alumina. 

The split will take place in the second half of this year and questions remain on how the company will divide up debt and pension liabilities between the two new entities. 

Earlier yesterday, in good news for the added-value portion of Alcoa's business, the company announced a $1.5 billion long-term contract with General Electric aviation unit to supply components used in aircraft engines. 

That follows several other major contracts in the aerospace industry the company announced during the last quarter.

"These contracts demonstrate that the push toward value-added business continues to show good results," chief executive Klaus Kleinfeld told Reuters in an interview after the results were announced. 

But Kleinfeld said Alcoa's traditional business still faced "massive headwinds" from falling aluminium prices. 

Alcoa last night posted a fourth-quarter loss of $500m or 39 cents per share, compared with a net profit of $159m or 11 cents a share a year earlier. 

Excluding charges for reducing capacity and income tax charges, the company would have posted a profit of $65m or 4 cents a share, above analyst expectations of 2 cents per share. 

Alcoa said it expected global aluminium demand to rise 6% in 2016 compared to 2015. The company said global aerospace sales should increase between 8-9% this year, while global automotive production should rise between 1-4%.