Alcoa sees strong aluminum use, despite price drop

By Carole Vaporean
NEW YORK, Oct 11 (Reuters) - Alcoa Inc expects
global demand for aluminum to hold up into the fourth quarter
despite a falling metal price and fears the global economy may
slip back into recession.
"Alcoa remains a confident company in a very nervous
world," said Chief Executive Officer Klaus Kleinfeld on
Tuesday, adding that he thought the world was almost worrying
itself into another recession.
He was speaking to analysts on a conference call after the
largest U.S. aluminum producer reported third quarter net
income and revenue that were higher than a year ago.
Kleinfeld said fears of slowing economic growth and
speculative selling knocked prices for the industrial metal
lower. The Pittsburgh-based metal producer's earnings were
lower than expected.But the CEO also said he thought sellers were on the wrong
side of the trade. He reiterated the aluminum giant's 12
percent demand growth outlook for 2011 and estimated total
consumption of 44.3 million. In 2010, global demand for the
metal used in everything from construction, autos, aerospace
and beverage cans grew by 13 percent.
Having just returned from a trip to China, the executive
said, he felt confident raising Alcoa's aluminum demand growth
forecast for China to 17 percent this year, from its previous
forecast of 15 percent. The increase would offset weakness in
Europe resulting from the region's debt crisis.
Alcoa looks for China to end the year with an 800,000 tonne
primary aluminum supply deficit, whereas the so-called Western
World should post a surplus of 1,029,000 tonnes for 2011.
The London Metal Exchange aluminum price fell by 15
percent in the third quarter, driven down by speculative
selling and fear, but has since recouped some of its losses.
Benchmark aluminum ended on Tuesday at $2,230 a tonne,
still well above the $1,300 a tonne level where it bottomed in
2009.
The aluminum executive said, he thinks the price is
supported by healthy global demand growth, citing tightness in
regional physical metal markets, a decline in global
inventories, and projected global sales increases in all of the
major industrial sectors that consume aluminum.
"We have growing demand. We have strong physical markets
and we have firm support for aluminum prices. We believe that
these folks that have chosen the speculation against aluminum
are on the wrong side of the trade," said Kleinfeld.
While many people fear the current slow growth pace means
the global economy will slip back into recession and a repeat
of the 2008/09 downturn, the executive said, instead, there are
key differences between factors prevailing then and today.
For instance, in today's environment, he pointed to
projected aluminum demand growth, high regional premiums for
the physical metal that remain near all-time highs, and a
relatively moderate price decline, and open interest that grew
by about 3.5 million during the quarter, due in large part to
increased speculative short positions in the shiny metal.
By contrast, in 2009, there was massive global demand
destruction, weak physical markets with an immediate drop in
regional premiums, and a severe $2,000 per tonne slide in the
aluminum price, along with a 2 million contract decline in
aluminum's open interest, meaning traders were fleeing their
positions in the metal.
"Regional premiums continue to be strong and that is a very
sensitive sign of physical tightness in the market."