(in April 11 story, corrects name of Chief Financial Officer
Chuck McLane in paragraph 2 and throughout)
By Carole Vaporean
NEW YORK, April 11 Aluminum giant, Alcoa Inc
(AA.N), which reported a first-quarter profit that beat
estimates on Monday, benefited in part from higher alumina
prices, as well as increased demand for flat-rolled products
that is expected to continue into the second quarter.
Chief Financial Officer Chuck McLane told Wall Street
analysts on a conference call that the quarterly increase in
revenue came primarily from a 7 percent gain in alumina and a
17 percent rise in flat-rolled products.
Year-over-year results showed operating income for alumina
jumped 97 percent and flat-rolled products by 170 percent, with
higher demand in most end markets, and improved pricing and mix
helping the segment.
Despite Alcoa's lower output of alumina, used in the
production of aluminum metal, which dipped slightly in the
first quarter to 4.0 million metric tons from 4.2 million in
the fourth quarter of 2010, prices rose. [ID:nN1199754]
(For a graphic on Alcoa's earnings click on
For alumina, which is made from raw material bauxite and
refined into aluminum metal, McLane said prices for third-party
transactions rose by 15 percent in the quarter.
Looking to the second quarter, the CFO said the company
will increase alumina production by 125,000 tonnes, and higher
pricing should continue to contribute to Alcoa's profits.
Chairman and Chief Executive Officer Klaus Kleinfeld
emphasized several times on the call that Alcoa's goal to
continue switching its pricing method for its alumina contracts
to an index based on the spot market was on target.
He said 20 percent of its alumina business was already
being conducted either through contracts priced against a spot
index or in the spot market itself.
For over two decades, third party or independent aluminum
smelters generally bought their alumina supplies through
multi-year contracts with the price set as a percentage of the
London Metal Exchange aluminum metal price.
But last year, lead by Alcoa -- the world's largest alumina
producer -- long-term contracts for the material have moved to
using a spot market index as its basis.
Kleinfeld said it still aims to have all of its contracts
switched to a spot index pricing by 2015, with about 20 percent
of the contracts coming due each year.
"We are not concluding any alumina contracts that are not
based on either the index or spot. We have traditionally always
kept a bit of our volume in the spot market and we will
continue to do that," the CEO said, in answer to a question.
He added that Alcoa does not mind if its spot business
increases somewhat as a result, "because it comes down to more
As long as the alumina price continues to rise that helps
Alcoa's bottom line.
Last quarter, McLane said Alcoa benefited from alumina
prices with its outstanding contracts based as a percentage of
the London Metal Exchange aluminum price going up with the
metal price and as the spot price went up.
Otherwise, Kleinfeld said, Alcoa's strategic goal is to
move its alumina business down the cost curve to the 23rd
percentile by the end of 2015 from the 30th currently.
"Everything we're doing from changing our pricing method to
increasing volume at our Suriname and Point Comfort refineries
has an impact on 2011 alumina profitability," he said, as the
company's profit margin for alumina is expected to rise to $71
a tonne from the 10-year average of $66 a tonne.
The aluminum producer projects 2011 alumina supply and
demand will be balanced for both China and the West.
(Reporting by Carole Vaporean; Editing by Bernard Orr)