PREVIEW-Alcoa to post loss, but what does it mean for economy?

By Steve James

NEW YORK, July 5 (Reuters) - Alcoa Inc (AA.N), whose results are traditionally viewed as an indicator of the country's economic health, is expected to post a third consecutive quarterly loss this week.

But many on Wall Street no longer see the aluminum producer's numbers as a bellwether portending either a deeper recession or an easing of the global downturn.

"It's a large company in a major industry and it is the first to report, so it gets special recognition," said Joseph Battipaglia, a market strategist at Stifel Nicolaus & Co in Yardley, Pennsylvania.

"But it's only telling you about the health of the aluminum industry and that's not very good right now.

"FedEx and UPS are better signs of a change in direction," he added, referring to the two largest U.S. shipping or package-delivery companies. "I wouldn't take what Alcoa says as a significant indication of how the American or global economy is faring."

Battipaglia said that even if Alcoa -- the first member of the Dow Jones industrial average .DJI to release earnings -- reported an upsurge of orders on Wednesday, it was no real sign of a turnaround. Most customers let their inventories go down in recent months, he noted, and were now restocking while aluminum prices are relatively low.

Charles Bradford, an analyst with Affiliated Research Group of New York, agreed that Alcoa's results were no weather vane.

"Some people out there think it's a leading indicator of the economy, but those people don't understand the company. It's an indicator only of the aluminum price.

"Alcoa will lose a fair bit of money (in the second-quarter results) because the aluminum price is down.

"One of the biggest driving factors (for Alcoa) is cost-cutting, not whether the economy is picking up," he added.

Pittsburgh-based Alcoa is expected to report a second-quarter loss on Wednesday of 32 cents a share -- narrower than its first-quarter loss of 60 cents a share, according to Reuters Estimates.

In April, the company said it expected continued end- market weakness for its flat-rolled products in the aerospace, construction and global transportation sectors in the second quarter.

Alcoa's stock, which hit a 52-week low of $4.98 in early March in New York Stock Exchange trading, rallied in the second quarter to around $10, but it's still way off its 52-week high of $35.66 a year ago.

IT'S ALL ABOUT ALUMINUM'S PRICE

Bradford said Alcoa derives 70 percent of its earnings from aluminum production and its fortunes depend on the price of the metal, rather than its downstream business making products for the auto or aerospace industries, as well as cans and kitchen foil.