Alcoa Could Be Heading Towards A Loss Say Analysts

Amid tumbling aluminum prices Alcoa (NYSE: AA) said Thursday that it plans to shut a smelter in Tennessee as well as curtail operations in a plant in Rockdale, Texas.  This will reduce Alcoa’s capacity globally by 12 percent overall.

Projected earnings for the world’s largest producer of aluminum have fallen so sharply that some analysts are projecting a loss for the 2011 4th quarter.  Prices for aluminum have fallen over 25% since their high in April and with slower growth expected from China and the U.S. economy refusing to respond to stimulus and low interest rates in any substantive way they have determined that permanently closing the Tennessee smelter, idle since 2009 anyway, is the best course of action going forward.

While the smelter has been idle, the operation in Tennessee still employs nearly 1000 people.

New analyst projections for the 4th quarter have net revenue falling off a cliff to $0.01/share down from $0.21/share.  75% of the estimates gathered in the past month have Alcoa posting a 4th quarter loss.  As the U.S. government keeps touting improved employment numbers I have to wonder when the reality of the situation will finally assert itself. While aluminum prices may have bottomed out in recent weeks, there is no clear sign that they will reverse course.  Watch the copper market as the leading indicator of increased industrial demand.

After a 44% drop in 2011 Alcoa is due to report their earnings on January 9th, kicking off the new year.  The stock closed at $9.36 in New York on Thursday, down 1%.


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Tom Luongo

About Tom Luongo

Tom Luongo is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.

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