Alcoa’s Q1 2017 Earnings Preview: Higher Aluminum Prices And Cost Reduction Initiatives To Boost Results

April 21st, 2017 by Trefis Team
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Alcoa will release its Q1 2017 earnings result and conduct a conference call with analysts on April 24. [1] Since Alcoa spun off its value-added businesses into a separate company towards the end of last year, we cannot compare the company’s Q1 2017 results with those in the corresponding period of last year. Nonetheless, we expect the company to deliver strong results driven by higher aluminum prices and the impact of lower cost operations.

Aluminum prices have risen considerably over the past few months as a result of an improved demand outlook for the metal. Aluminum is a metal which is extensively used in industrial applications. A fiscal stimulus package instituted by the central government in China, the world’s largest consumer of aluminum, is expected to boost Chinese demand for the commodity. [2] In addition, the U.S. government’s plans for a $1 trillion overhaul of domestic infrastructure has raised the demand outlook from the U.S. [3] This has translated into an increase in aluminum prices over the past year, as illustrated by the chart shown below.

Aluminum Prices Jan 2016 - Mar 2017

Source: LME

In addition to a favorable pricing environment, the closure of high cost smelting and refining capacity instituted by Alcoa management over the past few few years will boost the company’s Q1 results. The company managed to considerably lower production costs for both alumina and aluminum last year. The lowering of these costs should prop up the company’s earnings in Q1. The following tables summarize our expectations from Alcoa’s Q1 results.

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AA Q1 2017 Earnings Preview

Have more questions about Alcoa? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Alcoa

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Notes:

  1. Alcoa To Announce First Quarter 2017 Results And Host Webcast, Alcoa News Release [↩]
  2. China Blowing Major Bubbles In 2017, Forbes [↩]
  3. Trump Begins to Map Out $1 Trillion Infrastructure Plan, Wall Street Journal [↩]