Alcoa’s Q2 2017 Earnings Review: Favorable Aluminum And Alumina Pricing Environments Boost Earnings

by Trefis Team
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Alcoa reported a considerable improvement in its second quarter earnings driven by favorable aluminum and alumina prices.

The prices of both aluminum and alumina have been boosted by a combination of supply and demand related factors. On the supply side, the central government in China — the world’s largest producer of aluminum — has signaled its intention to shut down excess aluminum and alumina production capacity, in order to tackle a pollution problem, which has eased concerns over an oversupply of these commodities. [1] On the demand side, a fiscal stimulus targeting the infrastructure sector instituted by the central government in China, the world’s largest consumer of aluminum, has boosted the demand outlook for aluminum from the real estate and automotive sectors. In addition, the potential implementation of the U.S. government’s planned $1 trillion infrastructure plan has further boosted the demand outlook for aluminum.

LME Aluminum Prices, Source: LME Website

While the aforementioned factors are expected to keep prices elevated over the rest of the year, much would depend upon the extent to which the Chinese government follows up on its commitment to actually shut down excess production capacity. In addition, if meaningful progress is made towards the realization of President Trump’s infrastructure plan, prices could get an additional boost. We will be keeping a close eye on these developments, which are likely to materially impact Alcoa’s business prospects over the rest of the year.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such 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. Why aluminium prices are set to increase in H2 2017, Aluminum Insider []
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