What Are Alcoa’s Key Sources Of Revenue?
Alcoa Corp (NYSE:AA) emerged as a prominent aluminum producer after being separated from its value-added business, Arconic, in 2016. The company largely benefited from an improving business environment for aluminum and also as a result of the structural changes initiated in China.
Alcoa reported a sharp 25% rise in its revenue in 2017, largely benefiting from higher alumina and aluminum prices. Alcoa’s performance is highly correlated to the prices of aluminum. Aluminum prices gained by ~32 % in 2017 driven by China’s decision to cut excess industrial production in order to control pollution. Several illegal aluminum plants operating without permits were forced to shut down and the government had instructed capacity idling to control smog ahead of the winter months, which started in November 2017. The threat of increased curtailments had, in turn, alarmed Chinese aluminum producers, which made them stock large quantities of alumina to support future aluminum production in an environment of high prices. This move led to a spike in the prices of Alumina in the latter half of 2017. Additionally, China’s production cuts were also expanded to the production of alumina, which resulted in further strengthening of its prices. The company ships 67% of its alumina production to third parties and the rest is used for its in-house aluminum production.
Looking forward, an increasing demand for Electric Vehicles (EVs), along with China’s initiation of limiting aluminum producers in constructing new smelters within the country, are expected to provide support to prices of both alumina and aluminum in 2018. However, we expect prices to remain rangebound to 2017 levels as a lot of these factors have already been priced into the commodities. Thus, revenues are expected to grow marginally as the production outlook for the company doesn’t reflect significant growth for both alumina and aluminum.
We have summarized the key historical figures and our forecast for Alcoa’s 2018 revenue in our interactive dashboard.
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