What Are Alcoa’s Key Sources Of Revenue?

by Trefis Team
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Alcoa (NYSE:AA) is a global leader in aluminum production, and is involved in every aspect of the industry including mining, refining, smelting, and recycling, operating in around 10 countries. The company sells aluminum, fabricated aluminum, alumina, and bauxite. Alcoa’s better than expected performance in the Q2’18 was backed by higher aluminum and alumina prices. However, the share price has tumbled to a 52-week low since the announcement of imposed tariffs on aluminum products. Further, the company has downgraded its 2018 EBITDA guidance by almost 14% to a range of $3.0-$3.2 billion.

We have a price estimate of $43 per share for the company,which is in line with the current market price. The charts have been made using our new, interactive platform. You can modify the key drivers to arrive at your own price estimate by clicking for our interactive dashboard on – Price Estimation of Alcoa.

Below, we discuss the major revenue sources for Alcoa. We expect the company’s overall revenue to be $12.88 billion in 2018.

Aluminum (~57%) -Aluminum produced by Alcoa is used by its fabricating businesses as well as sold to external customers, aluminum traders, and in the commodity markets. Major aluminum producers across the globe are projecting full year global deficits for both alumina and aluminum. While the average selling price per ton of aluminum shipments declined to $1,980 per ton in 2017, the lower supply of aluminum is expected to translate into a higher price in 2018. Accordingly, we expect a 14% rise in this figure with a slight decline in shipments, translating into $7.28 billion revenue in 2018.

Alumina (~36%) – The Alumina segment consists of Alcoa’s worldwide alumina system, including the mining of bauxite, which is then refined into alumina. Approximately half of the alumina is used internally, while a majority of the remaining is sold to third-party aluminum smelter customers or to customers that process it into chemical products. The average selling price per ton declined to $240 per ton in 2016, sharply rising to $435 per ton in 2017. Looking at a global deficit, we expect this figure to reach $490 per ton in 2018, resulting in $4.56 billion revenue from this segment.

Bauxite (~8%) – Bauxite is the basic raw material for the production of alumina. Alcoa’s bauxite mines are located in Australia, Brazil, Guinea (joint owner), Saudi Arabia (equity stake). While there is a global deficit projected for alumina and aluminum, Alcoa has projected surplus bauxite in 2018. Consequently, we expect the segment to generate $1.04 billion in revenue this year.

Overall, Alcoa has benefited from the imposed tariffs on aluminum products in the short-run. However, the long term implications of such tariffs and sanctions on major aluminum producers might prove to be futile for the US aluminum industry, including Alcoa.

 

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