Why Alcoa’s Global-Rolled Products segment is important



Alcoa’s Global-Rolled Products segment

In the previous parts in this series, we analyzed the key developments in Alcoa’s (AA) upstream business. We saw how Alcoa is working to reduce its unit products’ costs to become a low-cost producer. Another aspect of Alcoa’s business is its Global-Rolled Products segment (or GRP). This segment converts the primary aluminum into sheets. The sheets are used in the packaging, automotive, and aerospace industries.

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Why GRP is important for Alcoa

GRP is Alcoa’s second biggest segment. The previous chart shows GRP’s revenue break up in 2013. As you can see, this segment produces sheet products for automotive companies. The demand from automobile companies is expected to drive aluminum companies’ future earnings.

The Ford-150 mini truck is expected to hit markets early next year. The truck has a full aluminum body. Aluminum companies expect that more automobile manufacturers will design vehicles with full aluminum bodies. This will help vehicles meet the new emission standards.

Recently, Constellium N.V. (CSTM) acquired Wise Metals. Wise Metals a privately-held aluminum company in the US. Through the acquisition, CSTM will also get a foothold in the US markets. With Wise Metals, CSTM can provide sheet products to automobile manufacturers.

Century Aluminum (CENX) also wants to invest to grow its value-added portfolio. Currently, CENX and Reliance Steel & Aluminum (RS) are among the top holdings of the SPDR S&P Metals and Mining ETF (XME). In one of our recent articles, we analyzed why Reliance Steel & Aluminum could be an interesting play on the metals industry.

Alcoa plans to grow its automotive business

Alcoa expects its automotive sales to drive its future earnings. In the next part of this series, we’ll discuss how Alcoa is expanding its operations to capture the growth in aluminum demand.


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