Why the revenue drivers for Alcoa’s rolled products are important



Revenue drivers for Alcoa’s global-rolled products (or GRP)

In the previous parts in this series, we analyzed how demand from automotive companies will drive Alcoa’s (AA) revenues. We also saw how Constellium N.V. (CSTM) made a major acquisition to cater to this demand. In this part of the series, we’ll analyze the outlook for the other key customers of Alcoa’s GRP segment.

ghlobal rolled drivers

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Outlook for Alcoa’s key customers

The previous chart shows the current and expected breakdown of Alcoa’s revenues in the GRP segment. As you can see, the share of revenues from automotive companies is expected to double by 2017. The demand from other customers is expected to be modest. For example, the demand from the packaging sector is expected to grow ~3%.

Alcoa developed an aluminum foil that’s around a third of the thickness of human hair. It’s called aseptic foil. It’s used by the milk packaging industry in Brazil. These are the kind of value-added products that Alcoa is developing. With this product, Alcoa produces the thinnest foil to the thickest plate in the aluminum industry.

Value addition has become a norm in aluminum industry. During its third quarter earnings call, Century Aluminum (CENX) highlighted that all its future investments will be to grow the value-added business. This is one aspect in the aluminum value chain that primary producers are lacking—like Rio Tinto (RIO).

Value addition 

The previous chart shows that the demand from aerospace and the defense sector will be flat over the next couple of years. However, Alcoa’s value-added operations are expected to witness strong growth from the aerospace industry. We’ll discuss this in the next part of this series.

With AA and CENX among its top ten holdings, the SPDR S&P Metals and Mining ETF (XME) can give investors desired exposure to the industry.


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