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Alcoa Sees Strong End User Demand in 1Q15

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Alcoa in April

Alcoa (AA), the leading aluminum company in North America, has lost almost one sixth of its market capitalization so far in 2015. Its share price had earlier delivered a 50% return last year. April has been a mixed bag for the aluminum industry. End user demand continues to be strong, at least in Alcoa’s core markets of North America and Europe. However, Chinese indicators continued to worsen in April.

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What do we cover?

In this series, we’ll analyze how end user demand for Alcoa is shaping up. The aerospace and automobile sectors are among the major consumers of aluminum products. The chart above shows the various aircraft components that Alcoa produces. Precision Castparts (PCP) and Allegheny Technology (ATI) are other leading suppliers to the aerospace sector.

We will also look at some indicators of the Chinese economy. China (EWT) recently relaxed its export policy. In the coming parts of the series, we’ll analyze how the new policy could impact the aluminum industry. We’ll also look at some recent indicators in the European economy.

Strong end user demand

The aerospace sector is among the biggest customer segment for Alcoa. The company has made several acquisitions to enhance its product offerings in this segment. Alcoa’s commercial aircraft segment continues to grow at a healthy pace, and so far has been immune to the decline in crude oil prices.

Boeing’s (BA) aircraft deliveries totaled 184 in 1Q, up ~15% on a year-over-year basis. The company’s orders net of cancellations also increased by 110 in 1Q, taking its total backlog to 5700. The management was quite optimistic about the business in its 1Q earnings conference call.

Meanwhile, the automotive sector is another major customer segment for Alcoa. In the next part, we’ll discuss how vehicle demand is shaping up in the US.

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