How Have Alcoa’s End Markets Played Out in 1Q 2015?



Alcoa’s end markets

Previously in this series, we’ve discussed Alcoa’s (AA) 1Q 2015 guidance. This guidance was provided by Alcoa’s management during the company’s 4Q earnings conference call. In this part of the series, we’ll discuss the performance of Alcoa’s major end markets in 1Q 2015. Please note that, currently, Alcoa forms 3.5% of the SPDR S&P Metals and Mining ETF (XME). Reliance Steel & Aluminum (RS) forms 4% of XME.

The aerospace, automobile, and packaging industries are Alcoa’s major end consumers. Crown Holdings (CCK) and Ford (F) are amongst the biggest consumers of Alcoa’s products. Crown holdings uses aluminum to produce packaging products.

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Vehicle sales

Vehicle sales in the United States have been strong, as you can see in the chart above. Vehicle sales have totaled more than 16 million, SAAR (or seasonally adjusted annual rate), for the last several months. Strong demand from the automobile sector is expected to boost the shipments of Alcoa’s midstream business.

Alcoa should report its highest-ever auto sheet shipments in 1Q 2015. Demand for auto sheets should be strong as Ford ramps up the production of its F-150. Alcoa has also expanded its auto sheet capacity to support this business. Constellium (CSTM) acquired Wise Metals Holdings last year. Wise Metals should provide Constellium access to the fast-growing market for auto body sheets.

Higher costs

Alcoa might also face higher operating costs as it ramps up production at its Saudi Arabia rolling mill. The higher research and development expense towards the new Micromill technology should also be a drag on the company’s midstream profits.

Alcoa has expanded its downstream business by making several acquisitions in the last year. In the next part of this series, we’ll discuss the outlook for Alcoa’s downstream business.


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