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Strong End User Demand Could Offer Some Support to Alcoa

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Jul. 10 2015, Updated 8:05 a.m. ET

Strong end user demand

Aluminum demand from aircraft manufacturers like Boeing (BA) continues to be strong. In this part of the series, we’ll see how Alcoa’s (AA) other end markets are currently looking. Aerospace, automobile, packaging, and nonresidential construction sectors are among the major end users of Alcoa’s products.

Aluminum demand from the packaging sector has been subdued, led by a decline in carbonated drink sales. However, other end markets continue to be strong.

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Automobile demand

Alcoa has placed huge bets on the automobile sector, expanding its capacity to produce auto sheet products. So far, the strategy has been a success, as the demand for auto sheet products has been on an uptrend.

Ford (F) launched its aluminum body F-150 pickup truck earlier this year. It also reduced summer downtime in a move to produce more F-150s. Alcoa is among the companies that have supplied sheet products for the F-150 model. Ford is looking to ramp up production of this best-selling model, which will bode well for Alcoa.

Nonresidential construction

Nonresidential construction spending in the United States (SPY) (IVV) continues to be strong. The above graph shows the recent trend in the US Architectural Billings Index. The index is released by the American Institute of Architects and serves as a leading indicator for the nonresidential construction industry.

The index stood at 51.9 in May. Readings above 50 indicate an increase in architectural billing. Alcoa gets more than $1 billion in annual revenue from the nonresidential construction sector. The uptrend in this sector is postive for Alcoa.

However, Alcoa faces several challenges. We’ll take a look at these in the next part of the series.

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