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Alcoa’s 4Q16 Revenues Rose Due to Higher Commodity Prices

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Alcoa’s 4Q16 revenues

Alcoa (AA) reported revenues of $2.54 billion in 4Q16. It’s the first quarter that Alcoa reported its upstream results on a standalone basis after the split (ARNC). While Alcoa missed 4Q16 profit estimates, its revenues were better than expected. According to data compiled by Thomson Reuters, analysts expected Alcoa to post revenues of $2.46 billion in 4Q16. Alcoa’s upstream business posted revenues of $2.32 billion in 3Q16.

Alcoa’s 4Q16 revenues rose 9.5% compared to the sequential quarter. Let’s see what factors supported Alcoa’s 4Q16 revenues.

Commodity producers’ revenues such as Century Aluminum (CENX), Rio Tinto (RIO), and Norsk Hydro (NHYDY) are a function of shipments and commodity prices. Alcoa sells bauxite, alumina, and aluminum.

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Shipments

Alcoa shipped 2.27 million metric tons of alumina to outside customers in 4Q16—compared to 2.36 million metric tons in 3Q16. The company’s third-party aluminum shipments totaled 701,000 metric tons in 4Q16—compared to 691,000 metric tons in the sequential quarter.

Meanwhile, the key driver of Alcoa’s 4Q16 revenues was higher commodity prices—especially alumina. The company reported average realized aluminum prices of $1,906 per metric ton in 4Q16—compared to $1,873 per metric ton in 3Q16. Alcoa’s realized alumina prices rose from $248 per metric ton to $272 per metric ton during this period.

Note that alumina prices have been strong due to higher coal prices. However, due to the lag impact in Alcoa’s alumina pricing, the full impact of higher alumina prices would be visible in Alcoa’s 1Q17 earnings.

In the next part, we’ll look at Alcoa’s 4Q16 profitability metrics.

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