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Key Takeaways from Alcoa’s 4Q16 Earnings Call

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Alcoa’s 4Q16 earnings call

Previously, we looked at Alcoa’s (AA) 4Q16 earnings and the 2017 guidance provided by the company’s management. In this part, we’ll look at the other key takeaways from Alcoa’s 4Q16 earnings call.

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Plant restarts

Some of Alcoa’s smelters in the US and elsewhere have been idled due to depressed commodity prices (DBB) and the plants’ relatively high cost of operations. With aluminum prices on an uptrend and President Trump’s stance on boosting the US manufacturing sector (CENX), the question of restarting US plants cropped up during Alcoa’s 4Q16 earnings call. However, Alcoa’s management sounded wary and said that the company is “constantly evaluating” its facilities.

Alcoa might want to wait for more policy directions from the new administration before it makes a decision about restarting its idled smelters (RIO) (NHYDY).

Cash usage

Alcoa generated $200 million in cash in November and December 2016. The company could generate positive free cash flows in 2017 looking at the current pricing environment. Alcoa’s management listed several priorities in deploying its cash. The company would consider funding its pension and OPEB (other post employment benefits) obligations that are currently underfunded by $3.1 billion.

Alcoa might also look at deleveraging its balance sheet. The company might look at growth projects, especially in the bauxite business, to enhance shareholder value. Alcoa upwardly revised its 2017 capital expenditure guidance. Now, it will spend $150 million towards “return-seeking projects.”

Indonesia bauxite exports

Alcoa’s management also talked about the restart of bauxite exports by Indonesia. The move could have an impact on the global bauxite market given Indonesia’s geographical proximity to China. However, Alcoa’s management sounded optimistic about growing its bauxite business. It’s banking on an expected 8% year-over-year growth in China’s bauxite demand over the next decade.

Visit Market Realist’s Aluminum page for ongoing updates on the industry.

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