Alcoa (AA) expects to generate adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) between $2.1 billion and $2.3 billion in fiscal 2017. The guidance assumes current foreign currency exchange rates and physical aluminum premiums. In arriving at this guidance, Alcoa assumed aluminum prices at $1,900 per metric ton and an API (alumina price index) of $305 per metric ton.
Notably, Alcoa kept its 2017 EBITDA guidance unchanged from its 4Q16 earnings call. However, the company changed its metal price assumption in arriving at this guidance. While Alcoa raised its assumption of aluminum prices from $1,795 per metric ton to $1,900 per metric ton, API assumption was slashed from $355 per metric ton to $305 per metric ton.
For commodity companies like Norsk Hydro (NHYDY) and Century Aluminum (CENX), the industry outlook is as important, if not more important, than the company’s position in the industry. During its 1Q17 earnings call, Alcoa raised its 2017 global aluminum demand forecast to 4.5%–5.0% from its previous guidance of 4.0%. Now, Alcoa sees higher aluminum demand in China and world ex-China.
While Alcoa expects improvement on the demand side, the company still expects global aluminum markets to be in a surplus this year. “Surplus” is production in excess of demand.
Any increase in Chinese aluminum exports could be the biggest risk for the global aluminum industry (RIO) (SOUHY). Although we saw a yearly decline in Chinese aluminum exports in the first three months of the year, capacity restarts in China are a potential challenge for aluminum producers. Read Is a Fear of Higher Chinese Aluminum Exports Weighing on Alcoa? to learn more.
You can also visit Market Realist’s Aluminum page for ongoing updates on the industry.