Alcoa’s updated 2018 guidance
During its earnings release, Alcoa (AA) lowered its 2018 adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) guidance to $3.0 billion to $3.2 billion from the previous guidance of $3.5 billion to $3.7 billion. According to Alcoa, “The new full-year forecast reflects current market prices, tariffs on imported aluminum, increased energy costs, and some operational impacts.”
The guidance assumes unpriced aluminum sales at $2,100 per metric ton and API (alumina price index) of $465 per metric ton. Alcoa’s previous guidance was based on assumptions of $2,300 per metric ton aluminum and $500 per metric ton API. The guidance cut was hardly surprising given the recent trend in metal prices (CENX) (RIO). To be sure, Alcoa’s 2018 updated guidance is in line with what analysts were projecting for its 2018 earnings.
However, the guidance could still look on the higher side given the expectations of lower alumina prices in the second half of 2018. Notably, alumina as a percentage of aluminum is currently above its historical average, which is creating distortion in aluminum markets. Alcoa also admitted that China’s alumina imports could be subdued this year due to the higher alumina to aluminum ratio. However, we still have no news on Norsk Hydro’s (NHYDY) Alunorte refinery, whose partial curtailment has lifted alumina prices.
On the macro front, Alcoa projected a bigger deficit in aluminum markets as compared to its previous projection. However, the company sees a surplus in bauxite markets on higher supply from Guinea.