Alcoa chief a China bull, Alumina takes off

Alcoa may be first cab off the rank in the US corporate earnings reporting season but, given the problems with aluminium and alumina in recent years, it no longer is the industrial bellwether it once was.

Results aside, and they were hardly inspiring, the company now is best seen as a gauge on China’s economic growth prospects.

And in that department Alcoa chairman Klaus Kleinfeld provided some optimism for Australian investors.

Kleinfeld expressed no fears at all about the Chinese economy or its growth prospects, predicting strong improvements in the demand for aluminium in the year ahead and overall economic growth well ahead of the 7.5% targetted by Chinese authorities (see Alan Kohler's weekend briefing on China).

His optimism contrasts starkly with predictions of a hard landing for the Chinese economy as authorities attempt to scale back speculation in property markets.

Australian-listed Alumina – which depends entirely on its 40% shareholder in the Alcoa World Alumina and Chemicals (AWAC) joint venture – jumped strongly out of the blocks on the back of the Alcoa results with a 5% share price gain.

Alcoa, with a market value of just $US8 billion, is now worth just one-fifth of what it was prior to the global financial crisis and the aluminium market glut.

Alumina’s great attraction once was as a potential takeover play with sentiment dominated by speculation Alcoa would take out its junior partner. Now, however, it is priced entirely on the AWAC joint venture performance.

Kleinfeld’s comments were bolstered by Alumina chief executive John Bevan’s predictions that the recent decline in the Australian dollar and the Brazilian real would lower production costs.

Alcoa delivered a $US119 million loss in the June quarter, much higher than the $2 million loss in the previous corresponding period, a result that was impacted by closures in Italy and Canada.