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October 14, 2010

Alcoa expects global aluminum consumption to grow

NEW YORK

Alcoa Inc. believes that the global economy will continue to be lifted this year by a burgeoning international middle class that wants better transportation and more modern buildings.

The Pittsburgh company said it expects global aluminum consumption to grow 13 per cent this year, up from a forecast of 12 per cent growth in the second quarter.

Alcoa supplies a variety of manufacturers including the auto and aerospace industries and is one of the first companies to report financial results for the quarter. Economists and investors get an early read on the health of the economy from its results.

Klaus Kleinfeld, Alcoa chairman and chief executive, said more people in emerging markets such as China, Russia, India and Brazil “are moving into the middle class, driving demand in building and construction, transportation, and packaging. This trend favours aluminum as it is light, strong, and infinitely recyclable.”

Still, Alcoa’s business faces headwinds. Increased costs for foreign exchange and energy, as well as other expenses, helped push the company’s net income lower year-over-year.

Consumers won’t be affected by those higher prices any time soon, said David Silver, an analyst with Wall Street Strategies. Auto makers and other major manufacturers already have locked in aluminum prices with supply contracts that extend into 2011 and 2012, but prices of consumer goods could climb during the next few quarters if aluminum prices continue to rise, he said.

“They’ll increase their profit margins now, so when those higher prices hit, it won’t be that dramatic.”

Alcoa said a handful of its key markets would see a jump in global sales this year, led by a 35- to 40-per cent increase in the heavy truck and trailer market. Auto sales are expected to increase three to eight per cent and aerospace sales should rise between two and four per cent, Alcoa said. Industrial gas turbine sales should decline by 25 per cent to 30 per cent globally and the commercial building and construction industries should see a two to three per cent sales decline.

Associated Press

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