Alcoa profit seen plunging 84% on aluminum smelting surplus

July 9 (Bloomberg) -- Alcoa Inc., the largest U.S. aluminum producer, may report an 84 percent decline in second-quarter earnings as the eighth straight year of surplus global production drives down the price of the metal.

Profit excluding one-time items will be 5 cents a share, according to the average of 19 analysts’ estimates compiled by Bloomberg. Analysts have lowered their projections by 44 percent in the past 30 days as aluminum traded near a two-year low on the London Metal Exchange.

While its downstream fabricating business that supplies components to customers such as Ford Motor Co. and Boeing Co. is profitable, Alcoa’s aluminum-smelting unit is struggling because of lower metal prices. The New York-based company announced in January production-capacity cuts of 12 percent. The primary metals unit will post an $86 million after-tax operating loss, said Brian Yu, a Citigroup Inc. analyst.

“There’s not much they can do on the upstream,” Yu, who’s based in San Francisco and recommends holding the shares, said in a July 6 interview. “The company continues to talk about their productivity gains, and I think it’s an important and notable effort on their side to lower cash cost, but not enough to offset the sharper drop in aluminum prices.”

Typically the first company in the Dow Jones Industrial Average to report earnings, Alcoa is scheduled to publish its results after the close of trading today. The shares fell 1.1 percent to $8.63 at 9:01 a.m. in New York before the start of regular trading. They have dropped 47 percent in the last 12 months, the worst performance on the index.

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Worldwide aluminum production rose 4.1 percent to 14.9 million metric tons in the first four months of 2012, beating consumption by 623,703 tons, according to data compiled by Bloomberg. Output has exceeded usage each year since 2005, the data show.

Aluminum for delivery in three months on the London Metal Exchange averaged $2,019 a ton in the second quarter, 23 percent less than a year earlier. The metal rose 0.9 percent to $1,913.25 a ton as of 2:04 p.m. in London.

To be sure, Alcoa is seeing rising demand from automakers, who are increasingly compelled by regulation to make lighter vehicles. Aircraft manufacturers face a record backlog as airlines hurry to refurbish aging fleets.

The U.S. aluminum industry will ship 16 percent more aluminum to automakers this year versus 2011 as car output climbs 11 percent, according to Lloyd O’Carroll, an analyst at Davenport & Co. in Richmond, Virginia. The average amount of the metal in each vehicle will rise 3 percent, he said in a June 26 note. Heavy-truck producers will buy 19 percent more aluminum and plane makers an extra 20 percent, he said.

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