Aluminum Sector Rises On Alcoa Earnings

Aluminum producers closed Wednesday slightly higher after Alcoa's quarterly earnings indicated strong demand for the metal and a private equity group picked up some processing assets. Alcoa was up 18 cents, or 0.5%, to $35.08, in a weak overall market. The Dow Jones Industrial Average, of which Alcoa is a component, was down 0.7%. Alcan gained 40 cents, or 0.7%, to $54.42, and Aluminum Corp. of China jumped $1.41, or 4.9%, to $30.41.

Late Tuesday, Alcoa, the world's largest aluminum producer, reported a first-quarter profit that surged thanks to rising prices. Alcoa stated earnings of $662 million, or 75 cents per share, compared with $608 million, or 69 cents per share, a year ago. On the continuing operations basis used by analysts, earnings were $673 million or 79 cents per share, beating analysts¡¯ expectations of 76 cents per share. Alcoa benefited from the higher pricing on growing demand, particularly from China. The Chinese economy grew 11% last year and the country is gobbling up aluminum for use in construction alloys. Alcoa said in a conference call that it expects Chinese demand to rise 23% this year. The company also said increasing demand from India and Russia should help overcome a flat North American market, and it pegged worldwide growth at 7.7%.

On Wednesday morning, Xstrata announced it was selling all of its aluminum interests to Apollo Management for $1.15 billion. Apollo Management is a New York-based private equity firm run by billionaire Leon Black. The divestiture of the aluminum assets doesn't come as a complete surprise since the Swiss miner has focused on its nickel production recently. The company only acquired the aluminum assets in its purchase of nickel miner Falconbridge in 2006.

In late March, Xstrata announced it would also buy the Canadian nickel miner LionOre Mining International for about $4 billion. Chief Executive Mick Davis of Xstrata explained that its aluminum holdings were just too small to compete with bigger producers. "These assets do not provide Xstrata with the necessary scale or upstream exposure to represent a suitable entry point from which to build a world-class aluminium business," he said Wednesday.

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