Alumina and aluminium pricing drive growth in Alcoa’s annual results

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Alcoa Corp. has released its Q4 and full-year 2018 results. “Our 2018 results reflect how we’ve made Alcoa stronger,” said president and CEO Roy Harvey.

Harvey added: “We’ve built upon the progress we made since our launch, and by executing our strategic priorities to reduce complexity, drive returns, and strengthen the balance sheet, we’re now better positioned to thrive through market cycles. Despite sequentially weaker commodity prices, we had a strong fourth quarter with higher profits in our Bauxite and Alumina segments. With the help of higher market prices earlier in the year, we increased annual profits, addressed liabilities, significantly strengthened our balance sheet, and began returning cash to stockholders. With markets likely to remain dynamic in 2019, we will focus on what we can control to continue improving our operations, addressing challenges with agility, and making the most of opportunities in the year ahead."

Q4 2018 results

In the fourth quarter, Alcoa reported net income of USD43m compared to a net loss of USD41m in Q3 2018. Excluding the impact of special items, Q4 adjusted net income was USD125m up 5% sequentially from USD119m.

Adjusted Ebitda excluding special items fell 6% to USD749m in Q4 from USD795m in the previous quarter. The sequential decline was primarily due to lower aluminium prices and a decrease in the price of energy sales in Brazil, partially offset by increased shipments across all three segments.

Q4 revenue amounted to USD3.3bn, down 1% sequentially, mainly attributable to lower realized prices for primary aluminium, alumina and Brazil energy sales. These negative impacts were partially offset by increased shipments across all three segments.

Full-year 2018 results

For full-year 2018, Alcoa reported net income of USD227m, up 4.6% on the previous year. Excluding special items, the company reported adjusted net income of USD675m, up 19.9% year-on-year.

Adjusted Ebitda excluding special items was USD3.1bn, up 27% on 2017. The year-over-year improvement was largely due to higher alumina and aluminium prices, partially offset by higher costs for raw materials and energy and increased maintenance expense.

Revenue in 2018 was USD13.4bn, up 15% on 2017, mainly attributable to higher realized prices for alumina and aluminium products.

Market update

For 2019, Alcoa projects a global aluminium deficit ranging between 1.7-2.1m tonnes with global demand growth in a range of 3-4%. The company’s final global aluminium demand growth rate estimate for 2018 was 4% with a deficit of 1.7m tonnes.

The global alumina market closed 2018 with a deficit of 0.6m tonnes, which fell within Alcoa’s last estimate of a 0.4-1.2m tonnes deficit. In 2019, the company expects the alumina market to move to a surplus that is projected to range between 0.2-1m tonnes, which assumes ongoing, third-party supply disruptions in the Atlantic region. The projected alumina surplus is driven by China, where refining expansions are expected to outpace demand growth from smelting.

The bauxite market is expected to remain in surplus with global stockpile growth projected to continue in 2019, ranging between 7-11m tonnes. The stockpile is driven by China, which strategically holds bauxite due to uncertain sourcing within and outside of the country.

Outlook for 2019

In 2019, the company projects total bauxite shipments to range between 47-48m dry tonnes. Total alumina shipments are expected to be between 13.6-13.7m tonnes with anticipated operational improvements and higher year-on-year production. Aluminium is expected to ship between 2.8-2.9m tonnes, which reflects the expiration of a can sheet tolling agreement in the flat-rolled business. The tolling agreement’s expiration should have a negligible impact on adjusted Ebitda for the year.

Alcoa anticipates favourable impacts from spot prices for raw materials to be fully offset by higher energy costs in the first quarter and to be partially offset for the remainder of the year.

Based on current alumina and aluminium market conditions, the company expects an annual operational tax rate ranging from 45 to 55%.

For the first quarter of 2019, Alcoa expects moderate benefits from both improvements in customer-specific alumina pricing and lower alumina costs to the Aluminium segment. These are partially offset by increased maintenance activities.

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