Aluminum slump has Alcoa staring at quarterly loss

NEW YORK ― Alcoa Inc., the largest U.S. aluminum producer, could end up posting a fourth-quarter loss due to a dizzying drop in the metal’s price in the last six months as the euro zone debt crisis and an economic slowdown in China hurt demand growth.

At least five Wall Street analysts cut earnings estimates in the last week and 18 slashed their full-year 2011 estimates since September for Alcoa, which will announce results on Monday after the market closes.

Analyst Bridget Freas of Morningstar in Chicago noted that Alcoa’s fortunes are tied very closely to the price of aluminum, which fell 6 percent in the fourth quarter.

“We have seen a weakening trend in the last few months and it will show in the results,” she said. “Most analysts are blaming what has happened with the LME (London Metals Exchange) price and we ended the year on a low point.”

The price of aluminum fell 18 percent, from $2,470 per tonne at the end of 2010 to $2015 last week. Traders cited the euro zone crisis and China’s economic slowdown for hurting prospects for demand growth that send the metal on a downward track after May.

And that, says Wall Street, can only hurt Alcoa’s bottom line.

“They had a pretty weak quarter and should come in around the break-even mark,” said Freas, who does not give a quarterly estimate. Her full-year estimate of 80 cents per share is unchanged, she said, since she has already factored in the lower metal price.

“They still face high raw material costs , but the biggest driver (of Alcoa’s results) is the price of aluminum.

“They will not be posting the kind of results (they did) at second-quarter levels,” Freas said.