Norwegian Aluminium Producers to Merge While US Peer Predicts Lower Demand

on Oct 15, 2012

**Alcoa Cuts Global Aluminium Forecast on China Slowdown**

Demand for aluminium is often seen as a barometer of the world economy because of its widespread use from airliners to drinks cans. Being the second-biggest economy and one of the main consumers of aluminium, China has great influence on the sector. Taking into consideration the prolonged Chinese slowdown, Alcoa Inc. (NYSE:AA), the largest U.S. aluminium producer, has cut its forecast for global consumption of the metal by one percentage point. According to the New York-based company, demand will climb by 6 per cent this year, which would be the slowest increase since the recession of 2008.

“We do see a slight slowdown in some regions in end-markets, and the main driver for this is China,” Chairman and Chief Executive Officer Klaus Kleinfeld said on a conference call with analysts. Chinese demand may pick up because of stimulus measures, but it is “probably going to take until the end of the fourth quarter” to show results, he added.

**Revised Forecast Comes in Hand with £89m Q3 Loss**
Alcoa’s revised forecast was released last week as the company reported a loss of $143 million (£89 million) in the third quarter of the year. Opening the US corporate reporting season, Alcoa said the loss equalled 13 cents per share. Excluding $175 million in charges, Alcoa earned $32 million, or 3 cents per share. That compares with net income of $172 million, or 15 cents a share, a year ago.

!m[Alcoa Cuts Aluminium Demand Forecast While Orcla and Hydro Join Forces to Survive In the Stricken Sector ](/uploads/story/580/thumbs/pic1_inline.png)The price of aluminium was depressed for most of the third quarter, and Alcoa’s selling price averaged 17 per cent less than in the equivalent period of 2011. But despite the challenging market conditions, the aluminium producer said that it remains on track to deliver against its financial and operational targets in 2012. Alcoa continued strong productivity growth across the upstream and downstream segments this quarter, driven by higher utilisation rates, process innovations, lower scrap rates, and usage reductions.

**Orcla and Hydro to Battle the Sector’s Challenges Together**
Alcoa’s Norwegian peers, Orcla (STO:ORKO) and Norsk Hydro (STO:NHYO), have also found a way to battle the tough market conditions. The Norwegian aluminium producer and the consumer goods conglomerate said on Monday (15 October 2012) that they have agreed to join their profiles, building systems and tubing businesses as they react to the sector’s toughening conditions and prepare for future emerging market growth.
Orkla chief executive Aage Korsvolt said: “We are going through difficult times in our markets and the goal is to restructure to create a competitive company.”
The new company, to be named Sapa after Orkla’s current brand, will be a 50/50 joint venture with an expected 47 billion Norwegian krona (£5.1 billion) worth of annual sales and 1.9 billion Norwegian krona (£207 million) operating profit. The deal is set to cut annual costs by 1 billion krona (£108 million) and create the world’s largest company in the segment amid massive industry overcapacity in Europe. Yet the merger is also likely to lead to job losses.
Hydro chief financial officer Joergen Arentz Rostrup said: “There is reason to believe that there will also be consequences for jobs, though that would have happened anyway due to the weak European markets in particular.”