Global Pulse: Alcoa - Global Aluminium Deficit to Reduce Sharply in 2015; Result Excerpts Q4CY14 :: Edelweiss

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Alcoa expects the global aluminium deficit to reduce sharply to 38kt in 2015 (from 948kt in 2014) and surplus in alumina to surge to 2.9mt (from 490kt in 2014), led by capacity additions. On demand front, the company remains optimistic assuming 7% growth (led by China’s 10% growth forecast), similar to CY14. In our view, the fall in deficit is a potential negative for aluminium prices in 2015. Alcoa’s Q4CY14 adjusted EBITDA surpassed consensus estimates by 4%. Global Rolled Products (GRP) division volumes were up 7% YoY (versus our ~9% estimate for Novelis led by capacity additions), while the segment’s EBITDA/t at USD331 rose ~68% YoY though down 22% QoQ. For Novelis, we expect EBITDA/t of USD284, up only 8% YoY factoring in pricing pressure in North America (due to overcapacity in beverage can market) and Asia (due to low cost Chinese producers).

Global aluminium deficit to reduce to 38kt in 2015

Despite assuming 7% demand growth (factoring in 10% rise in China and 4% for Rest of World (RoW) - similar to CY14), Alcoa expects global aluminium deficit to reduce to 38kt in 2015 from a high of 948kt in CY14. The fall in deficit is largely owing to capacity addition in both China (4.4mtpa) and RoW (716ktpa). In alumina, the company estimates surge in global surplus from ~0.5mt in CY14 to ~2.9mt in 2015. Deteriorating sector fundamentals pose downside risk to our FY16 aluminium price estimates. Alcoa also highlighted that current global aluminium inventory is at its lowest since 2008 even as regional premiums remain at record highs,  implying risk aversion to hold physical stocks.

GRP exhibits sharp YoY margin expansion, modest volume growth

Alcoa’s adjusted EBITDA/adjusted net profit of USD1,073mn/USD547mn surpassed consensus estimates by 4% and 6%, respectively. The GRP segment EBITDA rose sharply to USD161mn (up from USD89mn in Q4CY13), driven by margin expansion and volume growth (up 7% YoY to 487kt). EBITDA/t increased from USD196 in Q4CY13 to USD331 in Q4CY14. Margin expansion was primarily driven by higher realisations (YoY), though partially offset by rise in regional premiums.

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https://www.edelweiss.in/research/Global-Pulse-Alcoa--Global-Aluminium-Deficit-to-Reduce-Sharply-in-2015;-Result-Excerpts-Q4CY14/28013.html