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Alcoa Signs Contract with BPA

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Alcoa Inc. (AA - Free Report) announced that it has entered into a contract with Bonneville Power Administration (BPA) for its Intalco Works aluminum smelter in Ferndale, Washington. Under the 10-year contract, BPA will provide 300 mega watt (Mw) of power to Intalco at the Industrial Power rate.

The signing of the new contract will be beneficial for the BPA customers as they will enjoy lower rates in the near term as well as stability of rates in the future. The agreement will also ensure operational flexibility and will help in dealing with intermittent resources like wind.

On the other hand, the contract will also benefit Alcoa as it will create new employment opportunities for people in the Washington area. The contract also paves the way for significant investments at Alcoa’s Ferndale plant.
Intalco Works started operations in 1966 and has capacity of 279,000 metric tons per year. The plant employs around 640 people.

Alcoa reported a loss of $143 million or 13 cents for the third quarter of 2012, driven by a hefty charge associated with environmental remediation and legal settlement as well as lower aluminum pricing. It compared with a profit of $172 million or 15 cents a share in the year-ago quarter.
Excluding one-time special items (a $175 million charge mainly related to environmental remediation of the Grasse River and the settlement of a civil lawsuit with Aluminum Bahrain), Alcoa earned $32 million or 3 cents a share in the quarter compared with the Zacks Consensus Estimate of a break even result. The company incurred a $40 million charge associated with the legal settlement in the quarter.

Revenues decreased 9.1% year over year and 2.2% sequentially to $5,833 million, but were ahead of the Zacks Consensus Estimate of $5,565 million. According to Alcoa, aluminum prices dropped 17% year over year and 5% sequentially in the third quarter.

Alcoa witnessed strong productivity growth in its upstream and downstream businesses in the quarter on the back of higher utilization rates, process innovations, lower scrap rates and usage reductions. The company saw healthy demand across the aerospace and automotive markets in the quarter.

The company has lowered its global aluminum demand forecast for 2012 to 6% from its earlier expectation of 7%, owing to the slowdown in China. The company, however, expects the aluminum market to double in 2020 from the 2010 level as the market is already ahead of the required 6.5% compound annual growth rate.

Pennsylvania-based Alcoa Inc. is among the world’s leading producers of primary and fabricated aluminum and alumina. The company competes with Aluminum Corporation of China Limited and RioTinto plc. (RIO - Free Report) . It currently retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating and we have a long-term (more than 6 months) Neutral recommendation on the stock.

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