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Alcoa Opens Wheel Plant in China

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Aluminum giant Alcoa Inc. (AA - Free Report) announced that its business unit, Alcoa Wheel and Transportation, has opened a wheel manufacturing facility in Suzhou, China. The new opening is consistent with Alcoa’s expansion strategy in China. The company currently has a full wheel manufacturing, distribution, sales and service network in the country.

The new plant is the first wheel-making facility for Alcoa in China. The company has similar facilities in North America, Japan and Europe. With this facility in place, China will benefit from Alcoa’s industry-leading forged aluminum wheel technology that manufactures lighter, stronger and more fuel efficient commercial truck, trailer and bus wheels.

For setting up the facility in China, Alcoa received full support from the Suzhou Wuzhong Economic Development Zone and local governments that helped the company start operations at the facility before schedule. Alcoa started sales operations in Shanghai back in 2004, and has since expanded its sales network into Guangzhou, Beijing, Jinan and Suzhou.

Alcoa incurred 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.

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. The decline in revenues was attributable to a 17% year over year fall in aluminum prices.

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 to 6% for 2012 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 compound annual growth rate of 6.5%.

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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