Alcoa warns of aluminum overcapacity

Global aluminum producer Alcoa Corp., based in Pittsburgh, has reported what it calls record second-quarter 2022 financial results that include an 11 percent sequential increase in revenue and strong cash flow. However, Bloomberg also reports comments from the company indicating the aluminum arena remains full of unprofitable competitors.

In this year’s second quarter, Alcoa increased its revenue to $3.6 billion, while its net income increased to $549 million. That compares with slightly less than $3.3 billion in revenue in the prior quarter and net income that has increased by 17 percent from the $469 million earned in the first quarter of this year.

“We had a strong first half of 2022 with nearly $2 billion in adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] and cash flows that have enabled more buybacks under our existing stock repurchase program as well as continued quarterly dividend payments,” Alcoa President and CEO Roy Harvey says. “We have returned more than $380 million so far this year to our investors, and today we announced an additional $500 million authorization for future stock repurchases.”

While the current numbers are good, in its earnings call Harvey expressed concern about aluminum production’s profitability globally. Bloomberg reports that during a call with analysts this week, Harvey commented, “Based on June’s average prices, we estimate that between 10 percent to 20 percent of worldwide smelting capacity was underwater [unprofitable] last month.”

The Bloomberg report points to rising electricity costs in Europe and North America, fears of a recession and rolling COVID-19 lockdowns in China as reasons for potential oversupply. “International efforts to isolate Russia in retaliation for its invasion of Ukraine have compounded the uncertainty about global aluminum supplies,” Bloomberg adds.