01/09/2012 05:57 EST | Updated 03/10/2012 05:12 EST

Alcoa Inc. reports loss as slower global economy hurts aluminum demand, prices

Alcoa Inc. on Monday posted its first net loss in more than a year, as a sluggish global economy hurt aluminum demand across a broad range of businesses from automobile manufacturing to construction.

Global supplies of aluminum have grown because of uncertainty about the impact of Europe's debt crisis on the global economy and a decline in manufacturing activity in China, the world's second biggest economy behind the U.S.

Aluminum prices dropped by about 12 per cent in the fourth quarter, and the price has fallen more than 27 per cent from its peak in April.

Alcoa's performance can reflect global economic trends because its products are used in a wide range of businesses such as aircraft, automobiles, commercial vehicles like semitrailers, construction and pipe for the oil and gas industry. About half of its sales are in the U.S. and an additional 27 per cent are in Europe.

As a result, Alcoa (NYSE:AA) has looked for ways to cut costs. It plans to cut global smelting capacity 12 per cent by closing a smelter in Alcoa, Tenn., and curtailing operations in Texas, Italy and Spain.

However, the streamlining will not affect Alcoa's Canadian operations, where the company is growing its production and investing billions of dollars to upgrade its three smelters in Quebec.

At Portovesme, Alcoa said it would begin consulting with unions to permanently close the plant, while the Spanish cuts will be partial and temporary.

The metals producer said an uncompetitive energy position, combined with rising raw material costs and falling aluminum prices, led to the latest streamlining.

"In today’s rapidly changing global economy, it is imperative to respond quickly to maintain competitiveness," said Chris Ayers, president of Alcoa's primary metals business.

"This decision was made after thorough analysis of all the possible alternatives. We are committed to working to find solutions that will minimize the impact on these communities and our workers there."

The New York manufacturing giant said that its net loss was $191 million, or 18 cents a share, in the October-to-December quarter. That compares with income of $258 million, or 24 cents a share, a year ago. It marked the company's first net loss since the first quarter of 2010.

The most recent quarter included $185 million in one-time charges, the bulk of which came from its plan to close and curtail some smelting operations. Excluding that, the loss was $34 million, or three cents a share.

Revenue rose to $6 billion from $5.65 billion, although business was down in most areas; including construction, industrial products, packaging and commercial transportation. Sales to automobile manufacturers fell two per cent, despite a 10 per cent increase in U.S. auto sales in 2011.

Alcoa had record higher revenue from its aerospace and industrial gas turbine businesses.

Argus Research analyst Bill Selesky said many customers used aluminum hey had on hand rather than order more, because they were concerned about the global economic environment. He said he has seen similar trends among chemical, steel and copper companies.

Selesky does not expect aluminum demand to pick up until customers feel more comfortable about the economy. He said that could happen around the middle of this year.

For all of 2011 Alcoa reported net income of $611 million, or 55 cents a share, compared with $254 million, or 24 cents per share, in 2010. Revenue rose to $25 billion from $21 billion.

Looking ahead, Alcoa CEO Klaus Kleinfeld predicted that cutbacks in aluminum production will create a global deficit in aluminum supplies of about 600,000 metric tons this year. He also expects global aluminum demand to increase seven per cent in 2012.

Alcoa released its earnings after the market closed Monday. Its shares ended the day up 27 cents at $9.43 a share. In the past 52 weeks, the stock has ranged from $8.45 to $18.47 a share.

Alcoa was the first company listed in the Dow Jones industrial average to report fourth-quarter results.

In Canada, Alcoa approved in November the next phase of a five-year, $2.1-billion investment plan for its trio of smelters in Quebec.

The plan will modernize Alcoa's smelter in Baie Comeau, Que., for $1.2 billion with investments of $300 million at its Becancour and Deschambault smelters in the province. As well, $600 million will be spent on equipment maintenance and the installation of new smelting ovens.

The plan will increase production capacity by 120,000 tonnes per year and reduce greenhouse gas emissions.

The Quebec government has given Alcoa about 325 megawatts of electricity at a preferential rate but 50 megawatts less than initially agreed upon.

Alcoa Canada employs 3,900 people and has major operations in Quebec, where the company has an annual production capacity of nearly one million tonnes of ingots, castings, billets and aluminum rods.

— With files from The Canadian Press