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Alcoa Squeezed by ‘Stubbornly High’ Costs, Lower Aluminum Prices

·2 min read

(Bloomberg) -- Alcoa Corp. is getting squeezed by higher energy costs and lower aluminum prices, which the company warned investors late Wednesday will result in lower earnings for the third quarter.

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The largest US aluminum maker’s Chief Financial Officer William Oplinger said that after a “spectacular” first half of the year, the third quarter is going to be rough due to declining metal prices, rising raw material costs, increasing energy costs -- particularly in Europe -- and operational issues in Australia.

The comments underscore an uncertain time for suppliers of metals key to the auto and construction industries as inflation for energy, material and labor costs threaten to crimp economic growth and profits. China is in particular focus, as Covid lockdowns and a growing property crisis curb demand. They also come less than 12 hours after Nucor Corp., the largest US steelmaker, sounded alarm bells that shipments of the key building component will decline this quarter, causing shares to drop the most in nine months.

“The third quarter is shaping up to be a tougher quarter for us,” Oplinger said at a Morgan Stanley conference in Laguna Beach, California. “Metal prices have come down, raw material prices have stayed stubbornly high.”

Demand is uncertain across the globe, Oplinger said. China, which consumes more than half of the world’s aluminum, has weakened, while customer needs in North America have remained “pretty solid.”

While European demand in products like billet -- needed for construction and commercial transportation -- have dropped, the market may be balanced by an additional million tons of capacity cuts in the coming months, according to Oplinger.

Earlier today, CEO Roy Harvey said at a conference in Barcelona that uncertainty is so great in Europe that it’s making it difficult for customers to have a view on their order books beyond a few months. Still, Harvey said he sees strong long-term outlook for demand of the metal.

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