Alcoa reports 97% increase in sequential net income in Q2 2018; projects deficit in aluminium and alumina and surplus in bauxite

Alcoa Corporation, a global leader in bauxite, alumina, and aluminium products, reported Q2 2018 results that were favourably impacted by strong pricing for both alumina and aluminium.

“Market pricing continued to be favourable in the second quarter and drove a 38 per cent sequential increase in adjusted EBITDA excluding special items,” said Alcoa President and Chief Executive Officer Roy Harvey.

“While markets and trade dynamics are likely to remain fluid, we will continue to be focused on driving value for our stockholders through all market cycles,” he added. 

In Q2 2018, Alcoa reported net income of US$75 million, compared to US$150 million in Q1 2018. The second quarter results include a negative impact of $211 million for special items related to cash and non-cash settlements. Excluding special items, second quarter 2018 adjusted net income was $286 million, up 97 per cent sequentially from $145 million.

In Q2 2018, Alcoa reported $904 million of adjusted EBITDA excluding special items, up 38 per cent from $653 million in Q1 2018. The increase was driven by higher alumina and aluminium prices, as well as a stronger U.S. dollar. Higher energy and raw materials costs and maintenance cost affected the results negatively.

Alcoa reported Q2 2018 revenue of $3.6 billion, up 16 per cent sequentially on higher realized alumina and aluminium prices and increased primary aluminium shipments.

Alcoa incurred $15 million of costs in Q2 for tariffs on imports from its foreign operations for U.S. sale. Alcoa’s imported primarily from Canada which fell under the import tariffs.

Cash from operations in second quarter 2018 was a negative $430 million and free cash flow was a negative $525 million. Alcoa ended second quarter 2018 with cash on hand of $1.1 billion and debt of $1.9 billion, for net debt of $0.8 billion.

Q2 2018 is marked by the restarting of two of three potlines in the partial restart plan for Warrick aluminum smelter in Indiana. On May 28, 2018, Alcoa announced that the third line scheduled for restart had been shut down due to a temporary power outage. The Company expects to complete the restart of the third potline by the end of 2018. Approximated restart cost will be about US$5 million (after-tax) on a combined basis. Once the partial restart is completed, the Warrick smelter will have an annual output of 161,000 tonnes.

Alcoa forecasted its full-year outlook for adjusted EBITDA excluding special items to range between $3.0 billion to $3.2 billion, The new full-year forecast covers current market prices, tariffs on imported aluminium, increased energy costs, and some operational impacts.

The company projected a full-year 2018 global deficit for both aluminium and alumina and a surplus for bauxite.

In aluminium, the Company expects a larger global deficit ranging between 1.1 million and 1.5 million metric tons. Global aluminium demand growth remains unchanged from last quarter, projected to be between 4.25 to 5.25 per cent in 2018. The global supply chain will be affected by the US tariffs, sanctions on Rusal and alumina supply disruptions.

In alumina, Alcoa is projecting a slightly lower global deficit between 200 thousand and 1 million metric tons, compared to last quarter’s expectation of between 300 thousand and 1.1 million metric tons.

The global market for bauxite is expected to be in a surplus for full year 2018 with stockpile growth in China and increased exports from Guinea.