Alcoa's surprising optimism lifts Alumina

ALUMINA shares were boosted yesterday when US aluminium giant Alcoa gave a buoyant outlook for aluminium markets and confirmed it was not looking at closing any Australian smelters.

In kicking off the US reporting season, Alcoa logged a fourth-quarter loss of $US191 million ($185m) -- its first quarterly loss since 2009 but comfortably in line with analysts' expectations.

What surprised many observers was Alcoa's announcement the world would be short 600,000 tonnes of aluminium this year, based on what it expected to be 1.1 million tonnes of Chinese production cuts and another 700,000 tonnes in the West on the back of depressed prices. Deutsche Bank analysts last week predicted a 720,000-tonne surplus this year that would grow to 1.15 million tonnes by 2014.

Yesterday, Alumina shares rose 7.5c, or 7 per cent, to $1.17, which is still down 53 per cent in the past year. The gains came despite Alumina not receiving any dividend from its senior partner in the fourth quarter.

Alumina's sole asset is a 40 per cent stake in the Alcoa-controlled Alcoa World Alumina and Chemicals venture, which contains all the US company's alumina refineries and its two Australian aluminium smelters.

The Melbourne-based Alumina said it had received $US231m worth of dividends last year, which is the sum of the first three quarters and means no dividend was paid in the last quarter.

Alcoa last week said it would permanently close 291,000 tonnes of already-shut smelter production and cut an additional 240,000 tonnes. The permanent closures indicate the US giant believes structural market changes in Chinese production and US costs are unlikely to make those operations profitable again.

Yesterday, Alcoa confirmed what had been assumed by most: that the lower-cost Australian smelters were safe from the cuts.

The closures would be at smelters in Portovesme, Italy, and La Coruna and Aviles in Spain.

AWAC's results were hit by lower aluminium and alumina prices and cost pressures.

Alumina chief executive John Bevan said this was offset by the transition to index-based pricing for alumina, which has traditionally been linked to aluminium prices, and after-tax profit of $US30m from the sale of Australian land. About 40 per cent of AWAC's alumina is expected to be sold on index or spot-based pricing this year. Fourth-quarter alumina production from AWAC was 4 million tonnes.

Credit Suisse said AWAC's share of Alcoa's fourth-quarter earnings was $US28m, including $12m from the land sales, just missing the bank's estimate of $US30m.