Will low alumina price have an impact on Alcoa’a second quarter results?

<p>Alumina and electricity are the two key inputs that go into aluminium production which also play a very significant role in determining the price of aluminium.</p> <p>Integrated aluminium producers like Alcoa, Norsk Hydro and Rio Tinto (RIO) have both alumina refining as well as aluminium smelting operations. &nbsp;Alumina prices were strong last year driven by capacity curtailments in China and higher thermal coal prices and high demand in China. Alcoa&rsquo;s alumina segment posted a sharp increase in profitability due to higher alumina prices.</p> <p style="text-align: center;"><img style="vertical-align: middle;" src="http://www.alcircle.com/uploads/images/alcoa%20alumina.jpg" alt="News" width="517" height="226" /></p> <p>However, API prices (alumina price index) have fallen drastically in 2017. This could be a concern for Alcoa as lower alumina prices would have a negative impact on the profitability of its alumina operations. Secondly, low alumina prices could also bring down aluminium prices bringing down profitability for entire upstream operations.</p> <p>Smelters that buy alumina from third parties could increase their production volume to increase profitability. If alumina prices stay at lower levels for long, it could impact aluminium prices.</p> <p>Alcoa plans to announce its second quarter 2017 financial results on Wednesday, July 19, 2017.&nbsp; Analysts expect the company to post adjusted EBITDA of $491 million in 2Q17 against $533 million in first quarter. While higher aluminium prices can boost Alcoa&rsquo;s profitability, it could also be affected by lower alumina prices.</p> <p>{googleAdsense}</p> <p>With reference to alumina, Alcoa&rsquo;s 2017 EBITDA is expected to rise or fall by $69 million for every $10-per-metric-ton increase or decrease in API (alumina price index).</p> <p>To withstand the volatility in the commodity market, Alcoa has been working on its cost control initiatives, streamlining its operations in a productive way. So, higher productivity and cost control measures are expected to support Alcoa in beating analyst&rsquo;s expectation to report an increase in earnings.&nbsp;</p>