Alcan's Globalization Should Prove Defensive
Despite a weak U.S. market, international demand is still healthy.
Alcan Aluminium reported on Wednesday morning fourth-quarter earnings of $0.54 per share, in line with the diminished expectations the firm created with an earnings warning in mid-December. The world's second-largest aluminum producer said that weakening demand from a slowing economy could hamper performance for the next couple of quarters but that it plans to start wringing greater benefits from the recent acquisition of Switzerland's Algroup.
What It Means for Investors
The current effects of slowing North American aluminum demand, especially in the transportation and construction markets, already have been widely noted by the market and, we believe, built into aluminum companies' stock prices. Alcan expects North American demand to fall further in 2001 while the rest of the world posts modest increases, which could translate to static global demand for the year.
Given Alcan's increasing worldwide diversification with the recent purchases of Algroup, Aluminum of Korea, and other smaller businesses outside North America, the firm has been positioning itself to weather such a regional downturn. This effect already is showing up in Alcan's numbers. For instance, Alcan in the fourth quarter actually managed to generate modest year-over-year and sequential price-per-ton increases for its rolled aluminum products. We believe this is directly attributable to aluminum demand in Europe, which held up better in the last months of 2000 than in the United States and Canada, along with recently acquired Algroup's higher-priced product mix. So while Alcan is cautiously warning that its business will slow in early 2001, we believe the firm's recent expansion strategy could help it weather a cyclical slowdown better than less diversified rivals.