Alcoa Inc. (AA), the world’s leading producer of aluminum, recently started a new sheet facility in Qinhuangdao, China. Alcoa Bohai, the company’s Chinese subsidiary owns and operates the plant. Alcoa’s investment in Alcoa Bohai in 2005 was the largest foreign investment in the Chinese aluminum industry.

With this sheet facility, Alcoa now has the capacity to produce top grade aluminum sheets for Chinese printing, transportation, electronics and packaging industries. Alcoa Bohai will produce the best quality aluminum sheet used in the digital plate stocks by the printing industry and hard alloy transportation as well as high surface-quality sheets for the electronics industry. This will significantly reduce imports of such products into China.

The facility is equipped with one 1+3 hot mill line, one cold mill, one lithographic sheet line with one slitter plus a series of finishing equipment. The newly installed lithographic sheet line is the world’s most sophisticated and hi-tech line ensuring superior quality. As the largest domestic supplier of lithographic sheet, Alcoa Bohai will help China to replace most of its overseas imports of lithographic sheets and strengthen its position in advanced lithographic sheet manufacturing and management.

In April this year, the Pittsburgh-based company had projected weak global demand for 2009, with 1.4 million tons of aluminum production cutbacks in the near term. However, Alcoa now expects aluminum demand to pick up with economic recovery.

Alcoa posted a net loss of $256 million, or 26 cents per share, on revenue of $4.2 billion in the second quarter. This compares with a year-ago profit of $546 million, or 66 cents per share, on revenue of $7.2 billion. The company blamed lower aluminum demand and prices for the recent quarterly performance. However, its reported losses were lower than the Zacks Consensus Estimate of 38 cents.

We maintain our Neutral recommendation on the stock.

Zacks Investment Research
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