Alcoa: Aluminum Sliding

With declines in the manufacturing and housing sectors aluminum demand is taking a beating–and so are aluminum producers like Alcoa.

On Monday Alcoa, the world’s third-largest producer of aluminum, saw its shares tumble 5.1%, or $1.76, to $33.11 at the close after a Credit Suisse analyst lowered his estimate due to headwinds in the sector.

Credit Suisse analyst David Gagliano lowered his profit outlook for the aluminum company because of a decline in aluminum prices, adverse currency and energy price changes, including the fall of the U.S. dollar compared to other currencies such as the Canadian dollar and the euro and the high cost of natural gas, and weakness in some downstream markets.

Aluminum demand is linked to manufacturing and housing demand. The Institute for Supply Management reported last week that its index of U.S. manufacturing activity contracted in December following 10 consecutive months of expansion. The same day the Commerce Department released U.S. construction spending data during November inched up 0.1%, up from a revised 0.4% decline in October, as educational and highway construction helped offset the continuing decline in residential construction.

Gagliano had expected aluminum prices during the September to November period of $1.15 per pound. The actual price for the period was $1.12. Gagliano now expects Alcoa to report fourth-quarter earnings of 38 cents per share, down from his previous estimate of 65 cents, and full-year earnings of $2.48 per share, down from $2.75.

Alcoa is expected to report fourth quarter and full year earnings on Wednesday.

Last month, Alcoa announced it would sell its consumer and packaging business to New Zealand’s Rank Group for $2.7 billion. The transaction will include the sell-off of the Reynolds Wrap foil brand.

Amir Arif, an analyst at Friedman, Billings & Ramsey, lowered his fourth-quarter and full-year commodity outlook on Monday because of a forecasted slowdown in merger and acquisition activity and an increase in supply which will cause inventory for most base metals to build. “With less impact from economic outlooks and great impact from currency weakness and investment demand, under most scenarios, the precious metals should outperform base metals,” Arif said.

Arif lowered Alcoa’s earnings per share outlook for the fourth-quarter to 42 cents per share from 64 cents per share, 3 cents above the consensus estimate of 39 cents per share. He also lowered Century Aluminum fourth-quarter outlook to 97 cents per share, down from $1.17 per share, 5 cents below the consensus estimate.

Kaiser Aluminum shares slid 2.3%, or $1.70, to $73.00 at the close on Monday, while Empire Aluminum shares tumbled 2.9%, or 12 cents, to $4.02.