Expectations for Alcoa Earnings

Analysts are forecasting that aluminum manufacturing giant Alcoa Inc. (NYSE: AA) will post a loss as it opens the earnings season with a report of its first-quarter results on Tuesday.

Demand for aluminum has slowed during the last two quarters due to sluggish economic growth in China and debt crisis struggles in Europe. Alcoa is expected to provide in its report some details about how the aluminum industry is dealing with a global glut of inventory, lower prices and higher costs.

Despite weakened demand for aluminum, worldwide aluminum production was up close to 6 percent in January and February compared with the same period in 2011, according to BNP Paribas metals analyst Stephen Briggs. Chinese companies continue to crank out large amounts of aluminum, which has affected prices. Spot aluminum prices on the London Metal Exchange dropped around 2 percent to 3 percent from the fourth quarter, according to Argus Research analyst Bill Selesky.

The aluminum supply glut has forced Alcoa and some other manufacturers to decrease production. In January, Alcoa announced plans to reduce its global smelting capacity by about 12 percent. The New York-based manufacturer said last week that it will slash production of alumina, a raw material used to make aluminum, by 390,000 metric tons.

Alcoa has also had to deal with increased transportation and energy costs in the first three months of 2012. Share price were up 15.8 percent in the first quarter after declining nearly 44 percent in 2011.

Alcoa’s results are important to the broader market because its aluminum is used in a variety of products, from transportation and construction to consumer electronics. Almost 80 percent of its sales are in the U.S. and Europe. Analysts surveyed by FactSet expect a loss of 4 cents per share on revenue of $5.77 billion.