Default risk a ‘giant Taser’, says Alcoa chief

October 8, 2013 11:14 pm

Default risk a ‘giant Taser’, says Alcoa chief

By Ed Crooks in New York

The threat that the US might refuse to raise the debt ceiling is a “giant Taser” freezing confidence in the world economy, Klaus Kleinfeld, chief executive of Alcoa,the US aluminium group, has warned. Speaking as Alcoa reported strong growth in earnings for the third quarter, Mr Kleinfeld said the disputes in Washington were hurting confidence not just in the US but globally.The economic recovery after the financial crisis had been slow, but was “well under way”, he said. It was now threatened by the risk that the US might default on its debts. “The longer it goes on, the more impact it will have.”

“Congress and the US administration need to find a solution,” he added.

There was no shortage of proposals around for securing the US government’s finances, but “to play with this giant Taser is irresponsible”.

Alcoa’s underlying earnings per share, excluding one-off items such as restructuring costs, were $0.11 in the third quarter, up from $0.03 in the equivalent period of 2012 and ahead of analysts’ average expectations of $0.05.

Revenues were down 1 per cent at $5.77bn, and pre-tax profits, including special items, were $75m, compared to a loss of $208m last time.

Mr Kleinfeld said the improvement in earnings reflected the success of Alcoa’s repositioning away from commodity aluminium production and towards specialised products.

The midstream and downstream operations, which include rolled products and packaging as well as fasteners and engineering products for industries such as aerospace, automotive and construction, accounted for 57 per cent of revenues and 79 per cent of post-tax segment operating income in the year to date.

In aluminium smelting, meanwhile, Alcoa has been trying to reduce its costs, stopping production at 16 per cent of its smelting capacity.

Primary metals generated just $8m post-tax operating income in the fourth quarter, compared to $263m for the midstream and downstream businesses.

In spite of the differing performance of the two sides of the business, Mr Kleinfeld again cast doubt on calls for a demerger, saying that while everything was under review all the time, integration offered “great advantages” in terms of issues such as purchasing, recruitment of talent and the concentration of expertise.

In accordance with Mr Kleinfeld’s assessment of a slow but “nice” recovery so far this year, he also reaffirmed the company’s forecast that the world aluminium market would grow by 7 per cent in 2013, a slight acceleration from its 6 per cent growth last year.

He highlighted markets such as construction in the US, which had been “coming back”, and predicted that over the next couple of years the use of aluminium in mass-market vehicles “really takes off”.