Areas for Alcoa to Grow in 2013

Aluminum giant and Dow Jones Industrial Average (DJINDICES: ^DJI  ) component, Alcoa (NYSE: AA  ) kicked off earnings season with in-line profits and better-than-expected revenue. The big news coming out of the report was the company's outlook for 2013. It raised its global aluminum demand growth outlook up to 7%.

Even more interesting is that management is seeing robust growth in China. CEO Klaus Kleinfeld expects  GDP growth in China to come in above 8% for the year, as his company's end markets in China are clearly coming back. That outlook is important for the company, as ex-China, it expects demand growth for aluminum of only 4%.

Alcoa's growth forecast varies depending on both industry and geography. Let's take a quick look at what it's seeing  over the coming year:

  • Aerospace: Alcoa is seeing robust global sales growth of 9% to 10% across the aerospace industry. This outlook bodes well for Boeing (NYSE: BA  ) , although recent issues with its new Dreamliner could keep the stock grounded. While composites are making up an increased portion of the components in the Dreamliner, aluminum is still 20% of the input.
  • Auto: Alcoa projects modest 1%-4% production growth worldwide but sees demand growth in China up 7%-10%. Ford (NYSE: F  ) has been betting big on China, and the company stands to benefit from the bullish outlook in aluminum demand.
  • Heavy truck and trailer: While Alcoa sees 2%-7% global production growth, the only positive market is in China. The company expects North American production to fall 15% to 19%, with Europe sliding 6% to 10%. But China is expected to grow strongly, as once-delayed infrastructure spending should drive a rebound.
  • Beverage can packaging: Despite the growth of home soda maker SodaStream (NASDAQ: SODA  ) , Alcoa still sees 2%-3% sales growth in aluminum used in beverage cans. Again, the company sees China leading the way, with sales there up 8% to 12% against flat U.S. sales.
  • Commercial building and construction: While the global economy continues to muddle along, demand for aluminum in building and construction is strong. The company is forecasting 4%-5% global sales growth, although it does see sales demand down in Europe. The big surprise is that it's starting to see growth in North America for the first time in four years.
  • Industrial gas turbines: Alcoa is maintaining its growth outlook of 3%-5%. It sees the increased attractiveness of natural gas and increased demand for spare parts from higher turbine utilization as driving this market. This trend bodes well for industrial manufacturers such as General Electric (NYSE: GE  ) and sales of its gas turbines.

Alcoa surprised a lot of investors with its bullish outlook, as many had been expecting continued weakness in the aluminum market. The company's especially bullish outlook on China bodes well not just for the aluminum industry but for the global economy as a whole. Only time will tell if management's outlook proves to be true.

Materials industries are traditionally known for their high barriers to entry, and the aluminum industry is no exception. Representing 14.7% of 2011 global production in this highly consolidated industry, Alcoa is in a prime position to take advantage of growth that some expect will lead to total industry revenue approaching $160 billion by 2017. Based on this and several other company-specific factors, Alcoa is certainly worth a closer look. For a Foolish investment perspective on this global giant simply click here to get started.


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