Who Will Benefit From Alcoa's Chinese Growth Predictions?

In conjunction with its fourth-quarter earnings, Alcoa  (NYSE: AA  )  provided investors with its 2013 demand growth forecast for its end markets. Among the more interesting areas where it sees strong demand growth is in the commercial building and construction markets. Alcoa expects demand to rise 4.5% globally in 2013, with China alone seeing an even more impressive rise of 8%-10%.

While this demand growth is important to Alcoa's aluminum business over the next year, it's not the only industry that'll benefit from these projections. Other critical components to the commercial building and construction markets include copper, coal, and chemicals. Let's take a look at how each could benefit from Alcoa's forecast.

Copper
An important and versatile metal, copper is a key construction component. It has a variety of industrial uses such as for electrical wiring and plumbing pipes, as well as in heating and ventilation systems. Given Alcoa's forecast, copper miners should do well over the coming year, especially since China accounts for about 40% of the world's copper demand.

This could mean a bright 52 weeks for companies like Freeport-McMoRan  (NYSE: FCX  ) . As the world's second-largest copper producer, few companies benefit from its rise more than Freeport-McMoRan. While the company recently announced it was diversifying into energy production, copper is still what will drive its business over the next year.

Coal
While low natural gas prices are causing its decline in the U.S., coal is still an important commodity in China. It's used in both steel production and power generation and is increasingly being imported. According to China Customs, the country's net coal imports from January through August totaled 196 million tonnes, a 43% increase over the prior year. One reason for that: The country's coal-fueled electricity generation rose 1% from January through September 2012 over the corresponding prior-year period, according to the China National Energy Administration.

One company that stands to benefit from this trend is Peabody Energy  (NYSE: BTU  ) . While coal is expensive to transport, the company has a leg up on its peers because of its Australian coal production. It can more easily ship coal to not only China but to India as well. That's important because China and India are expected to account for more than 75% of the coal-based primary energy demand growth projected from 2009 to 2035. 

Chemicals
The chemical industry accounted for $13.6 billion worth of U.S. exports to China in 2011, ranking behind crop production and computers and electronics. Chemicals are important to the commercial building and construction markets, with uses in materials such as insulation, performance coatings, and sealants.

One chemical company benefiting from the growth of China is DuPont  (NYSE: DD  ) . In 2011, the company had $3.3 billion of sales in China which represented 8.7% of its total revenue. Because of the diversity of DuPont's business, not all of those sales were related to its chemicals business. However, China will represent an important market for the growth of the company's chemical-related business segments.

Bottom line
Alcoa's bullishness on China's commercial building and construction markets is welcome news for investors. Not only does it bode well for the company's aluminum sales, but it means there should be healthy demand for other key industrial inputs as well. Those companies positioned to take advantage of this growth in China should prosper over the coming year.

One company worth digging deeper into is Freeport-McMoRan.  After putting together a blockbuster deal to expand into the oil and natural gas industry, Freeport-McMoRan will have plenty on its plate as it tries to adapt to the new industry, as expanding into oil and gas carries plenty of inherent volatility. FCX had a profitable copper business, and on top of this foray into a new industry it still has to contend with mining industry bellwether BHP Billiton. To help investors determine if Freeport-McMoRan is a buy or a sell, we've compiled a brand new premium report on the company! Click here now to gain instant access!


Read/Post Comments (1) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 14, 2013, at 5:22 PM, funfundvierzig wrote:

    Given the systematic cyber-spying by the Chinese along with documented theft of DuPont's advanced TIO2 technology by Chinese interests, we would not be surprised to see Chinese competitors become formidable rivals to DuPont in TIO2 production and marketing in the near to mid term.

    Since TIO2 is DuPont's biggest money-maker in industrial chemicals, such a development would not augur well for DuPont's long-suffering shareholders...funfun..

Add your comment.

DocumentId: 2195210, ~/Articles/ArticleHandler.aspx, 4/20/2014 2:27:46 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

TREND TRACKER: Get Rich When the Web Goes Dark

It's time to say "goodbye" to your Internet! One bleeding-edge technology is about to put the World Wide Web to bed. And if you act right away, it could make you wildly rich. Experts are calling it the single largest business opportunity in the history of capitalism… The Economist is calling it "transformative"... but you'll probably just call it "how I made my millions." Big money is already on the move. Don't be too late to the party – find out the 1 stock to own when the Web goes dark.


Advertisement