The mating dance between aluminum producer Alcoa (NYSE:AA) and Alcan (NYSE:AL) is no doubt the primary issue on investors' minds at the moment. But until the music actually stops, let's take a look at the industry issues that will be driving Alcoa's performance this quarter.

China's economy continued to have a voracious appetite last quarter, and it doesn't appear to be letting up. Right now, the Chinese economic motor is singing the song of demand, and Alcoa is one of the beneficiaries. While the country itself is becoming a larger producer of the metal, its production gains have been closely offset by gains in domestic demand.

Another area that boosted the aluminum producer last quarter was increased claims for its products by the aerospace and defense industries. In particular, aerospace -- which accounts for about 10% of Alcoa's revenue -- has been showing strong demand and increases in productivity that are not expected to abate this quarter.

Before the call, let's review what Foolish investors are thinking. To get the pulse of the community, I tapped into Motley Fool CAPS, where more than 50,000 investors have weighed in on 4,700 stocks, Alcoa among them. Here's what Fools have to say about the company.

Up or down?
More than 500 players have weighed in on Alcoa. They find few wrinkles in the aluminum shell of the company, bestowing a four-star rating upon it.

As good as the CAPS community feels about Alcoa -- more than 89% think it will outperform the market -- the very best investors, the CAPS All-Stars, think even more highly of it. These are the top participants who consistently outperform their peers over time, and more than nine out of every 10 of them think Alcoa will wrap it up.

Alcoa's four-star rating is a strong one, but it seems the steel space is a popular one across the board with CAPS players:


CAPS Rating (out of 5)

BHP Billiton (NYSE:BHP)


Aluminum Corp of China (NYSE:ACH)


Companhia Vale do Rio Doce (NYSE:RIO)






Kaiser Aluminum (NYSE:KALU)


Rio Tinto (NYSE:RTP)


Wall Street vs. Main Street
Of the 13 analysts that cover Alcoa, seven say the aluminum producer is a hold and six say it's a buy. Yet over on CAPS, the six analysts we track are unanimous in their opinion that Alcoa will win the day; all rate it an outperform.

Sales are expected to rise 3.6% to $8.25 billion, while earnings are expected to shrink nearly 7% to $0.84 per share, undoubtedly as a result of expense pressures. That might explain why Alcoa is well-respected but not at the top of the heap.

Bull pitch
Industry analyst and research firm Netscribes, an Alcoa bull, describes the situation as follows:

Being an industry leader, the sheer size of the company helps it to afford economies of scale and a low-cost position. Moving ahead and in an attempt to bolster its financial performance, the company is working on an extensive restructuring program focused on its downstream operations, to reduce annual operating costs by approximately $125 million, thereby boosting its margins.

Alcoa, Inc.'s cash flows are improving and on-balance capital allocation has become more productive and shareholder-friendly. This, coupled with a measured approach by the industry to add capacity, should keep check on prices and margins, over the next several years.

Bear pitch
Top bear Tracker52 said back in February:

I see a confluence of several major factors hitting AA. First, the domestic auto makers are scaling back production. Second, the aerospace cycle may be peaking soon. Third, there is increasing competition from substitute materials such as composites and titanium for many of aluminum's traditional uses. The company has over 7 billion in debt and only 1/2 billion in cash. It is free cash flow negative and has consistent ROE/ROA/ROIC well below the S&P 500 average ...

Your pitch
To add your thoughts to those of the wise Fools above and explore the multitude of financial data that's been compiled on the company, just click here.

And while you're at it, check out these related Foolish articles:

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Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.