Alumina Cautions On Volatile Prices In 2012 After Profit Jump

Alumina Ltd. (AWC.AU), a partner in the world's largest producer of the key ingredient in aluminum, Thursday cautioned that prices are likely to remain volatile in 2012 after falling sharply toward the end of last year and even as the industry cuts smelting capacity.

The Australian company said its 2011 profit increased more than three times as aluminum and alumina prices increased and production at its Alcoa World Alumina & Chemicals venture with Alcoa Inc. (AA) reached a record.

"Toward the end of 2011, conditions deteriorated with significantly reduced aluminum and alumina prices and the Australian dollar remaining at high levels against the U.S. dollar," said John Bevan, chief executive of Alumina. "We are cautious on the outlook for 2012."

The company said demand remains reasonably firm despite the fall in prices and aluminum demand should grow between 5% and 7% globally in 2012.

A number of companies have cut smelting capacity as prices weakened, and Alcoa earlier this month said it was reviewing the viability of its Point Henry smelter in Australia in the face of tough global economic conditions.

"The outlook may see further curtailments of high-cost smelters globally, although new smelters in China and the Middle East will ensure global production remains in full supply," it said, adding higher-cost alumina refineries are expected to reduce capacity only if the demand from smelters is reduced.

Alumina's net profit jumped to US$126.6 million in 2011 from US$34.6 million a year earlier, the company said. Revenue at the Alcoa World venture, owned 40-60 with Alcoa, increased 22% to US$6.67 billion from US$5.46 billion.

Alcoa declared a final dividend of 3 cents a share, bring the total to 6 cents for the year, in line with the year before.

"The dividend decision is a material surprise to us, particularly in light of the cautious--and clearly appropriate--management comments around the outlook for 2012," analysts at Macquarie said in a research note to clients. Underlying earnings were broadly in line with consensus expectations, they said.

Alumina's Bevan said Alcoa World is expected to benefit from a continued shift to pricing based on the spot market. The company during 2011 had converted about 20% of its third-party smelter-grade alumina sales to pricing based on the spot market, and said it expected that, by the end of this year, 40% of sales will be priced this way.

Alcoa world produced a record 15.7 million metric tons during the year, up from 15.2 million in 2010, and Alumina said it was targeting 15.9 million tons of alumina and 360,000 tons of aluminum this year.

-By Robb M. Stewart, Dow Jones Newswires; +61 3 9292 2094; robb.stewart@dowjones.com

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