What is my tin foil hat indicator? The tin foil sales. Well, not tin foil. Aluminum foil.
Alcoa’s profits are plunging. It’s the worst since 2008. The company may even register a 4th-quarter loss.
Net income will tumble 96 percent to 1 cent a share from 21 cents a year earlier, according to the average of 18 analysts’ estimates compiled by Bloomberg. That’s 82 percent less than the average projection from a month ago. Nine of the 12 estimates (AA) compiled within the last 28 days are for New York-based Alcoa to post a loss in the fourth quarter.
Why is this a good indicator? Because aluminum is a primary commodity for final users.
The average price of aluminum, which is used in beverage cans, aircraft and window frames, was 11 percent lower in the quarter from a year earlier after global growth decelerated amid a sovereign-debt crisis in Europe and government action to control inflation in China. Supply is exceeding demand and inventories have soared, leaving some smelters unprofitable at current metal prices.
“You have 40 to 50 percent of global capacity under water at these levels,” Kuni Chen, an analyst with CRT Capital Group LLC in Stamford, Connecticut, who has a “buy” rating on Alcoa, said in an interview.
The companies thought there would be demand. Demand isn’t there. This points to a coming slowdown, despite vaguely positive news.
“The decline in the average of estimates for the fourth quarter of 2011 is the steepest since those made for the fourth quarter of 2008, according to data compiled by Bloomberg.”
It’s not just Alcoa. “Russia’s United Co. Rusal, the world’s biggest aluminum company, will post a 45 percent decline in fourth-quarter earnings, according to estimates compiled by Bloomberg.”
If the experts in the industry guessed this wrong, then there is something more fundamental than excess capacity. It has do do with weak demand.