‘That’s all very, very nice’: Klaus Kleinfeld

October 20, 2014 - Alcoa’s leaders joyously described a profitable third quarter and the metal producer’s numerous strong pockets of end user demand driving up trending expectations.

Speaking during an Oct. 8 earnings call, chairman and CEO Klaus Kleinfeld was especially bullish on aerospace, noting the company’s last quarter landed contracts with Boeing and Pratt & Whitney valued at north of $2 billion combined.

Pratt & Whitney makes jet engines so the material under the contract will include nickel and titanium, as well as some aluminum. “Then we have Boeing on the structure side. We opened the world’s largest aluminum-lithium facility in Indiana [which will feed Boeing’s requirements]. Very, very good,” Kleinfeld said.

“We continue to see a very strong aerospace market,” he said, estimating 2014 growth of 8 and 9 percent from 2013. “If you go to the large commercial aircraft, this [is] even stronger with 12.1 percent growth. The order books on the commercial jet side are full, nine years of production. 

“Airline fundamentals are good, plus 5.9 percent on the passenger demand side, plus 3.1 percent on the cargo side. Airline profits are up. And we see a rebounding regional jet market, plus 13.2 percent with the highest order book in five years. That’s all very, very nice,” Kleinfeld told equities analysts.

Alcoa raised its North American automotive-related sales projections, citing year to date light vehicle unit sales that have risen 5.4 percent. And, due to an aging fleet, “there is still some pent-up demand.”

Although European vehicle sales are expected to be flat, exports are up and Chinese demand continues to improve—resulting from a growing middle class and new environmental regulations expected to take 6 million polluting vehicles off the roads.

“The heavy truck and trailer [market] is fortunately back, and we are clearly, for North America, taking up our projection. We had it at 10 to 14 percent, and we’re taking it up to 16 to 20 percent,” said Kleinfeld.

“Orders are up year to date plus 32 percent. The order book stands at 122,000 trucks, and the 10-year average is 102,000 trucks. Most folks see production forecast increases, 79,000 units in the third quarter of this year, up 24.5 percent year on year.”

European truck and trailer sales and order rates have fallen and the Chinese market is expected to experience zero to 4 percent demand growth. “Let’s not forget that last year [saw] 30 percent growth. The market is stabilizing and the infrastructure required for regulatory change, meaning no sulfur gas, is available,” Kleinfeld said.

The packaging market in North America is shrinking, according to Alcoa, due to health concerns about soft drinks, but beer is increasingly being sold in cans. “And how else would you drink it, right?” joked Kleinfeld. The Chinese are boosting can consumption for beer and tea. 

For construction, Alcoa projects 3 to 4 percent growth across North America, citing architectural billings and home price indices. Building activity continues to falter in Europe and rise throughout China. MM