Large imports of aluminum from Japan, Europe, and South America have tarnished the outlook this year for US producers, especially Alcoa, the industry leader.
While US potlines, or smelters, are operating at only 66 percent of capacity, the rest of the world is operating at 85 to 90 percent. And the excess aluminum produced by these overseas operators has landed in the United States with a heavy thud.
The result of the imports, and the weak US economy, says William B. Renner, vice-chairman of the Aluminum Company of America (Alcoa), has been some cutthroat pricing. For example, he notes in an interview, Japanese producers are selling aluminum sheet used to make cans at 5 percent under Alcoa's price, in large measure because of the strength of the US dollar. And some foreign producers, he says, are selling aluminum sheet used in siding at 80 cents a pound, 16 cents a pound under Alcoa's prices.
Faced with this tough competition, Alcoa, the largest US aluminum manufacturer, has become aggressive in pursuing customers, industry analysts say. This posture has permitted the company to whittle down what most analysts considered overly large inventories.
William G. Siedenburg, a vice-president at Smith Barney, Harris Upham Inc., a brokerage house, estimates Alcoa has lowered its inventories from 180,000 tons at year-end to about 120,000 tons. (Alcoa would neither confirm nor deny the estimate, since it does not comment on inventories.)
The company's shipments rose 24 percent in the first quarter despite a slumping economy. Although Alcoa's vice-chairman confirms that the company has had no trouble getting orders, he grumbles about the prices. Mr. Siedenburg is more blunt, commenting, ''I would guess they've lost their shirts in the last few months.''
In the first quarter, in fact, Alcoa reported that net income from operations came to $24 million, or 31 cents a share (on sales of $1.2 billion), compared with $101 million, or $1.37 a share (on sales of $1.3 billion), in the first quarter of 1981.
Hidden within those earnings, analyst George Cleaver of Merrill Lynch points out, is a foreign-currency gain and an investment tax credit. Thus, he concludes , the earnings ''suggest a real loss of 1 cent per share.'' Stagnant construction and transportation markets, representing about 22 percent of the company's sales, cut into sales, while profit margins sagged under steep price cutting.
Mr. Renner says the outlook for the second quarter doesn't look much better. He does not expect much improvement in the company's prospects until at least the third or fourth quarter. One positive development, he says, is that Alcoa's customers are sitting with very little inventory. Any upturn in the economy will be noticed almost right away on the company's order book.
Securities analysts have a far from rosy view of the year ahead. Mr. Cleaver at Merrill Lynch commented recently that Alcoa ''will be lucky to break even'' this year. And Mr. Siedenburg of Smith Barney says he thinks Alcoa's strategy ''is to write off this year and use the time to prepare the company to reap maximum benefit from a recovered economy in 1983 and beyond.''
If the economic recovery continues for two to three years, says Peter Merner, a vice-president at L. F. Rothschild, Unterberg, Towbin, the aluminum industry will sort itself out. Even if the recovery is not very robust, he adds, the aluminum industry's results will look good, since they're ''starting at such a low level.''
With earnings down, Alcoa has reduced its 1982 capital spending plans from $ 900 million to $575 million, still the highest in the industry. Although Mr. Renner says Alcoa could still move back from this level, he adds that further cutbacks would eat into maintenance and replacement. Since the company won't have the cash flow to finance this spending level and still pay its $1.80 -a-share dividend, it will have to turn to the debt markets. So far this year, Alcoa has borrowed $186 million, and expects to borrow a considerable amount more this year. Mr. Renner says he suspects it will have to use the debt markets for ''a few years'' until it can once again finance its capital spending program through internally generated funds.
In an effort to conserve funds, Alcoa has begun a program of belt tightening.
Although the program hasn't made any work changes that will require union negotiations, Mr. Renner says the company has held several meetings with its unions to discuss its problems. Chief among these, he says, is that 30 percent of the cost of a ton of aluminum is made up of wages, salaries, and benefits. In an effort to start to limit those costs during a period of slack demand, Alcoa has frozen the salaries of the top 1,800 managers and cut in half the salary increases for other salaried employees.
Another major problem for the industry is finding future supplies of energy at a reasonable cost. Industry executives expect power costs to rise dramatically in the Pacific Northwest, which has about one-third of US smelting capacity. As a result of rising energy costs in the United States, Mr. Renner says, future smelter expansions are likely to be overseas -- in Brazil and Australia, for example.