Alcoa 2012 Annual Report Download - page 42

Alcoa’s operations consume substantial amounts of energy; profitability may decline if energy costs rise or if
energy supplies are interrupted.
Alcoa’s operations consume substantial amounts of energy. Although Alcoa generally expects to meet the energy
requirements for its alumina refineries and primary aluminum smelters from internal sources or from long-term
contracts, certain conditions could negatively affect Alcoa’s results of operations, including the following:
• significant increases in electricity costs rendering smelter operations uneconomic;
• significant increases in fuel oil or natural gas prices;
• unavailability of electrical power or other energy sources due to droughts, hurricanes or other natural causes;
• unavailability of energy due to energy shortages resulting in insufficient supplies to serve consumers;
• interruptions in energy supply or unplanned outages due to equipment failure or other causes;
• curtailment of one or more refineries or smelters due to the inability to extend energy contracts upon
expiration or to negotiate new arrangements on cost-effective terms or due to the unavailability of energy at
competitive rates; or
• curtailment of one or more smelters due to a regulatory authority’s determination that power supply
interruptibility rights granted to Alcoa under an interruptibility regime in place under the laws of the country
in which the smelter is located do not comply with the regulatory authority’s state aid rules, thus rendering
the smelter operations that had been relying on such country’s interruptibility regime uneconomic.
If events such as those listed above were to occur, the resulting high energy costs or the disruption of an energy source
or the requirement to repay all or a portion of the benefit Alcoa received under a power supply interruptibility regime
could have a material adverse effect on Alcoa’s business and results of operations.
Alcoa’s profitability could be adversely affected by increases in the cost of raw materials or by significant lag
effects of decreases in commodity or LME-linked costs.
Alcoa’s results of operations are affected by changes in the cost of raw materials, including energy, carbon products,
caustic soda and other key inputs, as well as freight costs associated with transportation of raw materials to refining and
smelting locations. Alcoa may not be able to fully offset the effects of higher raw material costs or energy costs
through price increases, productivity improvements or cost reduction programs. Similarly, Alcoa’s operating results are
affected by significant lag effects of declines in key costs of production that are commodity or LME-linked. For
example, declines in the LME-linked costs of alumina and power during a particular period may not be adequate to
offset sharp declines in metal price in that period. Increases in the cost of raw materials or decreases in input costs that
are disproportionate to concurrent sharper decreases in the price of aluminum could have a material adverse effect on
Alcoa’s operating results.
Alcoa is exposed to fluctuations in foreign currency exchange rates and interest rates, as well as inflation, and
other economic factors in the countries in which it operates.
Economic factors, including inflation and fluctuations in foreign currency exchange rates and interest rates,
competitive factors in the countries in which Alcoa operates, and continued volatility or deterioration in the global
economic and financial environment could affect Alcoa’s revenues, expenses and results of operations. Changes in the
valuation of the U.S. dollar against other currencies, particularly the Australian dollar, Brazilian real, Canadian dollar,
Euro and Norwegian kroner, may affect Alcoa’s profitability as some important raw materials are purchased in other
currencies, while the Company’s products are generally sold in U.S. dollars.
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