Alcoa 1999 Annual Report Download - page 33

Aluminum
Production
thousands of
metric tons
1,506
1,708
1,725
2,471 2,851
9695 97 98 99
Alcoa’s aluminum hedging activities also are included in this segment.
Aluminum ingot produced by Alcoa and used internally is transferred
to other segments at prevailing market prices. Third-party sales
of ingot, which make up the majority of this segment’s third-party
revenues, rose 4% from 1998. The increase was due to higher ship-
ments, which also rose 4%. On average, prices in 1999 compared
with 1998 were unchanged. In 1998, third-party sales of ingot rose
32% from 1997. The increase was the result of additional shipments
from the smelting operations of acquired companies, which were
partially offset by an 11% decline in realized prices.
Intersegment sales increased in 1999 relative to 1998, and in 1998
relative to 1997, as Alumax and Inespal sourced the majority of their
metal needs internally.
Alcoa’s average realized price for ingot in 1999 was 67 cents per
pound, unchanged from 1998. In 1997, the average realized price was
75 cents. This compares with average prices on the London Metal
Exchange
(LME) of 63 cents per pound in 1999 and 1998, and
74 c e nt s i n 1997.
Alcoa operated its worldwide smelting system at 90% of rated
capacity in 1999. In January 2000, Alcoa announced that it will
restart approximately 200,000 mt of idle smelting capacity by the end
of the current year. Alcoa continues to have 250,000 mt of smelting
capacity idle.
Primary Metals
ATOI rose 44% in 1999 from 1998. Driving the
improvement was a 7% increase in shipments due to including a full
year’s results from the 1998 July purchase of Alumax. Lower raw
material prices, $45 of productivity improvements at U.S. operations
and cost efficiencies in Brazil also had a positive impact on segment
ATOI . Mark-to-market gains in 1999 versus losses in 1998 added $57
to ATOI in 1999. Primary metals ATOI fell 7% in 1998 from 1997, as
lower metal prices and higher mark-to-market losses more than offset
the impact of acquired companies and the results of internal hedging.
Lower operating costs in 1998 helped ease the decline, muting the
impact of lower prices.
III. Flat-Rolled Products
1999 1998 1997
Third-party aluminum shipments (mt) 1,982 1,764 1,469
Third-party sales $5,113 $4,900 $4,188
Intersegment sales 51 59 53
Total sales $5,164 $4,959 $4,241
After-tax operating income $ 281 $ 306 $ 269
This segment’s principal business is the production and sale of
aluminum plate, sheet and foil. This segment includes rigid container
sheet (RCS) , which is used to produce aluminum beverage cans, and
mill products used in the transportation and distributor markets.
Approximately 45% of the third-party shipments and sales in this
segment are derived from the sale of RCS , while a similar amount is
obtained from mill products. Other flat-rolled products, such as foil,
comprise the remainder of this segment. Third-party sales from
this segment in 1999 increased 4% from 1998, as shipments, aided by
a full year’s results from the former Alumax locations, rose 12%.
Third-party sales in 1998 increased 17% over 1997, as the impact
from acquisitions was partially offset by a 2% decline in prices.
Third-party sales from
RCS were down 5% in 1999 primarily as
a result of lower prices. RCS pricing tends to lag movements in the