Alcoa 2006 Annual Report Download - page 33

Primary Metals
2006 2005 2004
Aluminum production
(kmt) 3,552 3,554 3,376
Third-party aluminum
shipments (kmt) 2,087 2,154 1,882
Alcoa’s average realized
price per metric ton of
aluminum $ 2,665 $2,044 $1,867
Third-party sales $ 6,171 $4,698 $3,806
Intersegment sales 6,208 4,808 4,335
Total sales $12,379 $9,506 $8,141
ATOI $ 1,760 $ 822 $ 808
This segment consists of Alcoa’s worldwide smelter system.
Primary Metals receives alumina, primarily from the
Alumina segment, and produces primary aluminum to be
used by Alcoa’s fabricating businesses, as well as sold to
external customers, aluminum traders, and commodity
markets. Results from the sale of aluminum powder, scrap,
and excess power are also included in this segment, as well
as the results of aluminum derivative contracts. Aluminum
produced by Alcoa and used internally is transferred to
other segments at prevailing market prices. The sale of
primary aluminum represents approximately 90% of this
segment’s third-party sales.
In 2006, aluminum production decreased by 2 kmt due
to the decline in production associated with the temporary
curtailment of the Eastalco, MD smelter, partially offset by
the first quarter 2006 completion of the Alumar, Brazil
smelter expansion and the second quarter 2006 acquisition
of the minority interests in the Intalco, WA smelter. In
2005, aluminum production increased by 178 kmt, princi-
pally due to the restart of capacity at the Massena, NY and
Bécancour, Canada smelters, as well as the partial restart of
the Wenatchee, WA smelter.
Aluminum
Production
thousands of metric tons
2002 2003 2004 2005 2006
3,500 3,508
3,376
3,554 3,552
Third-party sales for the Primary Metals segment
increased 31% in 2006 compared with 2005, primarily due
to an increase in realized prices of 30%. Third-party sales
for the Primary Metals segment increased 23% in 2005
compared with 2004, primarily due to an increase in real-
ized prices of 9% and increased third-party shipments.
Intersegment sales increased 29% in 2006 and 11% in 2005
compared with previous periods due to higher realized
prices and higher internal demand.
ATOI for this segment increased 114% in 2006 com-
pared with 2005 as higher realized prices were partially
offset by higher income taxes related to effective tax rate
changes in Canada, Brazil and Europe; increased raw
materials and energy costs; unfavorable foreign currency
exchange movements; and the Fjardaal, Iceland smelter
start-up costs. ATOI for this segment increased 2% in 2005
compared with 2004 as higher realized prices and increased
volumes were mostly offset by increased raw materials and
energy costs, unfavorable foreign currency exchange
movements, and outages and restart costs.
Alcoa currently has 545,000 metric tons per year (mtpy)
of idle capacity on a base capacity of 4,209,000 mtpy. Base
capacity increased by 62,000 mtpy in the first quarter of
2006 due to the completion of the Alumar, Brazil smelter
expansion and by 185,000 mtpy in the second quarter of
2006 with the acquisition of the minority interests in its
Intalco, WA and Eastalco, MD smelters. Idle capacity
includes the temporary curtailment of the Eastalco smelter
in December 2005.
The Iceland smelter, which will add 344,000 mtpy of
capacity, is expected to be completed in 2007 and yield
approximately 100 kmt for the year. In 2006, the company
continued construction on a new anode plant in Norway
expected to be completed in 2007 and continued the
modernization of two Spanish smelters and the Poços de
Caldas smelter in Brazil.
The increase in ownership of the Intalco smelter and the
subsequent restart of a second potline will add an additional
95 kmt of production in 2007 compared to 2006. The full
year impact of the Alumar smelter expansion will increase
production an additional 5 kmt in 2007 compared to 2006.
Flat-Rolled Products
2006 2005 2004
Third-party aluminum
shipments (kmt) 2,273 2,156 2,046
Third-party sales $8,297 $6,836 $5,962
Intersegment sales 246 128 89
Total sales $8,543 $6,964 $6,051
ATOI $ 255 $ 288 $ 246
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 sold directly to
customers in the packaging and consumer market and is
used to produce aluminum beverage cans. Seasonal increases
in RCS sales are generally experienced in the second and
third quarters of the year. This segment also includes sheet
and plate used in the transportation, building and con-
struction, and distribution markets (mainly used in the
production of machinery and equipment and consumer
durables), of which approximately two-thirds is sold directly
to customers, while the remainder is sold through distrib-
utors. Approximately two-thirds of the third-party sales in
this segment are derived from sheet and plate, and foil used
in industrial markets, while the remaining one-third of
third-party sales consists of RCS. While the customer base
for flat-rolled products is large, a significant amount of sales
of RCS, sheet, and plate is to a relatively small number of
customers.
Third-party sales for the Flat-Rolled Products segment
increased 21% in 2006 compared with 2005. The increase
was primarily due to passing through material price
increases, more favorable product mix associated with
aerospace, and higher volumes in the aerospace, commercial
transportation, packaging, and distribution markets. Third-
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