Alcoa 2009 Annual Report Download - page 30

Item 1A. Risk Factors.
Alcoa’s business, financial condition or results of operations may be impacted by a number of factors. In addition to
the factors discussed elsewhere in this report, the following are some of the important factors that could cause Alcoa’s
actual results to differ materially from those projected in any forward-looking statements:
Recovery from the 2008 - 2009 global economic downturn and related disruptions in the financial markets, and
their impact on the aluminum industry and Alcoa, are uncertain.
The aluminum industry generally is highly cyclical, with prices subject to worldwide market forces of supply and
demand and other influences. Alcoa is subject to cyclical fluctuations in LME prices, economic conditions generally,
and aluminum end-use markets. The global economic downturn that occurred in 2008 and 2009, coupled with the
global financial and credit market disruptions, had a historic negative impact on the aluminum industry and Alcoa.
These events contributed to an unprecedented decline (56% in the last five months of 2008) in LME-based aluminum
prices, weak end markets, a sharp drop in demand, increased global inventories, and higher costs of borrowing and/or
diminished credit availability. While Alcoa believes that the long-term prospects for aluminum remain bright, the
company is unable to predict the timing and rate at which industry variables may recover. The company implemented a
number of operational and financial actions in 2009 to improve its cost structure and liquidity, including curtailing
production, halting non-critical capital expenditures, accelerating new sourcing strategies for raw materials, divesting
non-core assets, reducing global headcount, suspending its existing share repurchase program, reducing its quarterly
common stock dividend and making other liquidity enhancements. However, there can be no assurance that these
actions, or any others that the company has taken or may take, will be sufficient to counter any continuation or
reoccurrence of the downturn or disruptions. In addition, there can be no assurance that the measures taken by Alcoa or
their benefits will be sustainable in a changing or improving business environment. A protracted continuation or
worsening of the global economic downturn or disruptions in the financial markets could have a material adverse effect
on Alcoa’s business, financial condition or results of operations.
Alcoa could be materially adversely affected by declines in aluminum prices.
The price of aluminum is frequently volatile and changes in response to general economic conditions, expectations for
supply and demand growth or contraction, and the level of global inventories. The influence of hedge funds and other
financial investment funds participating in commodity markets has also increased in recent years, contributing to
higher levels of price volatility. At the same time, there is often a lag effect for a reduction in LME-linked costs of
production. For example, reduction of certain key smelting input costs (such as alumina and power) may lag declining
average primary metal revenue by up to 90 days. Continued high LME inventories could lead to a reduction in the price
of aluminum. Industry overcapacity, including decisions by competitors to reactivate idle or build new capacity, could
contribute to a weak pricing environment. A sustained weak aluminum pricing environment or a further deterioration in
aluminum prices could have a material adverse effect upon Alcoa’s business, financial condition, results of operations
or cash flow.
A reduction in demand (or a lack of increased demand) for aluminum by China or a combined number of other
countries may negatively impact Alcoa’s results.
The Chinese market is a significant source of global demand for commodities, including aluminum. A sustained
slowdown in China’s economic growth, or the combined slowdown in other markets, could have an adverse effect on
the global supply and demand for aluminum and aluminum prices. In addition, China’s investments to increase its self-
sufficiency in key commodities may impact future demand and supply balances and prices.
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