Alcoa 2010 Annual Report Download - page 32

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 and aluminum demand growth that is not offset by increased aluminum demand
growth in other emerging economies such as India, Brazil, and several South East Asian countries, 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.
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, the following factors could affect Alcoa’s results of operations:
• 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 due to equipment failure or other causes; or
• curtailment of one or more refineries or smelters due to inability to extend energy contracts upon expiration
or negotiate new arrangements on cost-effective terms or unavailability of energy at competitive rates.
Alcoa’s profitability could be adversely affected by increases in the cost of raw materials or by significant lag
effects for decreases in commodity or LME-linked costs.
Alcoa’s results of operations will be affected by increases 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 offset fully the effects of higher raw material costs or energy
costs through price increases, productivity improvements or cost reduction programs. Similarly, Alcoa’s operating
results will be affected by significant lag effects for declines in key costs of production that are commodity or
LME-linked. For example, declines in 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.
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 Brazilian real, Canadian dollar, Euro and
Australian dollar, may affect profitability as some important raw materials are purchased in other currencies, whereas
products are generally sold in U.S. dollars.
Alcoa may not be able to realize expected benefits from its growth projects or portfolio streamlining strategy.
As a result of the global economic downturn and as part of the company’s initiative to conserve cash and preserve
liquidity, Alcoa halted all non-critical capital investment in 2009, except for the now-completed São Luís refinery
expansion and the greenfield Juruti bauxite mine, and the ongoing Estreito hydroelectric power project in Brazil and
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