Alcoa 2013 Annual Report Download - page 44

market is a significant source of global demand for commodities, including aluminum. A sustained slowdown in
China’s economic growth and aluminum demand that is not offset by increased aluminum demand in emerging
economies, such as India, Brazil, and several South East Asian countries, or the combined slowdown of other markets,
could have an adverse effect on the global supply and demand for aluminum and aluminum prices. A reduction in
demand, or a lack of increased demand, in global markets could materially harm Alcoa’s business, financial condition
or results of operations.
Alcoa could be materially adversely affected by declines in aluminum prices and regional premiums.
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. Speculative trading in aluminum and the
influence of hedge funds and other financial institutions participating in commodity markets have also increased in
recent years, contributing to higher levels of price volatility. In 2013, the LME price of aluminum reached a high of
$2,123 per metric ton and a low of $1,695 per metric ton. Continued high LME inventories could lead to a reduction in
the price of aluminum. Declines in the LME price have had a negative impact on Alcoa’s results of operations.
Additionally, Alcoa’s results could be adversely affected by decreases in regional premiums that participants in the
physical metal market pay for immediate delivery of aluminum, which are part of the overall aluminum price. A
sustained weak aluminum pricing environment, a deterioration in aluminum prices or a decrease in regional premiums
could have a material, adverse effect on Alcoa’s business, financial condition, results of operations or cash flow.
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
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