April 10, 2012 / 9:55 PM / 7 years ago

Alcoa ups 2012 aerospace demand forecast

(Reuters) - Alcoa Inc has raised its forecast for aerospace demand growth this year by 3 percentage points, Chief Executive Officer and Chairman Klaus Kleinfeld said in an interview on Tuesday.

Speaking with CNBC, Kleinfeld also reiterated the U.S. aluminum producer’s 2012 demand growth forecast for the automotive and transportation sectors, with automotive demand expected to be back at pre-recession levels this year. The interview was broadcast after the company released its first-quarter financial results.

Overall global demand will rise by 7 percent, he said, although the picture is mixed with improving economic data in the United States, a worsening European economy and Chinese economic growth seen at around 7.5-8 percent.

“Europe is hovering along, muddling through,” he said.

Kleinfeld played down the impact on Alcoa of the 9 percent drop in aluminum prices in the first quarter, which hit the company’s top line. He attributed it to broader macro economic concerns rather than sluggish consumption for the light metal used in making cars, planes and window frames.

Record physical premiums paid for delivery of aluminum on top of the benchmark exchange price in the United States, Asia and Europe reflect “very, very strong” demand, he said.

Premiums are at or close to records, but market participants are unlikely to agree with Kleinfeld’s reasoning.

Demand may be steady, but consumers have to pay such high premiums because of incentives paid by warehousing companies to lure metal into their storage facilities, market participants agree.

So high are these cash payments - around $150 per tonne which equates to around 7 cents per lb - that aluminum consumers must fork out a similarly high amount to secure the metal and prevent it heading into warehouses.

Midwest premiums for prompt delivery have risen to around 9 cents per lb in the last month, close to the previous record of 9.5 cents.

This practice is not new. The strong forward price curve and low financing costs, features of the market for the past four years, have made it profitable for traders to store their metal for long periods of time rather than selling it to fabricators.

It is also the reason for record aluminum stocks in LME-registered warehouses.

Reporting By Josephine Mason; Editing by Bernard Orr

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