Alcoa Casting SWOT

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Page 17 Chapter 6 SWOT analysis

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Chapter 6 SWOT analysis

Strengths

Alcoa is the world leader in the production and management of primary

aluminum, fabricated aluminum and alumina combined. The companys products

are used worldwide in diverse range of industries that include aerospace,

alumina, aluminum ingot, automotive, commercial transportation, electric, energy,

home and commercial building supplies, industrial products and services,

packaging and consumer, specialty metals and others. In addition to aluminum

products and components, Alcoa is also engaged in marketing of Alcoa wheels,

fastening systems, precision and investment castings, and building systems.

Moreover, Alcoa has been named one of the top most sustainable corporations

in the world at the World Economic Forum in Davos, Switzerland. The company

has been continuously working to create optimized solutions that are not only

successful, but also sustainable vehicles for the future generation. Alcoa makes

sustainable products: almost 70% of the aluminum produced till date is still in

use, equalling 480m metric tons (529m tons) of total 690m metric tons (761m

tons) manufactured since 1886.

In the recent years, the company has made several major investments including

Iceland, Juruti, Sao Luis and fastener acquisitions. These investments enable

Alcoa to lower its cost base in its upstream primary businesses and increase

presence in the most profitable downstream market, fasteners. To shape its

portfolio for greater profitable growth, Alcoa exited the Packaging and Consumer

business, acquired two high growth fastener businesses and agreed on a

cashless asset swap with its joint venture partner, Orkla. This enabled the

company to exit a non core business soft alloy extrusion and to gain control of

two smelters in Norway. These developments have made Alcoa the largest

aluminum producer in the world.

Additionally, Alcoa operates the worlds largest light metals research and

development center, Alcoa Technical Center (ATC), located in Pittsburgh, Pa.

The company continues to develop new alloys and processes serving the next


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generation needs of the automotive market. Furthermore, Alcoa spends a

significant amount on its R&D activities to continue its efforts to increase the use

of aluminum through innovative product solutions for its customers. In 2008, the

companys R&D expenses were USD246m investing in new developments for a

number of strategic projects in all business segments. On the product front,

Alcoa has consistently introduced new products and technologies to counter

competition. For example, the company developed four products for the

commercial transportation industryfuel tank, landing gear, fifth wheel,

aluminum composite panelthat provide customers with products that reduce

weight and maintenance and operating costs while increasing payloads and fuel

economy. In addition, the 2009 Automotive News PACE Award was presented to

Alcoa Transportation Products for technological advancement, innovation and

business performance.

The company has also undertaken a number growth projects in Australia, Brazil,

China, Iceland, Jamaica, Guinea, and Russia, all of which present opportunities

for substantial growth. In total, Alcoas capital investments were approximately

USD3,438m in 2008 (excluding currency impacts). Of these, nearly 58% related

to growth projects including the refinery expansion in So Lus, the development

of the Juruti bauxite mine, the Estreito hydroelectric power project in Brazil, and

projects at various facilities in Russia and China. These expansions have

strengthened Alcoas position and will continue to add earnings growth in future

years.

Weaknesses

Alcoas major sales are generated from the US market. In fiscal 2008, the US

market contributed 53% share in the companys annual sales. Such over

dependence on a particular region could prove detrimental to the companys

growth in case of any economic downturns or demand fluctuations in that market.

Opportunities

The global demand for aluminum is expected to reach 67m tonnes by 2017, a

CAGR growth of 6%. In 1970, aluminum accounted for 2.0% of vehicle curb

weight. In 2009, aluminum's share quadrupled to 8.6%, and it is expected to

scale up to 10.4% by 2020. The company is planning to cash in on the demand

in the high growth regions by investing in strategic growth projects, such as

manufacturing facilities in China and other parts of Asia, bauxite reserves and


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hydroelectric projects in Brazil, potential smelter development in Greenland and

Iceland, as well as smelter positions in China and the Middle East. Alcoas capital

investments were approximately USD3,438m in 2008 (excluding currency

impacts). Of these, nearly 58% related to growth projects including the refinery

expansion in So Lus, the development of the Juruti bauxite mine, the Estreito

hydroelectric power project in Brazil, and projects at various facilities in Russia

and China. These expansions have strengthened Alcoas position and will

continue to add earnings growth in future years.

Aluminum serves as the solution to a challenged automotive industry. With an

increasing focus on improved fuel economy and emissions reduction, Alcoa is

helping car manufacturers explore ways to improve performance and reduce

weight. It is estimated that by 2020, aluminum consumption in light vehicles will

grow from 17 billion to 28 billion pounds. Alcoa commands a competitive positionto seize these opportunities, owing to its swift actions to anticipate and respond

to the economic downturn, and the companys liquidity and flexibility that give it a

competitive advantage. The combination of Alcoas innovative advantages and

the crucial role of aluminum in making transportation more sustainable offers

strong prospects for the companys long term growth.

Threats

Alcoa is subject to cyclical fluctuations in prices, economic conditions, and

aluminum end use markets. The recent global economic downturn, coupled withthe global financial and credit market disruptions had a negative impact on the

aluminum industry and Alcoa

The company is severely affected by uncertain factors including prices of raw

materials and fuels such as oil, as well as the effect of the sub prime crisis and

inflation, global economic scenario is expected to be largely negative in 2009.

Alcoa also faces significant price competition from other manufacturers of

aluminum. In some of the key end use markets (of fabricated aluminum

products), the companys major customers exert leverage in the market to affect

pricing. In addition, aluminum competes with other materials, such as steel,

plastics, composites, and glass, among others, for various applications in Alcoas

key markets. Furthermore, reduction of demand in the North American market

and pricing pressures from OEMs are expected to affect the company's net

income, going forward.


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Alcoa Casting SWOT