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Alcoa signals more noncore asset sales to bolster balance sheet

Continuing weak commodity markets and debt market volatilityhas prompted AlcoaInc. to lighten its asset load further this year.

The New York-based aluminum producer will sell off a furtherUS$400 million worth of nonessential assets in the second half.

Executive Vice President and CFO William Oplinger saidduring a July 11 earnings call that the assets earmarked for sale include theYadkin hydroelectric project in North Carolina, the property at the formerEastalco smeltersite in Adamstown, Md., and the Intalco smelter wharf in Ferndale, Wash.

"The Intalco property sale will not affect our abilityto use the wharf or run the smelter," he said. "In total, we'reexpecting proceeds of[US]$1.2 billion from these actions."

Alcoa sold its stake in the Western Australia pipeline andAlcoa Titanium & Engineered Products' medical device business, generatingnearly US$250 million in proceeds in the second quarter.

The company also redeemed the corporate-owned life insuranceprogram that was set up several decades ago, and sold assets held by itscaptive insurance company, which collectively added an extra US$568 million toAlcoa's coffers in the first half.

Oplinger said the sale of these assets has improved thecompany's liquidity, with cash on hand US$600 million higher in the secondquarter at US$1.9 billion, compared to a year earlier.

Alcoa has also wiped US$500 million off its debt bill, whichat the end of the second quarter amounted to US$7.2 billion, compared to thefirst quarter of the year.

Meanwhile, Chairman and CEO Klaus Kleinfeld refused to bedrawn on whether or not Alcoa is considering other nonessential asset sales,saying only that "talking about things in theory going forward is nothelpful."

The company's outlook for the aluminum market is slightlymore positive, with global demand growth forecast to remain at 5%, while supplygrowth of 2.5% is up 50 basis points from Alcoa's first-quarter estimate,resulting in an aluminum deficit of 775,000 tonnes.

"It's important to note that China is not exportingsignificant primary metal currently," Oplinger said. "Inventoriescontinue to decline, with a 7% decline versus a year ago, and 8% declinesequentially. LME and China stock reductions are the big drivers behind thisreduction. The continued global deficit has resulted in all-in pricesrecovering globally."

Alumina demand, meanwhile, is expected to outpace supplygrowth globally. However, China's imports are tipped to be lower thanpreviously forecast.

Oplinger said the alumina market deficit is around 1.5million tonnes, with China importing 3.5 million tonnes and the rest of theworld in deficit, post exports to China.

"However, this level of China imports are down slightlyfrom our last projection, as approximately 40% of curtailed capacity has beenconfirmed to have restarted as of the second quarter in response to strongerdomestic Chinese alumina prices," he said.