While some celebrated the fact that Alcoa (NYSE:AA) analysts' profit estimates in the third quarter, they were still down 21 percent from previous results.
So even though aluminum prices helped their performance some, higher costs still cut into margins, generating lower results than they could have had. And that was with sales rising 15 percent to $5.3 billion.
Where does all this leave the company as it relates to the future?
They've already cut expenses to the bone, and while they may be able to whittle away a little more, there isn't much more it would to do affect the bottom line.
That means management has pretty much positioned themselves the best they can, other than possibly expanding through acquisition.
But that has its weaknesses as well, as the industry via its smelters can easily ramp up production and increase global aluminum inventory quickly, making acquisitions less desirable than other miners, such as in the gold mining industry.
One positive thing Alcoa and other commodity producing companies have going for them is the misguided policies of central banks around the world, who are committed to inflating (call it quantitative easing if it makes you feel better), which will drive down the value of the dollar, making it cheaper for overseas customers to buy aluminum in the case of Alcoa.
Lower prices alone can't be counted on though, as continued weaknesses in the global economy, especially in the West, could quickly skew the supply and demand picture, and little could be done if that ends up going down.
Since aluminum demand is for the most part coming from the emerging markets, that may not be as big of a factor, although it could still slow things down for a time, and stunt the rally they're experiencing now.
In other words, Alcoa is going to remain volatile and unpredictable, as there are too many factors happening at the same time to know which one will predominate and affect their markets.
One that can be counted on is weakening U.S. dollar and possible increased sales from overseas markets. If other things continue on as they are, that could be good news as long as the global economy and emerging markets remain fairly healthy.
That can't be measured by the West, as if they're not still in a recession, they're just on the other side of it, with the likelihood of dropping down into another one.
Alcoa's near and mid-term future is tied into emerging market growth. How they go will be how Alcoa goes, along with the secondary factors mentioned beyond supply and demand.
