Published April 11, 2014
Fitch Ratings on Friday downgraded its rating on Alcoa Inc. (AA) into junk territory, citing financial strains including weak aluminum prices.
Fitch cut the aluminum maker's rating one notch to double-B-plus, which is in junk territory, from the investment grade rating of triple-b-minus, and said the company's profitability has been hampered by global oversupply in aluminum.
Fitch also called out the company's significant pension obligations, noting that Alcoa's aggregate pension plans were underfunded by $3.2 billion as of Dec. 31.
However, Fitch noted that the rating outlook is stable, which reflects "slowly improving trends" despite prolonged market weakness.
Fitch's move comes after the aluminum maker earlier this week reported it had swung to a first-quarter loss of $178 million--compared with a year-earlier profit of $149 million--partly due to restructuring charges and a steeper-than-expected drop in revenue.
Alcoa's results have been stung by flagging raw aluminum prices, driven by global oversupply.
In response, the company has cut production costs by closing expensive smelters, reducing its smeltering capacity by 28% since 2007.
Alcoa has also shifted its focus to high-strength lightweight aluminum products for cars and planes, two sectors the company is banking on to bolster demand for aluminum this year.
Alcoa projects global aluminum demand will rise 7% in 2014.al