Alcoa (AA), the world leader in the production and management of primary aluminum, fabricated aluminum and alumina, has seen a significant reduction in its revenue and income over the past two years. Its sales figures fell from a peak of more than $33.5 billion in 2008 to $21.6 billion in 2009, a decline of more than 35%. In 2010, sales recovered to $25.7.  This trend has been seen across all companies in the metals and mining industry, which includes competitors like Rusal, Rio Tinto (RIO), BHP Billiton (BHP) and Chalco (ACH).
Our price estimate for Alcoa, at $17.68, implies a 9% premium to market price.
The Primary Uses of Aluminum…
Aluminum products are used worldwide in aircraft, automobiles, commercial transportation, and packaging. The products also see demand from construction and other industrial applications. Demand for aluminum for these purposes is driven by the metal’s considerable strength despite being extremely light.
The largest chunk (about 26%) of all aluminum produced is used in transportation. This is followed by the construction and packaging industries with each constituting 20% of the total production of aluminum. 
… Which Explains Why Alcoa has Struggled in the Recent Past
Aluminum is used in a wide range of construction projects, from small window catches to large, durable structures like staircases, air-conditioning systems and roofs. While the global recession hit all industries, the dependence of aluminum producers on the construction industry magnified this effect.
The construction industry is recovering slowly from the effects of the global recession and real estate bubble. While a recent report by KPMG predicts a bullish outlook for the construction industry in 2011,  the aluminum industry is less upbeat with the Chinese government phasing out its economic-stimulus package initiated in 2008. China is the world’s largest aluminum market where construction accounts for almost 50% of total aluminum consumption in China. 
And it Could be a Bumpy Ride for Alcoa in the Near Future
A slow recovery in construction could impact Alcoa’s aluminum shipment figures considerably. We forecast 4% growth in Alcoa’s sale of aluminum in the years to come. To understand how much value Alcoa stands to lose, if we reduced the growth rate to 2%, our price estimate for Alcoa stock to just below $17. This represents a roughly 5% decline from our base price estimate of $17.68.
- Alcoa 10-K SEC filing, Alcoa, Feb 17 2011
- Uses of Aluminium, Greener-Industry, 2011
- Global construction industry cautiously optimistic, KPMG, Jan 26 2011
- Alcoa Sales Growth to Slow as China Tackles Inflation, Bloomberg, Jan 12 2011