Alcoa Bid Fires Up Alcan

Had Alcan and Alcoa been one in 2006, the joined company would have had revenue of $54 billion. Alumina capacity would have been roughly 21.5 million metric tons, and aluminum capacity would have totaled around 7.8 million metric tons. Together, the company would employ 188,000 workers in 67 countries.

The transaction is subject to review by antitrust authorities in the U.S., Canada, the European Union, Australia and Brazil. It also requires foreign investment clearance in Canada, France and Australia.

Even though the market's reaction to the deal was positive for both stocks, that doesn't necessarily mean it's a good time for investors to buy shares of either smelter, because analysts say the aluminum market is set soften over the coming months.

"This year we are expecting a fair amount of capacity to come on stream in China and Iceland and Russia," says Catherine Virga, a metals analyst at New York-based specialty consulting firm CPM Group.

She says China alone will see aluminum output capacity jump 25%, with an overall global increase of 8%. That compares with projected growth in global demand of only 6.7% in 2007.

Virga says that although the surplus will likely be relatively small by historic standards, speculators have already bid up the benchmark price for aluminum for delivery in three months time "beyond a level reflected by the fundamentals."