NEW YORK (Real Money) -- Alcoa (AA) did us no favors last night. It wasn't the headline number that got me down, because it is easy to match it with free cash flow and the cash on the balance sheet and know the company's in the best shape since 2006 from that standpoint.
It wasn't the Foreign Corrupt Practices Act settlement, although at $384 million it both is a headwind and something that I think should have produced some real culpability to previous management.
It wasn't even the inventory buildup in sheet used for aerospace and for beverage cans. The aerospace aluminum glut will be worked off by the 10,000 plane queue. The beverage problem, while a visible decline, is really seasonal in nature. But if I were in the carbonated soda business, a big part of the demand, I would be concerned as that secular decline continues.
It was China. The downtick in China is so crucial both because China produces more high-cost aluminum than it needs and because it signals that the world isn't in as good a shape as we would think.
Across the board, the United States is better. While Alcoa did mention a slight buildup in inventory for autos, making cars lighter with aluminum and the predictions for demand for cars went up again on the call and that's from U.S. orders. Remember, Alcoa has had to open up new value-added aluminum plants to meet the demand for vehicles, including F-150 trucks. Orders from truck manufacturers for aluminum, after a pause in the third quarter, came roaring back. That's excellent for Cummins (CMI) and Eaton (ETN). A lot of that demand is from environmental regulations that make old engines both here and China obsolete.
Best of all, Klaus Kleinfeld predicted definitively that commercial construction, a huge hogger of aluminum, is coming back and, perhaps, will be very strong in U.S. He predicted it has troughed in Europe, but can come back. There's been a downtick in China and that, again, is bad news for world growth. Aluminum for gas turbines, once a very strong business, seems to have peaked. Everyone who is going to be converted here and in Europe seems to have done so.