The firm’s portfolio has changed significantly with the recent divestitures of packaging and auto castings along with the JV for its soft alloy extrusions. Therefore the firm has altered the number of reporting segments. The major changes are the elimination of the extruded and end product segment and moving businesses into the appropriately managed segments. The major elements of this reclassification are the movement of the building and construction business to the engineered products and solutions segment and the movement of the hard alloy extrusion business to the flat-roll product segment.

Alumina

ATOI was $169 million, a decrease of $36 million, or 18% from the prior quarter. Production was up slightly; however, shipments were down by 2% due to timing. As expected, lower pricing, higher energy cost, and unfavorable currency reduced profitability.

The production was up marginally from the fourth quarter. The best guide for pricing in this segment is LME pricing on a two month lag. Realized pricing was slightly lower matching this benchmark. The strengthening Australian dollar and the Brazilian Real reduced profitability by $14 million and higher energy costs of $12 million were evenly split between natural gas and fuel oil. In the next quarter, Alcoa anticipates a positive impact from higher pricing with continued cost pressures on currency risk.

Primary Metals

ATOI was $307 million, up $111 million, or 57%, compared to the prior quarter. The majority of the increase resulted from higher LME prices. ATOI benefited from higher than anticipated realized pricing as the firm was able to price more product in a tighter window and not to span the 30-day lag. The higher prices were partially offset by the weaker US dollar and higher carbon prices. Looking ahead, March LME prices have provided a strong start to the second quarter. The firm anticipates continued pressure from energy and material costs and continuing improved production levels and efficiencies at Iceland.

The production was up 4%, driven by the continuing ramp-up of the Iceland smelter offset by unfavorable currency and increased carbon costs. This segment purchased approximately 49 kmt of primary metal for internal use. By the end of the quarter, Iceland was running at 90% of capacity and is expected to reach 100% during the second quarter.

Flat-Rolled Products

ATOI was $41 million, up $56 million from the prior quarter. The segment benefited from improved performance in the Russia business as well as slightly higher volumes and an improved mix offset by higher energy and alloy material costs.

Sequentially this segment showed marked improvement yet is down on a year-over-year basis. Weak market conditions within automotive, commercial transportation and distribution have persisted from the fourth quarter. In addition, higher alloying material costs particularly magnesium and manganese have hurt results. Productivity improvement within Russia and Australia and improved pricing were the primary drivers for the sequential improvement.

Looking ahead to the second quarter, the firm would expect the North American automotive and general industrial markets to continue at their depressed levels, with a seasonal increase in can sheet. The firm also expects improved results in Russia. Europe should see a seasonal improvement in the second quarter even though the building and construction markets are declining across much of the region.

Engineered Products and Solutions

ATOI was a record $138 million, up $62 million, or 82% from the prior quarter. Results were driven by continued productivity improvements, the positive impact from the automotive business restructuring, and increased volume as the aerospace and IGT markets continue to demonstrate strength.

This segment more than offset softness in the North American automotive and commercial transportation markets by strength in aerospace and industrial gas turbines and share gain across all markets, all of which led to a record revenue of $1.8 billion for the quarter. Additionally, productivity improvements in the aerospace and forgings business coupled with continued progress in the automotive turn around enabled the record ATOI performance at $138 million. Looking forward to the second quarter, the firm anticipates continued strength in the aerospace and IGT markets as well as a seasonal increase in building and construction. This will be partially offset by the continued softness in the North American automotive and commercial transportation markets.

Current Industry Market Conditions and Outlook

The firm now anticipates global primary aluminum consumption to increase 8.5% or over 300 million metric tons in 2008. This is about 400,000 tons or 1% lower than the previous guidance. What is striking is how global fundamentals remain strong despite the flat to lower consumption in most of the mature markets. In fact, US aluminum shipments by distributors are down 6.7% through February and based on the outlook for the automotive, commercial transportation and the building and construction markets, the firm now envisions a reduction in consumption of 5% for North America.

The silver lining in that is that the distributor inventories are down 22% so as the manufacturing sector begins to improve there will be an immediate need to meet higher demand and restock the supply chains. On the growth side, China, India, Vietnam, Thailand and Russia remain strong and the firm believes that it will continue beyond 2008, given the ongoing industrialization and infrastructure projects occurring within these countries.

While the absolute tonnage of worldwide aluminum inventory has increased recently, the global days of consumption in inventory remain low by historic standards. The slight increase from the end of the year still remains at levels two days under the same period last year.

The projections for supply and demand balance for the industry: While the firm has seen weakness on the consumption side, the firm has also seen constraints on the supply side. The firm believes that the net effects of the well-publicized weather and power issues in places like China and South Africa will dampen global production by approximately 700,000 tons. That lowers the projected aluminum surplus to less than 100,000 tons or essentially in balance for the year.

The company continues to project that all of its end markets will grow on a global basis in 2008, although there will be strong regional disparities. That growth comes in the face of a second straight year of decline in North America and modest growth in Europe. North America is heading for decline this year of 5%, which is on top of almost 10% decline in 2007.