Alcoa (AA) Uses LME As Hedge

Saying there are very few instances where Alcoa (NYSE:AA) would hedge foreign-exchange exposure, CFO Charles D. McLane Jr. said shareholders and management prefer to use the London Metals Exchange (LME) as a type of hedge.

McLane said, "We don't take a position, except in very specific circumstances. Our investors want us to be exposed to the LME."

"Changes to currencies have a direct correlation to movement in the LME price and, as a result, act as a natural hedge," McLane added.

"Aluminum sold on the London Metals Exchange is based in U.S. dollars. Selling aluminum through LME priced contracts, no matter where it is produced using local currencies, results in Alcoa's revenue being exposed to U.S. dollars. McLane said that '99.9%' of the company's revenue in its primary operations including alumina and primary ingot are in U.S. dollars," noted the Wall Street Journal.

"If we took any action, we would be increasing our overall risk," concluded McLane. "We don't sit around and guess where these currencies are going to go. If we were to hedge the cost components, we would need to hedge the revenue stream as well."

Alcoa closed Wednesday at $15.65, falling $0.39, or 2.40 percent.




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