Alcoa Inc (NYSE:AA) will report its third quarter fiscal 2013 earnings on Tuesday October 8th after the market closes. Analyst Brian Yu from Citi Research expects earnings to come in at $0.07 per share, compared to consensus estimates of $0.05 as lower quarter over quarter LME price has been counterbalanced by currency and cost tailwinds.Alcoa

However, posting earnings above consensus price by a whisker will not fuel shares of Alcoa Inc (NYSE:AA) much, believe analysts.

Recovery in downstream segment for Alcoa

Analysts at Citi Research have assigned a Neutral rating to Alcoa Inc (NYSE:AA), owing to limited upside in the spot aluminum prices due to potential for supply and sufficient exchange inventories. This situation will be counterbalanced by an enhanced manufacturing scenario that will mark multiyear recovery in the downstream segment, which is less sensitive to commodity price.

Further, Brian Yu is expecting the profits in the downstream segment to grow twice as much in 2010-2013. The analyst is expecting the downstream segment to be a profitable one due to their exposure to auto and aero demand.

The primary challenge faced by Alcoa will be the oversupplied aluminum market, which in turn will make cost control a challenge for the company.

Alumina ATOI expected to decline

In the alumina segment, ATOI is estimated to be of $25 million ($144 million EBITDA) compared to $64 million ($194 million EBITDA) in the second quarter. Production is expected to come down 1.7 percent sequentially to 4,092k tonnes. Reference alumina pricing for the third quarter is estimated at $1,803 per tonne, which is a decline of 7.0 percent compared to 1,940 per tonne in the second quarter. According to Citi analysts, the average implied selling price may come down 2.8 percent to $318 per tonne. Spot caustic soda pricing dropped 3.2 percent quarter over quarter in the third quarter to approximately $606 per tonne.

For primary metals, third quarter ATOI is expected to come in at $5 million or $148 million EBITDA compared to -$32 million or $82 million EBITDA in the second quarter. Analysts are looking forward to a sequential drop in realized pricing to $0.99/lb from $1.01/lb. However, this should be counterbalanced by lower LME-linked power cost, lower alumina input cost, and favorable currency movements.

Inventories up marginally

In the third quarter, the analyst noted that LME aluminum price came down averaging $0.819/lb as against $0.833/lb in the second quarter, with spot pricing at $0.81. Global exchange inventories slightly surged in the third quarter, averaging 5,747k tonnes, which is an increase of 1.1 percent quarter over quarter due to an increase in European and the United States warehouse inventories, which offset a decline in Asia.