Alcoa suffers from dollar slump

Analysts are still upbeat that higher metal prices will benefit mining firms

Aluminium giant Alcoa has reported that its earnings for the first three months of 2008 were less than half that achieved in the same period last year.

The weak US dollar and high energy costs eroded the benefits of high metal prices, the US group said.

The first Dow Jones-listed firm to post first quarter profits, it said net income rose to $303m (£152.2m), down from $662m last year.

The results show how big a problem inflation has become, analysts said.

"Upstream margins were squeezed by higher energy costs and a weaker US dollar, but the global market remains tight and prices are near historic highs, primarily driven by demand in Asia, especially China," said Alain Belda, Alcoa chairman and chief executive.

The weak US currency wiped $68m off Alcoa's earnings, it said.

Profitable future?

"I think this is more of an indication that inflation is a bigger problem than people understand," said Peter Schiff, president of Euro Pacific Capital.

"It's driving costs higher, and even companies that you would think would benefit from it are having trouble because the cost pressures are very strong. But, ultimately, you're going to get big increases out of Alcoa in their prices as well," he added.

Most analysts were upbeat on the price of aluminium, which like other metals has ratcheted up a series of records on the unceasing demand from Asia to power its economic development.

In February, Alcoa teamed up with the state-owned Aluminium Corp of China (Chinalco) to buy a 12% stake in mining firm Rio Tinto's London-listed shares for $14.05bn.

The move was widely seen as an attempt to frustrate a takeover of the Anglo-Australia miner by its larger rival BHP Billiton, which critics say would give the group a monopolistic position on iron ore, copper and aluminium production.