Alumina and Chemicals Primary Metals 29 This segment consists of Alcoa’s worldwide alumina and chemicals system that includes the mining of bauxite, which is then refined into alumina. Alumina is sold directly to internal and external smelter customers worldwide or is processed into industrial chemical products. Alcoa’s alumina operations in Australia are a significant component of this segment. Slightly more than half of Alcoa’s alumina production is sold under supply contracts to third parties worldwide, while the remainder is used internally. Alcoa’s specialty chemicals business was sold in the first quarter of 2004. In 2004, alumina production increased by 502,000 mt, resulting primarily from the capacity expansion in Jamaica (14% increase in production) and the restart of capacity at Point Comfort, TX (13% increase in production), as well as an 11% increase in production at the San Cipria ´n, Spain refinery. In 2003, alumina production increased by 814,000 mt, principally due to the restart of capacity at Point Comfort, TX, which contributed an additional 592,000 mt (41% increase in produc- tion) in 2003, compared with 2002. Third-party sales for the Alumina and Chemicals segment remained relatively flat in 2004 compared with 2003. The increase in realized prices of 23% in 2004 was more than offset by lower third-party volumes due to the expiration of an alumina purchase agreement in 2003, which resulted in higher intersegment sales in 2004. Also, the sale of the specialty chemicals business in 2004 negatively impacted sales by $287. In 2003, third-party sales of alumina increased 15% compared with 2002, primarily due to an increase in realized prices of 17% influenced by higher LME prices and a tightening of the world alumina market, as well as increased shipments due to higher production at the Point Comfort, TX refinery. ATOI for this segment rose 52% in 2004 compared with 2003 primarily due to higher realized prices and increased total volumes, a $15 gain recognized on the termination of an alumina tolling arrangement, and a gain of $37 recognized on the sale of a portion of Alcoa’s interest in a Brazil bauxite project. These positive contributions were somewhat offset by unfavorable foreign currency exchange movements, higher raw material costs, and the loss of profit associated with the sale of the specialty chemicals business. ATOI in 2003 increased 32% compared with 2002 primarily due to higher realized prices and higher volumes, which were somewhat offset by higher energy costs and unfavorable foreign currency exchange movements. In 2005, Alcoa will continue its brownfield projects at refineries in Suriname (addition of 250,000 mt – 137,000 mt is Alcoa’s share) and Pinjarra, Western Australia (600,000 mt addition). A 250,000 mt expansion was completed at the Jamalco alumina refinery in 2004, with another 1,500,000 mt expansion planned. While market conditions for alumina appear to remain strong in 2005, Alcoa anticipates higher costs associated with caustic and energy. In addition, a stronger Australian dollar could also negatively impact earnings in this segment. This segment consists of Alcoa’s worldwide smelter system. Primary Metals receives alumina primarily from the Alumina and Chemicals segment and produces aluminum ingot to be used by Alcoa’s fabricating businesses, as well as sold to external customers, aluminum traders, and commodity markets. Results from the sale of aluminum powder, scrap, and excess power are also included in this segment, as well as the results of aluminum derivative contracts. Aluminum ingot produced by Alcoa and used internally is transferred to other segments at prevailing market prices. The sale of ingot represents approximately 90% of this segment’s third-party sales. In 2004, aluminum produc- tion decreased by 132,000 mt, principally due to the strike at the Be ´cancour facility. Third-party sales for the Primary Metals segment increased 18% in 2004 compared with 2003 and increased 2% in 2003 compared with 2002 as higher realized prices in both periods more than offset lower third-party shipments. Realized prices increased 21% in 2004 compared with 2003 and 6% in 2003 compared with 2002. An electrical outage at the Alumar smelter in Brazil also had a negative impact on third-party sales in 2003. Intersegment sales increased 40% in 2004 and 17% in 2003 compared with previous periods due to higher realized prices and higher internal demand. ATOI for this segment increased 23% in 2004 compared with 2003 as higher realized prices and higher total shipments were somewhat offset by the impact of unfavorable foreign currency exchange movements, higher costs for energy and purchased metal, and the effects of a strike at Be ´cancour in 2004. ATOI for this segment was relatively flat in 2003 2004 2003 2002 Alumina production (mt) 14,343 13,841 13,027 Third-party alumina shipments (mt) 7,374 7,671 7,486 Third-party sales $1,975 $2,002 $1,743 Intersegment sales 1,418 1,021 955 Total sales $3,393 $3,023 $2,698 ATOI $ 632 $ 415 $ 315 2004 2003 2002 Aluminum production (mt) 3,376 3,508 3,500 Third-party aluminum shipments (mt) 1,882 1,952 2,073 Alcoa’s average realized price per pound for aluminum ingot $ 0.85 $ 0.70 $ 0.66 Third-party sales $3,806 $3,229 $3,174 Intersegment sales 4,335 3,098 2,655 Total sales $8,141 $6,327 $5,829 ATOI $ 808 $ 657 $ 650