Alcoa’s Automotive Sales Could Be Hurt By Fall In Crude Oil Price



Alcoa’s automotive sales

In the last part of this series, we discussed the fall in aluminum prices. One of the main reasons for the fall in aluminum prices was the massive fall in crude oil prices. Prices of most industrial commodities fell in the past few days. Crude oil prices impact aluminum companies in multiple ways. First, we’ll analyze the impact of crude oil prices on Alcoa’s automotive sales.

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Alcoa’s lightweighting solutions 

Under its transformation strategy, Alcoa (AA) is working to address the automotive companies’ lightweighting needs. Automobile companies are increasing the aluminum intensity in vehicles. This will reduce the vehicle’s weight. It helps increase the vehicle’s fuel economy. Ford (F) launched the full-aluminum body F-150 truck.

AA is expanding capacity

AA made three investments to capitalize on expected demand from the automotive companies. The above chart shows the dynamics of these investments.

  • Phase 1 – In the first phase, AA completed an expansion project at Davenport. The investment was $300 million. Recently, the expansion was completed.
  • Phase 2 – In the second phase, AA is working to expand its capacity in Tennessee. It made a $275 million investment. AA expects that the facility will be operational by mid-2015.
  • Phase 3 – In the third phase, AA is investing $380 million in a joint venture in Saudi Arabia.

Companies—like Constellium (CSTM) and Century Aluminum (CENX)—are also increasing their production capacities to serve the demand from automotive companies. Currently, CENX is a top holding for the SPDR S&P Metals and Mining ETF (XME).

However, the fall in crude oil prices could be negative for AA’s automobile business. We’ll discuss this in more detail in the next part of this series.


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