Aluminum prices fall
Aluminum prices have been strong for most of 2014. Aluminum prices rebounded after hitting a four-year low earlier this year. In our recent series, we observed disturbing trends in aluminum prices. Please be aware that aluminum prices are a key driver for companies like Alcoa (AA). Other primary producers—like Rio Tinto (RIO) and BHP Billiton (BHP)—are also affected by movement in aluminum prices.
Lower aluminum prices negatively affect Alcoa’s earnings. Alcoa estimates that its annual profits are negatively impacted by $240 million for every $100 fall in aluminum prices. Currently, Alcoa is a part of the SPDR S&P Metals and Mining ETF (XME). Century Aluminum (CENX) is another top holding of XME.
Spot aluminum prices fell
The above chart shows the movement in spot aluminum prices. Spot aluminum prices fell ~7% since the recent OPEC (Organization of the Petroleum Exporting Countries) meeting. OPEC is a group of major oil producers. Currently, OPEC consists of 12 countries.
At its recent meeting, OPEC decided not to reduce crude output. This was negative news for crude prices. The crude oil market is already oversupplied. With OPEC maintaining its output, the supply glut is expected to continue in the oil markets.
Saudi Arabia reduced export prices
In an interesting development, Saudi Arabia reduced crude oil export prices for the US. Please be aware that Saudi Arabia is the second largest crude exporter. The US is the largest crude exporter.
Iran and Kuwait reduced crude export prices for Asia. These developments negatively impacted crude oil prices. Crude oil prices fell to their five-year low.
Crude oil impacts aluminum companies in multiple ways. We’ll discuss this in the next part of this series.