Why Investors Should Understand Century Aluminum’s Product Mix



Century Aluminum’s product mix

There are several grades of aluminum. They range from standard grade aluminum products to aluminum rolled products. Fabricators, like Constellium N.V. (CSTM), produce value-added aluminum products. Constellium is a leading supplier of aluminum components to aerospace companies. Alcoa (AA) and Precision Castparts (PCP) are other major suppliers to the aerospace sector.

Alcoa forms 3.30% of the Materials Select Sector ETF (XLB).

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Target mix

The above chart shows the target for Century Aluminum’s (CENX) 2015 product mix. It expects to get more than half of its revenue from non-standard grade aluminum products. In the past, Century Aluminum highlighted that it intends to produce more value-added products. It made capital investments to achieve this goal. We’ll discuss Century Aluminum’s 2015 capital expenditure budget in more detail in the next parts in this series.

Higher margins

Value-added products sell at higher prices—compared to standard grade aluminum products. Alcoa sees value-added products as a pillar of its growth. It’s also strengthening its positioning in the primary segment. This is part of Alcoa’s transformation. Rio Tinto (RIO) posted higher fourth quarter profits in its aluminum segment. This was due to a higher share of value-added products.

Century Aluminum had lower profit margins—compared to its peers. It had a lower share of value-added products in its portfolio. A higher share of value-added products could increase Century Aluminum’s profit margins. This will benefit its investors.

How have Century Aluminum’s profit margins shaped up in 4Q14? We’ll discuss this in the next part of this series.


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