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What Do Recent Aluminum Industry Indicators Point To?

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Aluminum industry indicators

Alcoa (AA), the leading aluminum company in North America, has lost almost a sixth of its market capitalization so far in 2015. Its share price delivered a 50% return last year.

Aluminum industry indicators have taken a beating since the middle of last year. Looking at year-to-date performance, the iShares U.S. basic Materials ETF (IYM) has underperformed the broader markets (IVV).

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Alcoa impacted by fall in aluminum prices

In this series, we’ll analyze some of the recent indicators of the aluminum industry. Aluminum prices and physical premiums directly impact revenues of aluminum companies such as Glencore (GLNCY) and Century Aluminum (CENX). Alcoa released its financial results on April 8. Its earnings were negatively impacted by the decline in aluminum prices.

The above chart shows the recent performance of aluminum plays. Century Aluminum is down ~45% in 2015. The company faces several operational challenges. It has to secure crucial power and labor agreements this year. Please note that electricity is a critical raw material for aluminum companies. Electricity can account for almost a third of aluminum’s smelting cost.

Century Aluminum currently forms 2.5% of the SPDR S&P Metals and Mining ETF (XME). Kaiser Aluminum (KALU) makes up 4.2% of XME’s portfolio. XME is an alternate way to play the diversified metals and mining industry.

Aluminum prices

Aluminum is the most widely traded metal on the London Metal Exchange. Aluminum prices reflect the dynamics of the aluminum industry as well as investors’ sentiments. In the next part, we’ll analyze how aluminum prices have played out so far in 2015.

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