Nonresidential construction activity
Previously, we analyzed the indicators of the automobile industry. In this part, we will explore how nonresidential construction activity—a major aluminum consumer—is playing out. Alcoa (AA) is the market leader in commercial architectural systems in the North American market. Currently, the company forms 2.26% of the Materials Select Sector ETF (XLB).
Alcoa gets more than $1 billion in annual revenues from the nonresidential construction industry, which should be closely tracked by its investors.
Architectural Billings Index
The Architectural Billings Index is based on a survey of architects. The participants are asked whether their billings increased, decreased, or stayed the same during the month. A value above 50 indicates an increase in billings. This index serves as a leading indicator for the nonresidential construction industry.
Simply put, an increase in architectural billings means more buildings are expected to go up. Higher construction activity leads to higher demand for aluminum products.
Index at 8-year high
The previous chart shows the trend in the US Architectural Billings Index, which hit an eight-year high of 55.7 in June. Higher nonresidential construction activity would benefit Alcoa. Steel companies like Nucor (NUE) and Gerdau (GGB) also benefit from the surge in the nonresidential construction sector.
The US automobile sector, another leading aluminum consumer, is set to hit its best sales figures in a decade. Alcoa is well placed to capture the growing aluminum body sheet demand.
Strong demand indicators in the US market (SPY) would benefit Alcoa. However, weak global sentiments—especially around metal shares—would continue to haunt the company.
Strong commercial aircraft demand also works to Alcoa’s advantage. In the next part, we’ll discuss the indicators of aircraft demand.