Aluminum Prices Continue to Head Southward amid Global Carnage



Aluminum prices

Previously, we noted that Chinese aluminum exports fell more than 5% year-over-year in July. However, as far as aluminum producers are concerned, the damage has already been done. Spot aluminum prices were trading at $1,554 on August 11—which represents a ~15% fall since the beginning of 2015. The three-month aluminum forward also slipped below $1,600 per ton on that day—marking a new six-year low.

Lower aluminum prices negatively affect the earnings of aluminum producers. For example, Alcoa estimates that its net earnings fall by $190 million for every $100-per-ton fall in aluminum prices.

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Aluminum companies rethinking their business plans

Century Aluminum (CENX) incurred an impairment charge of $30.9 million in 2Q15 relating to the permanent closure of its smelter in Ravenswood, West Virginia. The plant was idled six years ago in response to the global financial crisis. Century Aluminum was working toward a power supply agreement at this plant in a bid to restart the smelter. However, it has now given up its plans to restart this plant due to lower aluminum prices. You can see the recent trend in aluminum prices in the chart above.

Century Aluminum should now be working to dispose of this plant. It will be interesting to see if it’s able to find a suitable buyer for the plant, as most aluminum producers—including Alcoa (AA) and Rio Tinto (RIO)—are shelving their high-cost smelting capacities.

Alcoa currently forms 2.33% of the Materials Select Sector SPDR ETF (XLB) and 0.79% of the iShares North American Natural Resources ETF (IGE).

What’s the outlook for aluminum prices? We’ll explore this in the next part of the series.


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