Previously, we looked at aluminum upstream operations. Upstream aluminum producers’ earnings are volatile. They largely depend on aluminum prices and physical premiums. Century Aluminum (CENX) is a US (SPY) based upstream producer. It’s already feeling the heat. It announced the idling of its Hawesville plant. Other pure play upstream producers are also reeling under the impact of falling aluminum prices.
Bloodbath in aluminum prices
Metals are seeing nothing short of a bloodbath this year. So far, copper prices fell ~17% in 2015. Aluminum has been a little better off this year. Spot aluminum fell ~13% in 2015 until September 7. This can be seen in the above graph.
The benchmark seaborne iron ore contract fell ~20% over this period. Iron ore fundamentals have been weak for quite some time. They’re driven by the demand slowdown in China. They’re also driven by rising production from major miners including Rio Tinto (RIO) and Vale (VALE).
Aluminum demand is still strong
However, solely from a demand perspective, aluminum looks to be placed better compared to both copper and iron ore. Alcoa (AA) expects aluminum demand to grow 6.50% YoY (year-over-year) in 2015. However, even the strong demand might not be enough to offer much support to aluminum prices.
However, aluminum fabricators like Kaiser Aluminum could play on rising aluminum demand. Kaiser Aluminum (KALU) has shown strength amid the meltdown in other metal plays. This is due to Kaiser’s business model. Fabricators like Kaiser Aluminum could be an interesting way to play the rising aluminum demand. In the next part, we’ll discuss aluminum fabricators in more detail.