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Why Century Aluminum’s Shipments Could Fall More

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Shipments

Revenues for commodity companies like Rio Tinto (RIO) and Vale (VALE) are a function of the commodity (COMT) prices and shipments. Commodity prices are decided by market forces that in turn depend on demand and supply as well as prevailing sentiment.

Commodity producers don’t have much pricing power. Shipments depend on demand from end consumers, as well as any portfolio actions undertaken by a company. In this part of the series, we’ll explore the trend in Century Aluminum’s shipments.

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Shipments fall

  • Century Aluminum’s (CENX) consolidated shipments in 3Q15 were down 1% as compared to 2Q15. In 4Q14, Century had acquired Alcoa’s (AA) stake in the Mt. Holly smelter. This is why it is more accurate to compare the quarterly shipment growth as compared to the year-over-year growth rates.
  • In Iceland, Century Aluminum’s shipments rose 1% as compared to 2Q15.
  • However, CENX’s North American shipments fell 5% over this period. According to Century Aluminum’s CFO, Rick T. Dillon, “The decrease is attributable to the decision to reduce operations at Hawesville, resulting in lower shipments of approximately 9,500 tonnes.”

Currently, Century Aluminum forms 0.03% of the iShares Core S&P Small-Cap ETF (IJR).

Outlook

  • On October 30, 2015, a day after the company’s 3Q15 earnings release, Century Aluminum announced plans to curtail one of the three potlines in its Sebree smelter by December 31. This move could negatively impact Century Aluminum’s shipments in the coming quarters.
  • This is the third curtailment announced by Century Aluminum in the last two months. In September, the company had curtailed one of the potlines in its Hawesville smelter. The Mt. Holly smelter also risks being idled if Century Aluminum is not able to negotiate a fresh power supply contract by December 31.

Meanwhile, the biggest issue for Century Aluminum (CENX) is how the company can survive the current low price environment. We’ll discuss this later in this series.

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