It could be déjà vu for Alcoa (AA) investors when OPEC (Organization of the Petroleum Exporting Countries) meets on December 4, 2015. Last year at its annual meeting, OPEC decided to maintain its daily crude output. The decision had a negative impact on all commodities (DBC).
Just a day before OPEC’s meeting last year, Alcoa had reached a fresh 52-week high. Since then, Alcoa stock has been on a downtrend, hitting new lows throughout 2015.
Aluminum prices have also fallen steeply in 2015, tracking the weakness in the industrial metals space. Currently, LME (London Metals Exchange) aluminum prices are only about $100 per metric ton, higher than their 2009 lows.
Impact of OPEC meeting
The OPEC meeting on December 4 could be crucial for mining companies, including BHP Billiton (BHP), Rio Tinto (RIO), and Glencore (GLNCY). Crude oil markets are looking forward to cues from the OPEC meeting. A further weakness in crude oil prices could have a negative impact on other commodities, including copper and aluminum. Any fall in aluminum prices negatively impacts primary aluminum producers.
Historically, aluminum prices haven’t had much correlation with energy prices. But in the last few months, aluminum prices and Brent crude have moved in tandem, as you can see in the graph above. Weakness in crude oil prices has had its impact across all commodities. If crude oil prices fall after the OPEC meeting, we could see a negative reaction from other commodities, including copper and aluminum.
In the next part, we’ll explore how lower crude oil prices impact the aluminum industry.