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Alcoa’s 2016 Outlook: What’s Driving Its Recent Downfall?

Mohit Oberoi, CFA - Author

Jan. 14 2016, Updated 12:31 p.m. ET

Alcoa’s 2016 outlook

The previous year was terrible for Alcoa (AA) investors. The stock ended the year with falls of 35%. The mining sector itself had the worst year since the global financial crisis of 2008–2009 and mining companies fell to multiyear lows during the year.

Norsk Hydro (NHYDY) was among the better-performing aluminum producers in 2015 and ended the year with falls of only about 13%. This is relatively less if we look at the carnage in the metals space. Century Aluminum (CENX) saw its market capitalization erode by more than 80% during the year as you can see in the graph above. Please note that Century Aluminum is majority-owned by mining giant Glencore (GLNCY).

Investors looking for a respite from last year’s fall were in for a disappointment as Alcoa and other aluminum producers resumed their downslide right at the beginning of 2016. Alcoa has seen a downward price movement of more than 25% so far in 2016.

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Now, the question would be what lies in store for Alcoa in 2016. In this series, we’ll explore Alcoa’s 2016 outlook. We’ll be looking at the different factors that would drive Alcoa’s 2016 performance. 2016 could be the most crucial year for Alcoa since its inception. If things go according to plan, Alcoa would be split into two companies later this year. While one company would be engaged in the legacy aluminum business, the other company would store Alcoa’s value-add downstream business.

Before we start analyzing the factors that would drive Alcoa’s 2016 performance, let’s begin by analyzing what’s driving Alcoa’s recent downfall.

Investors looking at diversifying the risk of investing in a single security can consider ETFs for their investment portfolios. The Materials Select Sector SPDR ETF (XLB) is an alternate way to play the materials space. Together, Alcoa and Ball Corporation (BLL) form 4.6% of XLB’s portfolio.


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