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Has Alcoa’s Aluminum Production Bottomed Out?

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Aug. 8 2016, Published 1:27 p.m. ET

Alcoa’s aluminum production

Aluminum production is a key driver of aluminum companies’ performance. So, it’s important for investors in the metals and mining space to follow quarterly production and shipment data. Mining companies’ revenues are functions of commodity prices and shipments. Miners (XME) don’t have pricing power due to the commoditized nature of their business. So, changes in shipments tend to determine how one company’s revenue changes compare to others. In this part of the series, we’ll explore aluminum producers’ 2Q16 production.

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2Q16 production profile

  • Rio Tinto’s (RIO) 2Q16 aluminum production rose 11% YoY (year-over-year) to 911,000 metric tons. Norsk Hydro’s (NHYDY) 2Q16 aluminum production also increased 1.8% YoY to 518,000 metric tons.
  • However, Alcoa (AA) and Century Aluminum (CENX) reported a steep YoY decline in their respective 2Q16 aluminum production. Alcoa’s aluminum production fell on a sequential basis as well. However, Alcoa expects its 3Q16 aluminum production to increase slightly due to one extra day in the quarter.

Production

Revenues of US-based aluminum producers including Century Aluminum and Alcoa have been impacted negatively in recent quarters due to lower shipments. Both of these companies closed their high-cost smelters in a bid to remain competitive in the current pricing environment. However, we might have seen the worst of falling shipments for these companies at least in the near term.

The reasoning is basically two-fold. First, both of these companies have already shut their high-cost facilities. They managed to negotiate fresh power supply agreements to keep some of their other facilities running. Second, aluminum prices have been strong this year partially due to fewer Chinese exports. We might not see more curtailments from US-based smelters unless aluminum prices crash.

In the next part, we’ll see how sequentially higher aluminum prices impacted aluminum producers’ 2Q16 earnings.

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