Alcoa (AA) closed at $9.68 on September 26—it lost 0.82% from its previous day’s closing. Alcoa has underperformed the broader markets as well as most of the companies in the metals and mining space this year. Alcoa’s underperformance looks somewhat surprising because aluminum prices have been resilient in 2016.
However, 2016 is more about Alcoa’s split. After the split, the value-added company—which will be named Arconic—will produce precision components and other value-added products. The new Alcoa will become a pure play commodity producer. Alcoa’s recent underperformance could be attributed to the short-term challenges that the two new entities could face after the split. Read Alcoa’s Split: Do the Benefits Outweigh Short-Term Challenges? to learn more.
Aluminum producers’ earnings such as Century Aluminum (CENX), Rio Tinto (RIO), and Norsk Hydro (NHYDY) are sensitive to aluminum prices. In this series, we’ll look at the recent trend in aluminum prices. We should note that like most other commodities, aluminum is also impacted by the underlying demand-supply balance. Later in this series, we’ll see how the demand-supply dynamics are impacting aluminum prices. First, let’s explore how aluminum prices are shaping up this month.
Investing in a single security can always be a risky affair. ETFs can bring you the benefits of diversification at a relatively low cost. You can also consider the Materials Select Sector SPDR ETF (XLB) to get diversified exposure to the materials sector. Currently, metal producers form 12% of XLB’s portfolio. Alternatively, investors who want direct exposure to aluminum can also consider the PowerShares DB Base Metals ETF (DBB). DBB invests one-third of its holdings in aluminum.