Alcoa (AA) is gearing up for its split—scheduled for 2H16. 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 will compete with primary producers like Century Aluminum (CENX) and Norsk Hydro (NHYDY). On the other hand, Arconic will list Precision Castparts (BRK-B), Woodward (WWD), and Constellium (CSTM) as its competitors.
After the split, Arconic investors might not be as interested in commodity prices. For Alcoa, commodity prices should become the key performance driver. You can read How Will the New Alcoa Look after the Split? to explore more about Alcoa’s upcoming split.
You can 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.
Alcoa’s commodity business performed well in the last quarter. Read Alcoa or Arconic: Who Did Best in 2Q16? to learn more. In this series, we’ll look at some of the key industry indicators. We’ll look at commodity prices as well as demand-supply dynamics. It’s important to note that the demand-supply balance is a key driver of metal prices. By closely following demand and supply indicators, investors can get a better idea about the outlook for metals.
Let’s start by looking at the recent movement in aluminum prices.