What Should You Watch for in Alcoa’s 3Q16 Earnings Call?


Oct. 5 2016, Updated 8:04 a.m. ET

Alcoa’s 3Q16 earnings call

Previously in this series, we looked at Alcoa’s (AA) 3Q16 guidance and analyst estimates. In this part, we’ll analyze some points investors should pay attention to in the company’s 3Q16 earnings call.

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Commodity markets

During its 2Q16 earnings call, Alcoa reduced its deficit projection for aluminum markets to 775,000 metric tons from the previous guidance of 1.1 million metric tons. A deficit occurs when demand exceeds production. Notably, during their 2Q16 earning calls, Norsk Hydro (NHYDY) and Century Aluminum (CENX) expressed apprehension about the growing Chinese supply in 2H16. However, Chinese aluminum production continued to fall in 2H16. According to the data released by the International Aluminum Institute, China produced 2.7 million metric tons of aluminum in August, 0.8% less than it did in the same month last year.

It will be interesting to hear Alcoa management’s views on the aluminum market balance in 2016. Chinese aluminum production has been the key driver of aluminum prices in 2016.

End markets

Most analysts expect that US automobile sales could stagnate next year after years of rapid growth. Alcoa counts the aerospace and automotive sectors as its two key growth pillars. Markets would like to hear Alcoa’s views on the projected stagnation in the automotive market and its impact on the company. In the next and final part of this series, we’ll look at Alcoa’s technical trading parameters before its 3Q16 earnings release.

ETF alternatives

You could consider the Materials Select Sector SPDR ETF (XLB) to get diversified exposure to the materials sector. Together, Alcoa and Ball (BLL) form ~5.1% of XLB’s portfolio. Alternatively, investors who want direct exposure to aluminum could also consider the PowerShares DB Base Metals ETF (DBB). DBB invests one-third of its holdings in aluminum. In 2016, XLB has risen 10.2% so far, while DBB has risen 18.2%.


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