Have Aluminum Market Conditions Changed This Year?



Aluminum market conditions

As we discussed previously, bauxite sales could be Alcoa’s growth driver after the split. Alcoa has an equity stake in Ma’aden Aluminum, which is valued at $900 million. According to Alcoa, Ma’aden operates the lowest-cost smelter globally. The smelter’s low costs, combined with a rising production profile, would be another growth driver for Alcoa.

In this part, we’ll see how aluminum market conditions have changed this year.

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Aluminum prices

Aluminum prices rose ~15% year-to-date. Aluminum market sentiments improved considerably since the beginning of the year when prices looked set to breach their 2009 lows.

Donald Trump’s win in the presidential election helped fuel a rally in aluminum prices, like most other commodities. Aluminum tried to breach the $1,800 price level. Aluminum producers (RIO) such as Alcoa (AA), Century Aluminum (CENX), and Norsk Hydro (NHYDY) settled at higher price levels. They tracked positive market sentiments.

Higher input costs

Though aluminum has pared some of its recent gains, it’s still trading above the $1,700 per metric ton price level. Among other factors, higher input costs are supporting aluminum prices (DBB). Alumina prices have shown strength over the last couple of months. Two key factors have driven alumina’s price action. First, alumina seems headed for a supply deficit this year following Chinese curtailments. Second, higher coal prices are supporting alumina prices. The global aluminum cost curve shifted upward due to higher coal and alumina prices. Higher aluminum prices supported Alcoa’s price action after the split.

In the next part, we’ll explore whether Alcoa can command a scarcity premium after the split.


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