The Alcoa Breakdown: Why Analysts Are Bullish



Why industry outlook matters

As we noted in the previous part, nearly 70% of analysts surveyed by Thomson Reuters rate Alcoa stock (AA) as a “buy” or equivalent, and the remaining 30% of the analyst rate the stock as a “hold.” And for commodity companies like Alcoa and Rio Tinto (RIO), the industry outlook is as important—if not more important—than the company’s position in the industry.

Aluminum industry fundamentals have improved considerably since January 2016, when prices threatened to breach their 2009 lows. Aluminum (CENX) (XLB), like most other metals, has been saddled with huge production surpluses. However, aluminum markets are expected to have been in a supply deficit last year.

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Market balance

For 2017, the market opinion of the aluminum market balance remains somewhat mixed. Alcoa expects China’s aluminum surplus to be 2.1 million metric tons–2.3 million metric tons. But outside of China, the global supply is expected to reach a deficit of 1.5 million metric tons–1.7 million metric tons, followed by a global surplus of 0.4 million metric tons–0.8 million metric tons in 2017. Norsk (NHYDY) Hydro expects aluminum markets to be in balance this year, with expectations of a small surplus.

However, RUSAL expects global aluminum markets to be in a deficit of 1.1 million metric tons in 2017. According to RUSAL, global aluminum markets were at a deficit of 0.6 million metric tons last year. Among other factors, prospects of capacity cuts in China are supporting aluminum prices. Physical aluminum premiums have also shown strength in 2017.

You can read Alcoa Stock in the Lens of Industry Indicators to explore the recent aluminum industry indicators.

Continue to the next part of this series for a closer look at Alcoa’s position in the global aluminum industry.


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