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Why Alcoa’s in the Clouds, while China Aims for Blue Skies

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Dec. 1 2017, Updated 4:27 p.m. ET

Alcoa’s outlook

Alcoa (AA), the leading US-based aluminum producer, has gained 47.8% in 2017, based on November 30 closing prices. While the performance looks impressive and the stock has outperformed broader markets by a wide margin, Alcoa traded weak in November, and the stock is off its 52-week high.

Other aluminum producers, including Century Aluminum (CENX), South32 (SOUHY), and Norsk Hydro (NHY), have also come off their 2017 highs. Aluminum producers’ negative price actions have been led by lower aluminum prices. Aluminum—the lightweight metal, as its widely known—came under selling pressure in November.

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Aluminum’s story

Aluminum’s story has essentially been about supply-side reforms in China. The country plans to curtail its polluting industrial units, especially in the steel, coal, and aluminum sectors, to address the rising pollution levels.

As Chinese Premier Li Keqiang put it, “We will make our skies blue again.” On the face of it, China’s “blue sky” policy looks to be a boon for aluminum markets (XME). After all, higher Chinese aluminum production and related exports tsunami had taken center stage.

However, aluminum prices have more recently shown weakness. Notably, this is happening at a time when China’s publicized capacity cuts have been scheduled to take effect.

Series overview

In this series, we’ll look at some of the most recent aluminum industry developments. We’ll also take a closer look at the recent trends in aluminum and alumina prices and study China’s aluminum demand-supply equation.

Let’s begin in the next part (below) by looking at recent movements in aluminum prices.

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