Alcoa (AA), the leading US-based aluminum producer, is having a terrible year. Based on September 12 closing prices, the stock has lost 22% year-to-date. Century Aluminum (CENX) has lost almost 40%, while Rio Tinto (RIO) has fallen 5.5%. The SPDR S&P Metals and Mining ETF (XME) is down 5.7% for the year.
Aluminum has seen a selling spree after prices hit multiyear highs in April after President Trump imposed sanctions on Russian aluminum producer RUSAL. However, after the sanctions were relaxed, aluminum pared its gains. The looming US-China trade war hasn’t helped aluminum’s cause either, and the lightweight metal has tracked the weakness in the broader metals and mining space. Rising Chinese aluminum exports are another bearish driver for aluminum prices.
Section 232 tariffs
Section 232 tariffs, which were apparently meant to protect US aluminum producers, have taken a toll on Alcoa’s profitability. Alcoa expects a negative impact of $12 million to $14 million each month on its earnings from the Section 232 tariffs, as it now pays tariffs on aluminum shipped from its Canadian smelters to the United States. The company lowered its 2018 guidance during its second-quarter earnings call. It said, “The new full-year forecast reflects current market prices, tariffs on imported aluminum, increased energy costs, and some operational impacts.” Alcoa is also facing a labor dispute at its alumina refinery in Australia. One of its Canadian smelters has also been facing a lockout since January.
While there are some prominent bearish drivers affecting Alcoa stock, there are some bullish drivers as well that we’ll discuss in the next article.