Yesterday, the United States lifted sanctions on RUSAL, the leading Russian aluminum producer. In April, when the sanctions were imposed, aluminum prices (XME) surged to their highest level since 2011.
Recently, there have been concerns regarding aluminum’s demand growth outlook. The automotive sector, which is among the largest aluminum end consumer, has seen lower sales in many markets. China, the world’s largest automotive market, has seen double-digit yearly declines in car sales for three consecutive months.
To make matters worse, China’s aluminum exports, which are often blamed for depressing global prices, look set to hit a record this year. China’s unwrought aluminum exports have risen at an annualized rate of more than 25% for four consecutive months. In the first 11 months of 2018, China’s aluminum exports totaled ~5.2 million metric tons—21% higher than in the same period in 2017.
In Alcoa’s case, higher alumina prices (AWC) have lifted its earnings in the last few quarters. However, alumina prices have also fallen from their peak, which should further dent Alcoa’s earnings. US Midwest aluminum premiums, which surged after the Section 232 tariffs, are also off their highs.
While Alcoa announced a share buyback during its third-quarter earnings call, it seems to be doing little to lift sentiments as investors turn increasingly bearish on metals and mining stocks amid concerns over the Chinese economy.