Previously in this series, we looked at recent trends in aluminum prices. In this article, we’ll see how markets are valuing US aluminum producers after last week’s sell-off.
As we noted previously in this series, aluminum prices have seen downward pressure this year. Lower aluminum prices are negative for aluminum producers like Rio Tinto (RIO) and Norsk Hydro (NHYDY).
Last week, President Trump temporarily exempted some countries from the Section 232 tariffs. According to the Commerce Department, the United States imported ~6 million metric tons of aluminum in 2016.
When forward prices are lower than spot markets, it’s described as “backwardation.” When future prices are higher than the current spot prices, it’s referred to as “contango.”
For aluminum producers, the all-in aluminum price consists of the price of aluminum plus physical aluminum premiums. These premiums are regional in nature.
Century Aluminum (CENX) released its 2Q17 financial results on August 2 after the markets closed. The company reported revenues of $2.86 billion in 2Q17.
Previously in this series, we’ve looked at Alcoa’s (AA) 2Q17 earnings estimates. In this article, we’ll see how leading brokerages are rating Alcoa stock ahead of its 2Q17 earnings release.
As we noted previously, Alcoa is now a pure-play aluminum producer. The company is an integrated aluminum producer with bauxite mining, alumina refining, and aluminum smelting operations.
Developments in the Chinese aluminum industry tend to impact the global aluminum industry. Chinese aluminum exports interest companies like Alcoa (AA).
China’s aluminum demand is expected to be strong this year. Alcoa raised its 2017 global aluminum demand forecast to 4.5%–5.0% from its previous guidance.
Alcoa and Century Aluminum (CENX) survives the commodity price slump by closing their high-cost capacities and negotiating better power deals for several operating plants.
According to consensus estimates compiled by Thomson Reuters, Alcoa (AA) has a mean one-year price target of $42.44, representing a 25.8% upside over its closing price on April 28, 2017.
Alcoa (AA) expects to generate adjusted EBITDA between $2.1 billion and $2.3 billion in fiscal 2017. Alcoa assumed aluminum prices at $1,900 per metric ton.
Of the 13 analysts surveyed by Thomson Reuters, ten analysts rated Alcoa stock as a “buy,” three rated it as a “hold,” and no analysts rated it as a “sell.”
Aluminum premiums are key indicators that investors in primary producers such as Century Aluminum (CENX), Norsk Hydro (NHYDY), and Rio Tinto (RIO) should track.
For commodity companies such as Rio Tinto (RIO) and Century Aluminum (CENX), the industry outlook is as important, if not more important, than their positions in the industry.
For commodity companies like Alcoa and Rio Tinto, the industry outlook is as important—if not more important—than the company’s position in the industry.
For commodity companies like Rio Tinto (RIO), the industry outlook is as important, if not more important, than the company’s position in the industry.
Century Aluminum (CENX) has a net debt-to-EBITDA multiple of 4.3x. Its leverage ratios are higher compared to Alcoa based on the net debt-to-EBITDA metric.
Looking at the yearly performance, Alcoa generated free cash flows of -$715 million in 2016. We don’t have comparable free cash flows for previous periods.
Alumina markets Before we analyze alumina markets, let’s look at aluminum’s value chain. It starts with mining bauxite—one of the most abundant metals in the Earth’s crust. Due to bauxite’s many impurities, it must be refined to produce alumina. This alumina is then processed to produce raw aluminum (SOUHY). Rio Tinto (RIO), Norsk Hydro (NHYDY), and […]
Physical premiums For aluminum producers, the all-in aluminum price consists of the aluminum price plus regional aluminum premiums. The premium is a surcharge that consumers must pay on top of prevailing prices in order to take immediate delivery of the metal from warehouses. Aluminum premiums are a key indicator that investors in primary producers such […]
Aluminum prices Aluminum has gained ~11% year-to-date. This was preceded by a 13.4% rise in 2016. The market sentiment for aluminum improved considerably in 2016, though at the start of the year, prices looked set to breach their 2009 lows. Earnings sensitivity Commodity producers’ (XME) earnings, including those of Century Aluminum (CENX), Norsk Hydro (NHYDY), […]
According to data compiled by Thomson Reuters, analysts expect Century Aluminum (CENX) to post revenue of $346 million in 4Q16 and $371 million in 1Q17.
After the split, Arconic (ARNC) held an ~20% stake in Alcoa (AA), which Arconic plans to monetize in 18 months. However, ARNC retained the option to hold Alcoa’s stake for up to five years.
Alcoa (AA) expects its alumina shipments to range from 13.8 million–13.9 million metric tons in fiscal 2017 compared to 13.2 million metric tons in fiscal 2016.
In fiscal 2016, Alcoa (AA) produced 45.0 million bone dry metric tons of bauxite, 13.2 million metric tons of alumina, and 2.42 million metric tons of aluminum.
Of the 12 surveyed analysts, five recommended Alcoa stock as a “buy,” while only one recommended a “sell” on the stock. Of these analysts, 50% recommended a “hold” on the stock.
Alcoa reported revenues of $2.54 billion in 4Q16. It’s the first quarter that Alcoa reported its upstream results on a standalone basis after the split.
Alcoa reported its 4Q16 financial results on January 24. Alcoa reported a net loss of $125 million in 4Q16. It translates into a loss per share of $0.68.
Except for China, global aluminum markets have been in a deficit, mainly due to capacity curtailments that producers have undertaken over the last few years.
Except for China, global aluminum markets have been in a deficit, mainly due to capacity curtailments that producers such as Alcoa have undertaken over the last few years.
Of the ten analysts surveyed by Thomson Reuters, four analysts rate Alcoa stock a “buy,” four analysts rate it a “hold,” and two analysts rate it a “sell.”
China’s economic growth rates could be impacted when Donald Trump takes office. His tough stance on imports from China could be negative for its economy.
During their 2Q16 earnings calls, Century Aluminum (CENX) and Norsk Hydro (NHYDY) expressed concern over higher Chinese supply in the second half of the year.
