Stock of the day 02/04/2015 – Alcoa Inc

Next Wednesday the world’s third largest producer of aluminium, Alcoa Inc, releases its Q1 2015 earnings release amidst a trading environment that isn’t exactly commodity-friendly at the moment.

Alcoa had a very strong 2014, but has struggled to match that growth since the New Year. After opening 2014 at $10.54 it closed over $5 dollars higher in December at $15.80 in a nearly consistent run of gains. However, after reaching a high of $17.10 at the start of February, a downgraded rating from JP Morgan was the catalyst for some big declines, sinking to $12.70 last week before a minor rebound brought the stock to a current trading price of $13 per share.



Frustratingly for Alcoa, the main cause of this decline is out of its control. Aluminium hasn’t been immune to the commodity downturn that began at the tail end of 2014; its decline has been inspired by a stronger US dollar and, more importantly, sustained growth in China’s aluminium production increasing faster than the rates of demand. This has caused the benchmark all-in European aluminium price to fall from $2600 a tonne to $2165 between November and now, something that has been reflected in the drop in Alcoa’s stock price.

This fall in price for the metal has outweighed the good news coming out of Alcoa. The company is set to receive a $259 million low interest loan from the US Department of Energy to fund its expansion of lightweight aluminium for vehicles. In a sign of confidence for the company, this is the first loan of its kind to be granted since 2011, and Alcoa has already seen success with its lightweight produce with Ford jumping on board and using the metal in its f-150 series.

Alcoa also received a minor boost last week as it announced that it is restraining smelting at its Sao Luis facility in Brazil by around 21%. This pushed the stock price back to $13 as investors were pleased the company is taking firm steps towards combatting the worldwide price slump in aluminium.

In terms of actual figures, Alcoa’s fourth quarter and full year 2014 results were very strong, with the company seeing revenue of just under $24 billion, which is 4% growth on 2013’s figure, alongside its strongest full year operating results since 2008. On top of this Alcoa saw its 13th consecutive quarter of Midstream profit growth alongside its 19th consecutive quarter of Downstream profit growth. It will interesting to see if Alcoa can continue these impressive runs give the commodity-adverse environment the company has been operating in throughout 2015.