Summary
- Alcoa Corporation is the largest US-based producer of aluminum and has seen a significant drop in its share price since the start of 2018, and has further dropped since then.
- The elimination of Hong Kong’s Special Trade Status has also closed a trade loophole that allowed for cheap Chinese aluminum to be imported without the full effect of US tariffs.
- Alcoa Corporation’s Elysis carbon-free aluminum manufacturing project would mitigate the risk from future potential carbon pricing/trading schemes, as well as give Alcoa an inroad to the cathode market.
- Either a Donald Trump or a Joe Biden victory in the USA presidential election could be beneficial for Alcoa. Four more years of a Trump Administration would meanaluminum prices being driven up. While a Biden Administration would translate into a hefty 400-billion-dollar direct subsidyto purchase American manufactured products (such as aluminum).
Introduction
For the past couple of years the US aluminum industry has experienced a decline from its modern-day high. This trend can be quantified by looking at the JJU Aluminum ETF and its trajectory since the start of 2018. The aluminum ETF reached its greatest peak during the spring of 2018 as the Trump Administration's protectionist policies reached a fever pitch. However, since that point, the ETF has declined by more than 20% after the Trump Administration resolved the tariffs, and the coronavirus further exacerbated the decline.
Source: Wallstreetnation.com
Alcoa Inc. (AA) specializes in the production of bauxite, alumina, and aluminum. All 3 segments revolve around the aluminum industrial sector. As a result, the stock price of the company is highly correlated with the price of aluminum.
The stock's (Alcoa) movements are similar to those of the JJU Aluminum ETF, but the changes in the ETF are magnified when reflected in the stock price of Alcoa. Thus, one can safely conclude that the share price performance of Alcoa is determined by the performance of the price of aluminum. Observing the comparison chart below, we can see that Alcoa's stock price has fallen by 80% in 2020, as compared to a previous high in 2018.
An increased aluminum price would certainly benefit Alcoa, however, it would also gain an opportunity to leverage its unique strengths in the future.
