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Alumina Ltd stock gets mixed ratings
Edited by : AL CIRCLE
2 min read
Alumina Ltd (AWC) is an Australian listed company which produces alumina, which is a commodity. Bauxite ore is refined to produce alumina, which is then smelted to produce aluminium. AWC is the lesser partner in a 60:40 joint venture with US alumina/aluminium giant Alcoa, called AWAC, for which AWC is paid a quarterly dividend by Alcoa as its means of income. That dividend has an agreed floor of US$100m per year.
Alumina, the commodity, has for decades traded on a long-term contract basis with aluminium smelters across the globe. But in recent years the push has been on to switch to more of a spot trading market, as has been the case over the last decade with other bulks such as iron ore. Spot trading markets are seen to benefit producers on average given bulk long-term contracts tend to settle on a discount-for-volume basis. In 2013, AWAC’s spot alumina exposure grew to 53%.
Analysts had expected the switch to spot would lift average alumina prices and thus the fortunes of alumina producers, but alas aluminium has been produced globally to a level of oversupply while demand growth has eased. Thus any gain on the swings for alumina producers was lost on the roundabout. However, in recent months, spot alumina prices have begun to find a little bit of strength.
Alumina, the company, is a stock that tends to split analyst opinions. On the one hand, AWC’s legacy assets are seen as largely irreplaceable, certainly not on a viable cost basis in today’s market. Hence AWC boasts a strong underlying value. But on the other hand, if global aluminium supply is more than enough to match demand growth then it’s hard to derive exciting earnings growth from alumina production.
Prior to this morning, FNArena database broker ratings for AWC were split as two Buy to four Sell (or equivalent) with one Hold. The split largely reflects broker views on the direction of aluminium prices, given there is little argument over the underlying value of AWC’s assets. Compounding the disagreement are some recent supply-side developments.
Alumina, the commodity, has for decades traded on a long-term contract basis with aluminium smelters across the globe. But in recent years the push has been on to switch to more of a spot trading market, as has been the case over the last decade with other bulks such as iron ore. Spot trading markets are seen to benefit producers on average given bulk long-term contracts tend to settle on a discount-for-volume basis. In 2013, AWAC’s spot alumina exposure grew to 53%.
Analysts had expected the switch to spot would lift average alumina prices and thus the fortunes of alumina producers, but alas aluminium has been produced globally to a level of oversupply while demand growth has eased. Thus any gain on the swings for alumina producers was lost on the roundabout. However, in recent months, spot alumina prices have begun to find a little bit of strength.
Alumina, the company, is a stock that tends to split analyst opinions. On the one hand, AWC’s legacy assets are seen as largely irreplaceable, certainly not on a viable cost basis in today’s market. Hence AWC boasts a strong underlying value. But on the other hand, if global aluminium supply is more than enough to match demand growth then it’s hard to derive exciting earnings growth from alumina production.
Prior to this morning, FNArena database broker ratings for AWC were split as two Buy to four Sell (or equivalent) with one Hold. The split largely reflects broker views on the direction of aluminium prices, given there is little argument over the underlying value of AWC’s assets. Compounding the disagreement are some recent supply-side developments.
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