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Aluminum is clearly back after years of overproduction (AA, ACH)
Edited by : AL CIRCLE
2 min read
After Alcoa's ( AA , quote ) earnings, the story in aluminum right now is about whether the industry has conquered the overproduction that crippled its margins in recent years.
AA represents 10% of global production. Capacity still needs to come down and the Chinese producers like Alchina ( ACH , quote ) are the biggest part of the problem here.
The good news is that the Chinese now have to ramp up power supply just to meet everyday demand. Aluminum is an extremely power-dependent business, so Beijing itself may force these companies to slow down to save power.
But if you're expecting AA to be a major read on the economy, you may be looking too far afield. Demand has found a base here. Aluminum has totally underperformed and the stocks look cheap, but they have yet to solve their underlying problems by cutting supply.
And after a quarter of many companies retreating into "wait and see" mode, it is hard for aluminum or iron ore for that matter to give us an accurate picture of what is really going on. Aluminum prices may be down 25%, but this seems like a rock bottom while the global corporate community hit the "snooze" button.
By the way, global auto sales are going to hit records this year. There is demand for aluminum, right there. AA is probably a buy here, but do not expect too much.
AA represents 10% of global production. Capacity still needs to come down and the Chinese producers like Alchina ( ACH , quote ) are the biggest part of the problem here.
The good news is that the Chinese now have to ramp up power supply just to meet everyday demand. Aluminum is an extremely power-dependent business, so Beijing itself may force these companies to slow down to save power.
But if you're expecting AA to be a major read on the economy, you may be looking too far afield. Demand has found a base here. Aluminum has totally underperformed and the stocks look cheap, but they have yet to solve their underlying problems by cutting supply.
And after a quarter of many companies retreating into "wait and see" mode, it is hard for aluminum or iron ore for that matter to give us an accurate picture of what is really going on. Aluminum prices may be down 25%, but this seems like a rock bottom while the global corporate community hit the "snooze" button.
By the way, global auto sales are going to hit records this year. There is demand for aluminum, right there. AA is probably a buy here, but do not expect too much.
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