HomeResearch and NewsALCOA AND ALUMINUM MARKET REPORT

ALCOA AND ALUMINUM MARKET REPORT

EXECUTIVE SUMMARY: Alcoa is CONTRARIAN BUY at $15-16

Trade war is officially over as US and China signed the Phase.1 deal in the middle of January. Overall risk conditions switched to the high Greed mode not seen since the late 2017 with commodities have been finally playing catch up – only Nat Gas, Aluminum and Corn are in Fear mode.

Macroeconomic drivers turn to neutral as the hopes for Trade Deal and monetary stimulus improved business confidence. On the other hand reduced risks make global CBs less so dovish with the Fed is starting to think how to exit its REPO stimulus gambit and the ECB is not going to cut rates anymore. Chinese and EM economies stabilized with downside risk.  

Investors’ interest in commodities was really high over the last months. But it was concentrated in retail investors’ money flow as trading activity in commodity futures declined and net positioning improved moderately with Precious metals and Gasoline are the most overbought and Aluminum, Zinc and Nat. Gas are the most oversold

Aluminum industry finished the year in relatively depressed mood as the most hated metal in the LME with rising inventories and switching to surplus market as additional capacity to come on line over the next couple of years without corresponding demand growth. However we see a real chance for positive surprise both in demand (“green push”) and supply (cut back) 

Alcoa was the main headliner of that industry challenges as it was the first to report full year results and predict another surplus year not only for aluminum industry but for alumina and bauxite as well. As a result valuation discount to its AWAC based valuation reached extreme levels paving the way for value accretive actions from the company via sale/spin-offs 

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commodity;

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