A metal giant’s surprise poor performance this quarter worsened ongoing concerns about the pace of growth of the global economy.
Alcoa, the largest producer of aluminum in the US, posted an unexpected $60 million adjusted loss when it reported earnings yesterday (Oct. 19). CEO Roy Harvey chalked up the unusual slide to “significantly lower prices, and high costs for energy and raw materials.”
Aluminum is a key component of a 21st century economy, used in a range of products from iPhones to aircrafts. Simply put, if the economy is doing well, prices for metals rise because they’re being used to make things. Commodity prices falling is a sign that overall demand is slowing and a recession may be coming.
The price of aluminum reflects global geopolitics, too. With Russia being a major producer of the metal, and US president Joe Biden weighing new sanctions, supply of raw materials could be squeezed even further.
Alcoa and aluminum, by the digits
30%: How much aluminum has fallen year-on-year
$60 million: Alcoa’s losses this quarter
6%: Alcoa’s stock slump in after hours trading
$2,100: Predicted price of a ton aluminum in three months, down from $2,195.50 today, according to Goldman Sachs
Why metals are slumping
🏦 Central bank’s moves to fight inflation, including hiking interest rates
🇨🇳 Lower demand from China, whose economy is struggling to recover in the face of its zero-Covid policy
⚡ Exorbitant energy prices in Europe. Alcoa shut a Spain smelting factory until 2024 because of it
“Russian companies continue to produce and sell their metal while North American and European producers are curtailing smelters amidst declining aluminum prices, skyrocketing energy costs and supply chain issues. And thus, we believe urgent action is necessary by the US and its allies.” —CEO Roy Harvey, during a call with analysts.
Outside of China, Russia’s Rusal is the world’s largest producer of aluminum, supplying 70 million tons of aluminum annually, servicing 6% of the world’s needs.
Despite the fear of exacerbating shortages, the US government is weighing three options to prop prices up: a complete ban on Russian aluminum, increasing tariffs enough to effectively act as a ban, and sanctioning the company that produces Russian aluminum, Rusal.
Alcoa, which thinks the Kremlin doesn’t face the same headwinds as European and American producers, is in favor of Russian sanctions. Its chief says they make “intuitive sense.” Separately, Alcoa said it has asked the London Metal Exchange to delist Russian aluminum.
But it’s not so straightforward. The last time ex-president Donald Trump sanctioned Rusal in April 2018, the shockwaves were felt around the world: it derailed operations in Guyana and Jamaica, and across Europe. French, German, Irish and Italian authorities lobbied against the sanctions, which were lifted in January 2019.
🍃 China’s environmental goals are driving aluminum prices to a 10-year high
💰 What Russia trades with the US, China, Brazil and the world