Alumina rallying into Alcoa results

Alumina (AWC) has been one of the best performers on the local Australian market over the past couple of months, rising even as most of the materials stocks have been underperforming.

Source: Bloomberg

The primary driver of the gains has been centred on aluminium fundamentals, with demand ramping up on aircraft orders, Japanese autos, construction and a recovering food and beverage container segment.

On the supply side, an Indonesian government-imposed ban on low-cost exports has impacted bauxite, meaning China is now relying heavily on existing stockpiles. While the market generally sorts itself out when it comes to supply/demand dynamics, for now it seems investors feel we’ll see a nickel-style acceleration in prices.

AWC’s financials have also been impressive, with the company managing to reduce debt levels and gain a better equity contribution from Alcoa World Alumina and Chemicals (AWAC). Analysts also feel that, while AWC had previously halted dividends, there is a good chance this will resume as debt levels decrease and the equity contribution increases.

From a price-action perspective, AWC has been in a solid uptrend since April and recently hit 52-week highs in the $1.78 region. Pullbacks continue to be used as a buying opportunity as we head into Alcoa’s results – which kick off the Q3 corporate earnings season on Wednesday.

Investors will be hoping for a bigger equity contribution. Should this come to fruition, we could see fresh highs being printed.

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