Commodities & Metals

Major News Impacting Top Aluminum Players

Sometimes bad news for one company (or a country) is great news for another company. That’s the case for Alcoa Corp. (NYSE: AA) and some other aluminum players on Wednesday. The driving force is news that Norway’s Norsk Hydro will close its refinery in Brazil.

Last month, Norsk Hydro said that the Brazilian refinery had been operating at only 50% capacity since March. Now it has become subject of embargos imposed by the authorities.

A report from Merrill Lynch shows just how important this one refinery closure is and why it sees a 12-month or more duration as possible. The firm has a Buy rating and $60 price objective for Alcoa.

To show just how bad this was for Norsk Hydro: trading in its local shares in Oslo, Norway, were down 11.5%. Its U.S.-listed OTC shares were also down about 12% at $5.36 on the news, in a 52-week range of $5.29 to $7.93.

The Merrill Lynch report said:

The world’s largest alumina refinery, Norsk Hydro’s 6Mt/yr Alunorte, made the surprise announcement Wednesday it would fully curtail its operations after running at 50% since March. This removes an additional 3Mt from an approximate 120Mt/yr global market, with Alcoa the largest alumina refiner in conjunction with its AWAC joint venture. The decision followed an inability to get a permit for a new tailings area after its current one reached capacity, and contrasted with expectations of a full restart earlier this year. Our Europe colleagues expect the refinery, Paragominas bauxite mine (9.9Mt/yr capacity), and its nearby Albras aluminum smelter (460Kt/yr) to remain offline for 12 months.

Merrill Lynch also cited less stringent Chinese smelter winter cuts and an end to the AWAC Australia labor issues had been adding pressure to alumina prices recently, but the firm remains constructive amid tight market conditions being exacerbated by this surprise Alunorte closure.

Shortly after the open on Wednesday, many aluminum-related companies saw their shares on the move, but not at all in the same directions.

Alcoa was last seen trading up 5.7% at $44.65 on Wednesday morning, in a 52-week range of $39.58 to $62.35. Alcoa’s consensus analyst price target was still above $58.

Aluminum Corp. of China Ltd. (NYSE: ACH) was trading up over 7% at $11.88 in New York trading. The 52-week range is $9.20 to $23.54.

Century Aluminum Co. (NASDAQ: CENX) was down 13.3% at $10.30, and it now has a new 52-week range of $10.13 to $24.77, with that low being put in on the same day.

Kaiser Aluminum Corp. (NASDAQ: KALU) was barely affected, with its shares down five cents to $109.51, in a 52-week range of $90.93 to $119.66.

Reliance Steel & Aluminum Co. (NYSE: RS) traded up just 0.4% to $85.69 on Wednesday morning. Reliance has a 52-week range of $72.69 to $97.41.

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