- Beijing’s panicked reaction to sliding Chinese stock prices must be causing a few ripples of anxiety at Alcoa, too.
When Alcoa reports second-quarter results Wednesday, investors will be looking for any glimmers of a rebound in metal prices, especially aluminum. The company’s stock has suffered, plunging 30% so far in 2015.
Aluminum alloy, for instance, fetches about $1,644 a metric ton on the London Metal Exchange, down 11% this year and at its lowest since 2009. Meanwhile, the premiums that users pay to obtain immediate delivery of metal have fallen from record highs. Midwestern premiums, for example, are down 65% since February, according to Morningstar.
Expectations for Alcoa have dropped accordingly. At the start of 2015, analysts projected second-quarter revenue of $6.4 billion. They now expect $5.8 billion, according to FactSet, flat from a year earlier. Earnings are seen at 21 cents a share, up from 18 cents a year earlier.
Alcoa continues to do what it can. It has cut smelting capacity by 33% since 2007. But excess aluminum supply—primarily from China—remains stubborn. Alcoa is in the midst of a major transformation to diversify product offerings, though that is a multiyear project.
One counterpoint to the gloom is Alcoa’s valuation. Market value adjusted for net debt is now slightly less than six times forward earnings before interest, taxes, depreciation and amortization—the lowest multiple since 2011.
Moreover, bets against the stock have been rising. Shares sold short now equate to nearly five days of average trading volume, up from about one day’s worth in January. So any sign of brighter prospects could fuel a near-term rally.
Even so, those prospects are tied to China where the government’s sudden market intervention signals financial strains.
Paul Adkins of AZ China, a metals consultancy, foresees further pressure. He says the all-in price of aluminum, including premiums, averaged about $1,850 in the past four weeks. That could slip in the third quarter. Even if it stays flat, Mr. Adkins says, that would be $200 a metric ton less, on average, than the second quarter and $600 less than a year earlier.
Just as Beijing’s extraordinary measures aren’t the best basis for a sustainable rally, it is hard to see Alcoa’s stock getting far on that.