Alcoa Corp's (AA) last major press release was in October, when it announced its third-quarter numbers. Yet, shares of the world's largest manufacturer of bauxite, alumina, and aluminum products slumped 13.1% in November, making it one of the worst months for the stock this year. Comparatively, rival Century Aluminum (CENX -3.91%) ended the month with only about 5.4% losses after regaining lost ground. What gives?
Alcoa shares started losing ground late-October after the company missed profit estimates for the third quarter. Nonetheless, it was a strong earnings report overall, with Alcoa even upgrading its full-year estimates for earnings before interest, tax, depreciation, and amortization (EBITDA) by 9% from the higher end of its previous guidance to $2.4 billion, thanks to higher year-over-year shipments and aluminum prices.
Unfortunately, aluminum prices failed to hold up last month after a stellar run-up, and investors in Alcoa had a valid reason to be cautious. Aluminum price, after all, is a major determinant of Alcoa's revenue. Aluminum prices fell sharply in November, slipping nearly 6% from their October multi-year highs of around $2,215 per metric ton. The alumina price index skid as well, which isn't great news for Alcoa as it pegs prices of nearly 85% of its third-party alumina sales to the index.
In contrast, while lower aluminum prices bode ill for Century Aluminum as well, lower alumina prices don't. That's because alumina is essentially a raw material that's processed into aluminum. Unlike Alcoa which mines alumina, Century Aluminum buys it from third parties, which means its cost declines if alumina prices fall. That may explain why Century's shares weren't hit as hard last month.
For aluminum manufacturers, November brought in some news to cheer toward the end when the U.S. announced anti-dumping investigations against China, particularly for aluminum sheets. The final decision, however, is still months away.
On another positive note, China's aluminum smelting capacity could drop by almost one-tenth, thanks to the nation's clampdown on illegal and polluting facilities. Keep an eye on news from China, as any drop in aluminum production or exports from the nation could send prices of the metal and Alcoa shares higher.