Shares of Century Aluminum Co. (NASDAQ:CENX) rallied nearly 13% by 10:45 a.m. EDT on Monday on the heels of a 3% rise in aluminum prices after the U.S. slapped sanctions on a Russian rival. Other U.S. aluminum producers also rallied today, including Alcoa (NYSE:AA), which rose more than 8%.
Aluminum prices spiked on Monday as the market digested the potential impact of sanctions levied by the U.S. on several Russian companies, including tariffs on aluminum producer Rusal. Overall, Russia is the second-largest supplier of aluminum to the U.S. and Canada, while Rusal supplies 7% of total global output, with more than 10% of that, or about $1 billion worth, heading to the U.S. Customers in this country now must find new sources for the metal, which is driving up the stock of Century Aluminum on the belief that the company and other U.S. producers like Alcoa will benefit from these sanctions.
Analysts, however, remain unsure how much these companies will profit from the move. In the short term, BMO Capital noted there could be an aluminum pricing squeeze due to the sanctions and an outage of a key aluminum-related plant in Brazil. That increase, on the other hand, could quickly evaporate as aluminum producers in Europe and Australia shift more of their shipments to the U.S. Further, it's possible that the escalating tariff war between the U.S. and rival nations could tamp down demand for aluminum and other metals, causing prices to slide.
Higher aluminum prices from the tariffs could boost earnings for U.S. producers like Century Aluminum and Alcoa, which is why both stocks are rising today. However, that could just as well backfire if it saps demand for the metal. That's why investors should avoid trading on the tariff news and instead focus on the sector's long-term prospects, and consider investing only in its top companies.