What happened

Shares of Alcoa (NYSE:AA) rose 11.9% in September, according to data provided by S&P Global Market Intelligence, after the aluminum giant announced a comprehensive reorganization plan in response to falling commodity prices. The stock initially was up more than 24% for the month following the announcement, but fell back as investors contemplated the pressures that were prompting the restructuring.

AA Chart

AA data by YCharts.

So what

On Sept. 9, Alcoa announced a new operating model that it said will result in a "leaner, more integrated, operator-centric organization." The company said it would eliminate its business unit structure and consolidate sales, procurement, and other commercial capabilities.

As a result, Alcoa CEO Roy Harvey will have seven direct reports, down from 12 currently.

A view from the floor of a smelter.

An Alcoa smelter in Aviles, Spain. Image source: Alcoa.

The restructuring is Alcoa's second in recent years, following the 2016 spinoff of its Arconic finished products unit. In July, Alcoa cut its demand outlook due to trade tensions and a slowing global economic environment, noting that aluminum prices have fallen more than 10% in the last year.

Days later, at an investor conference, management said it was doing a detailed review of overhead costs as part of the restructuring the company.

Now what

Investors understandably cheered management's attempt to streamline to address weak commodity prices, but for Alcoa shares to really go on a sustained run, the company is going to need improved pricing in aluminum. Given continued concerns we're heading into a global recession, growing U.S. steel capacity, and the uncertainty created by trade wars, a recovery in commodity prices is far from certain.

The bull case calls for some combination of Chinese production cuts and an easing of trade tensions that prompts a pickup in demand. Any improvement in aluminum pricing, coupled with these cuts, could create significant tailwinds for the company heading into 2020. But for now, expect uncertainty to weigh heavily on Alcoa shares.

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