What happened

It's been a tough ride for shareholders of Alcoa (NYSE:AA) with the stock vastly underperforming the S&P 500 in 2019 and losing nearly 75% of its value in the first three months of 2020.

In recent months, however, the stock has begun to stage quite a rally. Alcoa shares gained 13% in May, according to data provided by S&P Global Market Intelligence, on growing hopes for a global economic recovery.

So what

Alcoa has been a tough stock to love for the better part of this century. The company in the early 2000s attempted to move away from its reliance on commodity aluminum prices by acquiring a collection of aerospace component companies and other finished metal businesses.

An Alcoa smelter in Aviles, Spain.

Image source: Alcoa.

That plan didn't really provide the hoped for returns, and Alcoa spun those assets off in 2016 as Arconic and returned to its core metal production business.

In 2019, that business was hurt by a broader slump in commodity prices due to a slowdown in China and threats of trade wars between the U.S. and other countries. By the end of 2019, Alcoa was preparing another revamp, pledging to build a "leaner, more integrated, operator-centric organization" better able to handle swings in commodity prices.

This year has provided little relief as COVID-19 has further slowed global economic activity and cut into demand for aluminum. But after a miserable March economic sentiment, commodity prices have slowly begun to creep back toward where they were going into the year. And that has fueled a rally in Alcoa shares.

Now what

Alcoa's May surge has accelerated in June, with the shares up 31% just five days into the month. But the stock is still off 44% for the year, compared to a flat performance for the S&P 500.

CEO Roy Harvey remained cautious as of mid-May, telling reporters that there remains an aluminum glut in China and saying the company does not yet have clarity on post-pandemic demand. Aluminum, which going into 2020 traded at about $1,800 per ton, has rebounded off of a low of about $1,462 per ton back in mid-May but still trades for less than $1,600.

In a way, Alcoa is still trying to solve the same problems it had hoped to address two decades ago when it bought up finished products businesses. The company is dependent on volatile commodity prices. Alcoa can continue to move higher if overall market sentiment regarding a recovery continues to build, but there isn't much on the horizon to suggest a big breakout for the shares any time soon.