Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Alcoa Jumped in June

By Lou Whiteman – Jul 2, 2020 at 11:55AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The stock is rebounding off of its lows on hope the COVID-19 downturn won't be as bad as initially feared.

What happened

Shares of Alcoa (AA) gained 22% in June, according to data provided by S&P Global Market Intelligence, as hopes for a quick economic recovery continued to build momentum and commodity prices pushed higher as a result.

So what

Alcoa had issues prior to the pandemic. The stock was a loser in 2019 due to weak demand for raw materials and the threat of a global trade war, and was down nearly 75% in 2020 as recently as mid-March on fears of a global recession.

A metal production operation.

Image source: Getty Images.

The outlook has improved in recent months as investors have begun to brush off concerns that the pandemic would lead to an extended downturn. The optimism peaked early in June, and shares of Alcoa were up more than 40% for the month by June 8, before receding somewhat as new case numbers began to spike.

Alcoa shares were also impacted mid-June by news that the White House was considering imposing 10% tariffs on aluminum exports from Canada to the U.S. The U.S. aluminum trade group opposed a new tariff, fearing that the retaliation and loss of free markets would outweigh any gains U.S. companies, including Alcoa, would see from the tariff. But the threat did help move aluminum prices up 5% for the month.

Now what

Even with the gains, Alcoa shares remain down more than 40% year to date, and are once again badly underperforming the S&P 500 for the year.

The industry still faces a China problem, both in terms of a slowdown in economic activity there putting pressure on aluminum demand, and China's producers dumping aluminum globally as a result. We still don't know how soon the pandemic will be resolved, or what the full economic impact of it will be. But key metals consumers including aerospace companies will likely be down for a number of years.

Alcoa is trying to adjust to these many issues. The company late last year announced a reorganization plan designed to create a "leaner, more integrated, operator-centric organization." But the stock is tied to a commodity, and until demand for aluminum surges higher, there is only so much Alcoa can do.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.