What happened

Friday is turning out to be a good day to be in the metals business, as shares of steelmakers United States Steel (NYSE:X) and Brazil's Companhia Siderurgica Nacional (NYSE:SID) roar to new heights, up 10.4% and 12.1%, respectively, in 1:50 p.m. EST trading. Nor is steel the only popular metal today, as aluminum magnate Alcoa (NYSE:AA) joins in the rally -- up 7.2%.

So what exactly is going on here to get investors so excited about commodities?

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Image source: Getty Images.

So what

Let's take these metals stories one (or two) at a time. In regard to steel, Bloomberg News recently exulted at U.S. Steel's "47% breakout in November," asserting that supply shortages of the usually run-of-the-mill metal are behind the stock's rise. Moreover, investors are betting the Biden administration might usher in a long-awaited infrastructure-building program, bolstering demand for steel.  

Benchmark steel prices are up 80% from their lows of late August, reports Bloomberg, and that pricing strength should continue even if no infrastructure legislation is immediately passed, because demand is being supported by a "strong recovery in automotive and restocking across the supply chain." And with U.S. supplies still constrained due to blast furnaces, closed during the pandemic, still not being back up and running, prices for steel globally should also enjoy support. That would explain why Companhia Siderurgica Nacional (literally, "national steel company") stock is doing so well down in Brazil.

Strategic investors are taking advantage of the situation, with Cleveland-Cliffs recently moving to acquire the U.S. steelmaking assets of ArcelorMittal and all of AK Steel.

Now what

Now let's move onto Alcoa, and the nonsteel, aluminum aspect of today's rally. Earlier this week, as you may have heard, Alcoa struck a deal to sell its aluminum rolling mill business to Kaiser Aluminum for $670 million. Wall Street thinks this is a great deal for Kaiser, with one investment bank upgrading that stock to buy this morning and arguing the asset is well positioned to profit from improved output at American automobile manufacturers.  

But let's not forget the obvious advantages this deal will have for Alcoa as well: namely, release from the need to spend money on capital improvements at the operation (which Benchmark Capital says it has been "under invested" in) -- and $670 million in cold, hard cash.

Alcoa is a company carrying $2.7 billion in debt currently. Apply the $670 million Alcoa will receive from the Kaiser deal, and that number could come down to just $2 billion -- only a bit more than the $1.7 billion in cash Alcoa has on hand. Result: Net net, Alcoa could emerge from this deal very close to net debt free, a prospect that should obviously please its shareholders.

Combine this with the likelihood that any U.S. national infrastructure program that benefits steelmakers like U.S. Steel will almost certainly benefit aluminum producers like Alcoa, and it becomes clear why all of these stocks are enjoying a bull run today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.