What happened
Shares of Alcoa (AA 3.80%) tanked Thursday, closing the day down 11% and marking its steepest fall so far this week. Investors have been excited about the aluminum giant's prospects so far this year, but the optimism appears to be fading.
So what
Alcoa is a pure-play aluminum stock, so the meteoric rise in aluminum prices this year unsurprisingly spurred heavy investor interest in the stock. It's never a one-way ride for Alcoa shares, though, given that it's a commodity stock that typically moves with fluctuations in commodity prices.
That pretty much explains why Alcoa shares fell today. Prices of base metals are headed lower on the back of weak economic data from China, the world's largest metals consumer.
Earlier this week, data coming from China revealed lower-than-expected 6.4% growth in industrial production for July. That's triggered fears of decelerating growth in China, putting metal prices under pressure.
Image source: Getty Images.
The price of aluminum per tonne on the London Metal Exchange, for example, has dipped 2% in the past couple of days after recently hitting multiyear highs. That may seem like an insignificant drop, but Alcoa is considered a bellwether, and a sharper dip in prices of other metals is driving most stocks in the metals and mining sector lower.
The price of copper, for example, is hitting multimonth lows as of this writing, and so is the price of iron ore. Investors fear aluminum prices also could be headed even lower.
Now what
Alcoa recently delivered stellar numbers, including record net income, for its second quarter, thanks almost entirely to higher aluminum prices. The company also was banking on higher prices for a strong second half of 2021.
Needless to say, investors are worried now that metal prices are showing signs of cooling down, and that's weighing down the stock price. That said, Alcoa is on a stronger footing now, and it might be too early to suggest the commodity upcycle is coming to an end. It's a wait-and-watch situation for now.
