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Why Century Aluminum Co, Alcoa Inc, and Freeport-McMoRan Inc All Popped Today

By Travis Hoium – Feb 22, 2016 at 12:13PM

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Metals prices and stocks are up today, but will the pop last?

What: Shares of metals and mining-related companies surged today as investors started to bet we may have hit a bottom in the market. Century Aluminum Co (CENX -6.15%) jumped as much as 22%, Alcoa Inc (AA) surged 12%, and Freeport-McMoRan Inc (FCX -5.89%) was up 15% in morning trading on Monday.

So what: Across the board, metals prices have been hammered over the past year, and stock of Century Aluminum, Alcoa, and Freeport-McMoRan have taken a beating as a result. What investors are trying to figure out is where the bottom is for these stocks.

Aluminum LME Spot Price Chart

Aluminum LME Spot Price data by YCharts.

Today, the good news was that metals traded about 1% higher in London today, and there's increasing optimism that prices may have bottomed. China has said it will reduce metals production to avoid keeping the market flooded with product, and that will eventually help prices.

When you combine the improvement in pricing with the fact that short interest in these stocks has surged over the past year, you have a recipe for a sharp rise in stocks. Even the smallest amount of optimism can lead to short covering, or even a short squeeze, driving stocks higher very quickly.

FCX Short Interest Chart

FCX Short Interest data by YCharts.

Now what: While there's some optimism in the market today, remember that each of these business is very challenged right now. In the fourth quarter, Century Aluminum reported a $43.1 million loss, Alcoa lost $500 million, and Freeport-McMoRan reported an adjusted loss of $21 million and a $4.1 billion loss on a GAAP basis.  

We will need to see a long-term increase in demand and prices for these businesses to improve fundamentally, and that's not going to happen quickly. China's growth is stalling, low oil prices are leading to less demand in energy, and China's metals supply has led to it being accused of dumping products on the U.S. and other countries. These are fundamental problems across the industry, and until they're solved, I think it will be tough to call a bottom for these stocks.

For today, there are short-term factors driving stocks higher, but the pops won't last if metals prices don't continue to climb long term.

Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Alcoa Inc. Stock Quote
Alcoa Inc.
Freeport-McMoRan Inc. Stock Quote
Freeport-McMoRan Inc.
$26.68 (-5.89%) $-1.67
Century Aluminum Company Stock Quote
Century Aluminum Company
$5.95 (-6.15%) $0.39

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