Unfortunately, not long after a massive bailout plan seemed assured as an elixir for our financial system, the market quickly returned to being drubbed yet again. Funny how brief the shelf life of good economic news can be when, Mr. Market, much like one of your uncle's mindless nags, is absolutely determined to head for the barn.
It's perhaps even more telling to examine various industrial sectors in an effort to forecast how the economic downturn -- go ahead, call it a panic -- could change things going forward. For instance, let's focus on aluminum, a bellwether base metal whose prices are dipping at precisely the time that -- or perhaps because -- energy-related production costs are soaring and global inventories are building up. As you may already know, the big names in the group include Russia's Rusal, Rio Tinto (NYSE:RTP), Alcoa (NYSE:AA), and BHP Billiton (NYSE:BHP).
Global aluminum prices have slid more than 20% per metric ton in a matter of months, from the mid-$3,000 range to the upper-middle $2,000s. At the same time, the costs of fueling smelters, which can amount to a third or more of total production expenses, have been rising, especially when the fuel in question is coal.
So what changes is this fundamental imbalance likely to bring about? I can think of a few company-related possibilities that could be in the offing:
- One can envision Brazil's Vale (NYSE:RIO) making a run at Alcoa. There's been speculation that the Rio-based company would, with its deep pockets, go after Alcoa or copper producer Freeport-McMoRan Copper & Gold (NYSE:FCX). I just think that the aluminum picture increases the relative attractiveness of Alcoa.
- With Rio Tinto now the world's second-largest aluminum producer, the likelihood could increase somewhat that BHP will succeed in its efforts to ensnare the London-based company.
- Privately held Rusal was said to be headed toward an IPO in late 2009. It seems likely that a continued sloppy aluminum market could push back that timing somewhat.
But for Foolish investors, what just may be going on beneath our noses is the creation of some very attractive values. Alcoa shares, for instance, are down about 40% since their high in May. If you're someone who thinks a major bailout would make an economic difference, there just might be an emerging opportunity here.
Is Alcoa, a four-star Motley Fool CAPS company, about to explode? Why not weigh in with your opinion?
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