On April 12, 2024, the United States Department of the Treasury and the United Kingdom issued two new prohibitions on Russian-origin metals. The new measures prohibit the United States from importing Russian-origin aluminum, copper and nickel. It also restricts the Chicago Mercantile Exchange (Comex) and the London Metals Exchange (LME) from accepting new supplies of Russian aluminum, copper and nickel. Existing Russian metal supplies account for 36% of the refined nickel, 62% of copper, and 91% of aluminum in LME stockpiles.
The goal is to continue to disrupt the revenue Russia receives from exporting aluminum, copper, and nickel. The U.S. and U.K. seek to further reduce Russia's ability to continue funding its war on Ukraine.
Disrupting Russia's Funding of the Ukraine War
The U.S. Secretary of Treasury, Janet Yellen, stated, "Our new prohibitions on key metals, in coordination with our partners in the United Kingdom, will continue to target the revenue Russia can earn to continue its brutal war against Ukraine." Yellen continued, "By taking this action in a targeted and responsible manner, we will reduce Russia's earnings while protecting our partners and allies from unwanted spillover effects."
The basic materials sector saw many metal producers see their prices initially surge on the news. Russia produces 6% of nickel, 4% of copper and 5% of the world's aluminum. Here are 2 aluminum companies that can benefit from the new Russian sanctions.
Alcoa
Alcoa Co. (NYSE: AA) is a major producer of aluminum and aluminum products. The vertically integrated company mines, refines, smelts and fabricates aluminum, turning raw material into useable products. They manufacture rolled sheets, plates and extrusions. Alcoa is also a leader in aluminum recycling. The company agreed to acquire its Australian joint venture partner Alumina in a $2.2 billion all-stock deal announced in late February 2024. By doing so, it takes control of its interest in bauxite mines throughout Australia, Spain, Brazil, Guinea and Saudi Arabia. Alcoa seeks to close the deal in Q3 2024.
Russian Sanctions Surge Aluminum Prices
Aluminum and copper prices soared to 14-month highs days after the Treasury Department announcement. The Russian sanctions primarily benefit Alcoa because of the spike in aluminum prices due to supply constraints. It could also improve the demand for Alcoa's aluminum in regions that previously relied on Russian aluminum.
Treading Water
Alcoa reported its Q1 2024 EPS loss of 81 cents per share, missing analyst estimates by 17 cents. Net loss was $252 million. Revenues fell 2.7% YoY to $2.60 billion, beating $2.55 billion analyst estimates. The company has initiated the process to sell its San Ciprian complex in Spain. Aluminum production fell 4% sequentially to 2.67 metric tons of alumina and 542,000 tons metric tons of aluminum. Keep in mind that a metric ton is 2,204 pounds compared to a US ton at 2,000 pounds. The company ended the quarter with $1.4 billion in cash and cash equivalents.
CEO Thoughts on Alumina Acquisition
Alcoa CEO William Oplinger underscored the immediate benefits of its acquisition of Alumina. The company needs government approvals in Australia and Brazil and expects to close the deal in Q3 2024. Oplinger emphasized, "It advances our position as the global pure-play upstream aluminum company and enhances Alcoa's vertical integration along the value chain across bauxite mining, aluminum refining, and aluminum smelting."
He continued, "Alcoa would significantly increase its ownership in five of the 20 largest bauxite mines and five of the 20 largest alumina refineries globally, excluding China. Following this transaction, Alcoa will be better positioned to continue our long-term plan of investing in Australian bauxite mining and alumina refining."
Tripling Chinese Tariffs
As a bonus, the Biden Administration posted new actions to protect steel and the shipbuilding industry from China's unfair practices. Biden is calling on the United States Trade Representative (USTR) to consider tripling the 301 tariff rate on Chinese steel and aluminum from 7.5%. High-quality U.S. products are being uncut by artificially low-price Chinese alternatives flooding the market with cheap products. He's also working with Mexico to prevent further evasion of U.S. tariffs by Chinese companies.
Daily Bull Flag
The daily candlestick chart on AA illustrates a bull flag pattern. The run-up from $24.77 to $37.67 formed the flagpole. The flag formed during the parallel trendlines of the lower highs and lower lows. A breakout through the upper descending trendline can trigger the bull flag breakout above $37.67. The daily relative strength index (RSI) has pulled back to the 60-band. Pullback support levels are at $33.84m, $31.25, $28.72 and $26.25.
Alcoa analyst recommendations and price targets can be found on MarketBeat.
Century Aluminum
Century Aluminum Co. (NASDAQ: CENX) is a major competitor to Alcoa. It is also a vertically integrated miner, refiner, smelter and fabricator of aluminum and aluminum products. It owns an alumina plant in Iceland and a carbon anode production plant in the Netherlands. Its primary focus is producing aluminum from mined bauxite ore. They are a low-cost producer of aluminum sheet products. The company was awarded up to $500 million in funding from the U.S. Department of Energy for building a new aluminum smelter, the first in 45 years. This facility will double the size of the U.S. aluminum industry, which is essential for supply chains and materials critical to the green energy movement.
Smaller But Profitable
Century Aluminum is a smaller competitor to Alcoa. It reported Q4 2023 EPS of 39 cents, crushing analyst estimates by 22 cents. Revenues fell 3.5% YoY to $512.3 million versus $477.3 million. The company guided Q1 2024 adjusted EBITDA to a range of $5 million to $15 million.
Century CEO Jesse Gary noted that the demand in the West appears to have bottomed out in Q3 2023. The market experienced increasing demand in Q4 2023, and he expects it to improve and grow through 2024.
Daily Pennant Pattern
The daily candlestick on CENX shows a pennant pattern. This is a symmetrical triangle that is preceded by a parabolic rising flagpole. The flagpole peaked at $18.64 and has been forming a symmetrical triangle comprised of lower highs and higher lows. An imminent breakout or breakdown is shaping up; the question is in which direction. The RSI is still above the overbought 70-band. Pullback support levels are at $16.10, $14.92, $13.17 and $12.06.
Century Aluminum analyst recommendations and price targets can be found on MarketBeat.
