Must-know: Why aluminum stocks continue to perform well (Part 2 of 9)
Aluminum demand to exceed supply
After almost a decade, aluminum demand is expected to exceed supply. There has been excess production for nine years. This caused huge stockpiles at London Metal Exchange (or LME) warehouses. It also caused huge stockpiles in the open market.
Why demand is expected to exceed supply this year
A deficit is expected in the aluminum market. It can be attributed to two factors:
- The expected uptick in demand – this is being led by a buoyant aerospace industry. It’s also being led by increased demand from automobile companies.
- Production cuts – the cuts were announced by companies in China and other parts of the world. We’ll discuss these factors in greater detail in the next parts in the series.
Alcoa signs a billion dollar contract with Boeing
Recently, Alcoa signed a $1 billion contract with Boeing. Alcoa will supply aluminum sheet and plate products. Alcoa will work with Boeing to develop new aerospace alloys—including aluminum-lithium—for complex structural applications. The deal is expected to increase Alcoa’s revenue from the aerospace industry. Currently, the revenue is $4 billion. The aerospace segment is one of Alcoa’s most profitable segments.
This deal comes after Alcoa acquired Firth Rixson. Firth Rixson is based in the United Kingdom. It’s a jet engine component manufacturer. You can read more about Alcoa and the Firth Rixson acquisition here.
These additions have been positive for the aluminum industry. Several events were positive for companies like Alcoa Inc. (AA), Century Aluminum (CENX), Kaiser Aluminum Corp. (KALU), and Constellium (CSTM). You can also access the metals industry through the SPDR S&P Metals and Mining ETF (XME).
Let’s look at some of the positive developments in the aluminum industry. In the next part of the series, we’ll analyze the rebound in the aluminum prices.
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