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Why Century Aluminum Stock Dropped 10% Today

Rich Smith, The Motley Fool

What happened

Shares of aluminum producer Century Aluminum (NASDAQ: CENX) stock closed 10.3% lower on Monday. There wasn't any obvious catalyst for such a large drop in today's news...but if you peer back into last week, and also take a closer look today, you may find a couple less obvious catalysts.

So what

Let's start with the price of aluminum itself. According to Kitcometals.com, 24-hour spot aluminum prices slid by about 2% in Monday trading, landing at $0.9137 per pound.

That seems a pretty small wobble in the metal's price to cause a 10% drop in the stock's price. But combine it with Friday's news, and investors might have found reason to get a little nervous. On Friday, you see, analysts at Berenberg announced they were downgrading Century Aluminum shares to "sell" and assigning a $10 price target. Their reason: "Elevated alumina feedstock costs" are "pressuring earnings" at Century Aluminum, as TheFly.com reports.

Aluminum coils on shelves

Investors decided to put Century Aluminum stock back on the shelf today. Image source: Getty Images.

Now what

Higher input costs and lower prices on outputs are indeed a recipe for lower profit, should these facts hold true long enough to constitute a trend. There's no guarantee they will form a trend. But investors may be looking at Berenberg's target price -- which still represents roughly 16% downside risk even after today's decline -- and deciding that discretion is the better part of value investing when it comes to Century Aluminum stock.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.