Alcoa CEO says aluminum rally will last longer

Image from Alcoa.

Alcoa Corp., the biggest U.S. aluminum producer, surged Friday morning as investors bought into the company’s confidence that the strongest rally since 1994 will last even longer.

Shares jumped more than 14% after announcing Thursday that it’s finally paying a dividend to its shareholders on the back of the highest aluminum prices in 13 years. The 10-cent dividend is the first time Alcoa has paid one out since it split from the jets- and auto-parts business in 2016. The company also announced a share repurchase program of $500 million.

“Based on our view of markets and expected cash flows, we believe these programs can be sustained through the commodity cycle,” CEO Roy Harvey said in Thursday’s statement. Harvey later told analysts in a call: “We believe the markets we participate in will be stronger, that this cycle will last longer and that Alcoa is well positioned to deliver.”

The shares surged to $55.51 at 10:35 a.m. in New York, the biggest intraday jump in four months, to reach the highest level since April 2018.

Alcoa’s stock has more than quadrupled from a year ago, helped by a historic surge in aluminum prices. The metal used in everything from automobiles to MacBooks to beer cans has gotten a boost from supply chain snags and a global shortage amid surging demand. Last month, analysts at Goldman Sachs Group Inc. and Citigroup Inc. boosted price outlooks for aluminum, citing smaller output from China, the world’s largest producer, and tighter fundamentals for metals across the globe.

There are some worries, though, amid the rally. Alcoa executives voiced concerns about scarcity of raw materials needed to make aluminum alloys, saying they’ve seen force majeure declarations by some suppliers of magnesium, which is used to harden the metal. The largest U.S. producer of aluminum billet, a key form of aluminum needed in the automotive and building industries, warned customers this week in a letter that it may curtail output and ration deliveries as soon as next year amid the magnesium shortage. 

Alcoa also said inflationary pressure on raw materials and energy will continue, and that high power prices in Europe are not in a position to support aluminum production on the continent. While the company remains bullish on demand outlook, it left expectations for its annual shipments unchanged at 2.9 million to 3 million metric tons.

The Pittsburgh-based producer said annual global demand for primary aluminum will increase approximately 10% relative to 2020 and surpass the pre-pandemic levels in 2019.

(By Joe Deaux)

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