2 aluminum stocks to buy after the new sanctions on Russia

On April 12, 2024, the US Treasury Department and the UK issued two new bans on metals of Russian origin. The new measures ban the United States from importing aluminum, copper and nickel of Russian origin. It also restricts the Chicago Mercantile Exchange (Comex) and the London Metals Exchange (LME) from accepting new supplies of Russian aluminum, copper and nickel. Current supplies of Russian metals represent 36% of refined nickel, 62% of copper and 91% of aluminum in LME inventories.

The goal is to continue to disrupt the revenue Russia receives from the export of aluminum, copper and nickel. The United States and the United Kingdom seek to further reduce Russia’s ability to continue financing its war against Ukraine.

Stop Russian financing of the war in Ukraine

US Treasury Secretary Janet Yellen said: “Our new bans on key metals, in coordination with our partners in the UK, will continue to target 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 gains, while protecting our partners and allies from unwanted spillover effects.”

The basic materials sector saw many metal producers see their prices initially increase on the news. Russia produces 6% of the world’s nickel, 4% of copper and 5% of aluminum. Here are 2 aluminum companies that can benefit from the new Russian sanctions.

Alcoa

Alcoa Co. NYSE: AA is a major manufacturer of aluminum and aluminum products. The vertically integrated company mines, refines, smelts and fabricates aluminum, transforming the raw material into usable products. They produce laminated sheets, plates and extrusions. Alcoa is also a leader in aluminum recycling. The company has agreed to acquire its Australian joint venture partner Alumina in a $2.2 billion equity deal announced in late February 2024. In doing so, it takes control of its interests in bauxite mines in Australia, Spain , Brazil, Guinea and Saudi Arabia. Alcoa seeks to close the deal in the third quarter of 2024.

Russian sanctions increase aluminum prices

Aluminum and copper prices rose to 14-month highs just days after the Treasury Department’s announcement. Russian sanctions mainly benefit Alcoa due to the spike in aluminum prices due to supply constraints. It could also improve demand for Alcoa’s aluminum in regions that previously depended on Russian aluminum.

Floating

Alcoa reported a first-quarter 2024 earnings per share loss of 81 cents per share, missing analysts’ estimates by 17 cents. The net loss was $252 million. Revenue fell 2.7% year over year to $2.60 billion, beating analysts’ estimates of $2.55 billion. The company has started the process of selling the San Ciprian complex in Spain. Aluminum production fell sequentially by 4% to 2.67 tonnes of alumina and 542,000 tonnes of aluminium. Keep in mind that a metric ton is 2,204 pounds compared to a US ton of 2,000 pounds. The company ended the quarter with $1.4 billion in cash and cash equivalents.

CEO Thoughts on the Alumina Acquisition

Alcoa CEO William Oplinger highlighted the immediate benefits of acquiring Alumina. The company requires government approvals in Australia and Brazil and expects to close the deal in the third quarter of 2024. Oplinger emphasized, “It advances our position as a global upstream pure aluminum company and enhances Alcoa’s vertical integration along the value chain through bauxite mining, aluminum mining and aluminum refining and 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. As a result of this transaction, Alcoa will be better positioned to continue our long-term plan to invest in Australian bauxite mining and alumina refining.”

Triple Chinese tariffs

As a bonus, the Biden administration released new actions to protect the steel and shipbuilding industries from China’s unfair practices. Biden is asking 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 aren’t undercut by the artificially low-priced Chinese alternatives that flood the market with cheap products. It is also working with Mexico to prevent further evasion of U.S. tariffs by Chinese companies.

Bull daily banner

The daily candlestick chart on AA illustrates a bullish flag pattern. The rally from $24.77 to $37.67 was the flagpole. The flag formed during the parallel trend lines of the lower highs and lower lows. A breakout through the upper descending trendline could trigger a breakout of the bullish flag above $37.67. The daily relative strength index (RSI) has moved back to the 60 band. The pullback support levels are at $33.84 million, $31.25, $28.72, and $26.25.

Alcoa analyst recommendations and price targets can be found on MarketBeat.

Century in aluminium

Century Aluminum Co. NASDAQ: CENX is a major competitor of Alcoa. It is also a vertically integrated mining, refining, smelter and manufacturing operation of aluminum and aluminum products. It has an alumina plant in Iceland and a carbon anode plant in the Netherlands. Its main focus is the production of aluminum from mined bauxite ore. I am a low-cost manufacturer of aluminum sheet products. The company has received up to $500 million in funding from the U.S. Department of Energy to build a new aluminum smelter, its first in 45 years. This facility will double the size of the U.S. aluminum industry, which is essential to supply chains and materials critical to the green energy movement.

Smaller but profitable

Century Aluminum is a smaller competitor to Alcoa. It reported fourth-quarter 2023 EPS of 39 cents, crushing analysts’ estimates by 22 cents. Revenue fell 3.5% year over year to $512.3 million versus $477.3 million. The company guided first-quarter 2024 adjusted EBITDA in a range of $5 million to $15 million.

Century CEO Jesse Gary noted that demand in the West appears to have bottomed out in the third quarter of 2023. The market saw increased demand in the fourth quarter of 2023 and expects it to improve and grow through 2024.

Daily banner template

The daily candle on the CENX shows a pennant pattern. This is a symmetrical triangle preceded by an ascending parabolic flagpole. The flagpole peaked at $18.64 and formed a symmetrical triangle composed of lower highs and higher lows. An imminent breakout or breakdown is looming; the question is in which direction. The RSI is still above the overbought 70 band. The 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.

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