Dow Jones Falls 200 Points, Alcoa Shines

Dow Jones Falls 200 Points, Alcoa Shines
October 5, 2018

 

Stocks listed in the US market fell sharply on Thursday as interest rates reached multiyear highs, dulling investor sentiment. The Dow Jones Industrial Average plunged 200.91 points to 26,627.48 as equities across the board lagged.  The S&P 500 dropped 0.8% to 2,901.61, recording its worst day since June 25. The decline was led by communications and tech sectors that fell more than 1.5%. The Nasdaq Composite slipped 1.8%, recording the biggest daily drop since June 25, to 7,879.51 as tech giants such as Facebook, Netflix and Alphabet declined by more than 2%. Despite the overall bearish sentiment, shares of Alcoa Corp. (NYSE: AA) +0.51% to close at $43.11, as aluminum futures gained sharply after Norway-based Norsk Hydro ASA (OTC: NHYDY) announced that it would close its refinery in Brazil. The stock of Norsk Hydro ASA plunged -3.97% to close at $5.085 following the news. Norsk revealed that its Alunorte alumina refinery in Para, Brazil was functioning at 50% capacity since March, mainly due to embargos instituted by the authorities.

 

Norsk Hydro’s pain is Alcoa’s gain

Norsk Hydro has confirmed that production has stopped at its Alunorte alumina refinery in Brazil. The largest alumina refinery, barring the mega refineries that exist in China, was operating at only half of its capacity since the beginning of this year because of the tussle between Norsk Hydro and Brazilian authorities.

Regarding the decision to shut down the alumina refinery temporarily, Norsk Hydro said: “The decision was taken as the bauxite residue deposit area 1 (DRS1) is close to reaching its capacity, due to the embargo on the state-of-the-art press filter and the newly developed bauxite residue deposit area (DRS2).”

In the first half of 2018, the restrictions on Alunorte along with sanctions on Rusal boosted alumina prices to new highs. Due to supply disruptions, the alumina-to-aluminum ratio also rose to record highs.

However, last month, alumina prices dipped on expectations of a manufacturing ramp up. Industry sources stated that Alunorte could add roughly 260,000 metric tons of monthly alumina supply. Now, the production halt at Alunorte has increased the chances of another rally in alumina prices. Norsk Hydro has also stated that the production halt could result in 4,700 job losses. It is a major setback for the Norwegian metals maker, who had closed two deals during September with Brazilian authorities in an attempt to start operating at full capacity.

Norsk Hydro’s loss is a gain for Alcoa Corp though, who is an integrated aluminum company involved in the entire life-cycle of aluminum, from bauxite mining to the manufacturing of finished aluminum goods. The company serves finished aluminum goods to a wide variety of industrial end markets. The rally in the price of alumina (XME) is expected to benefit Alcoa immensely.

The Pittsburgh, Philadelphia-headquartered Alcoa employs 14,600 people. The company has a market cap of $8.039 billion. Last week, Zacks Investment Research upgraded the stock from a “hold” rating to a “strong-buy” rating, with a target price of $48.00 for the stock, and we can, therefore, expect the stock to move up in the short-term.

Technically, the stock has strong support at 40 levels, and the stochastic oscillator has started rising. Therefore, we can expect a rally to begin soon.

alc - technical analysis - 5th October 2018

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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