Shares of Alcoa Inc. fell the most in eight months after the aluminum producer said sales slumped as a prolonged supply chain disruption curbed shipments, sparking concerns that cooperation could undermine customer demand for the metal.
The Pittsburgh-based company reported first quarter sales of US$3.29 billion, below the average estimate of US$3.42 billion compiled by Bloomberg. It reported higher inventory levels due to a lack of available rail cars and ships, particularly in North America. Chief Executive Officer Roy Harvey told analysts on a conference call Wednesday that Russia’s invasion of Ukraine has exacerbated the supply chain crisis, making the chip shortage more difficult for the automaker.
The stock fell 11 per cent at one point in New York, the biggest drop since August. Uncertainty caused by rising inflation, the war in Ukraine and China’s recent economic slowdown may be spilling over into the global aluminium market, which is used in everything from cars to construction to appliances. Harvey said the US aluminium industry is witnessing some declining demand due to supply chain issues. He expects aluminium demand to grow by about 2 per cent this year, down from previous forecasts of about 2 to 3 per cent.
“We’ve just seen the International Monetary Fund lower their expectations for growth,” Harvey said on a conference call. “I think that tends to start to erode some of the demand that we’re seeing because aluminium is so tied to the general economic cycle.”
Aluminium prices have fallen by around 20% since hitting a record high in early March due to concerns over demand. The Covid-19 blockade across China, the world’s largest consumer, has added to questions about how the war in Ukraine will affect one of the largest aluminium consuming regions. According to Bloomberg, Chinese demand is likely to grow by just 1% this year, well below last year’s 5.1% growth.
Peak levels
Analysts at Credit Suisse Group believe aluminium prices are near peak levels and expect the supply/demand balance to return to normal in the second half of 2022 as trade flows gradually realign. However, analyst Curt Woodworth said that current geopolitical events are providing lasting support for aluminium prices.
The firm’s forecast for aluminium shipments is unchanged from its previous estimate of 2.5 million metric tonnes to 2.6 million metric tonnes. Meanwhile, earnings before interest, taxes, depreciation and amortisation were $1.072 billion, up from the $1.04 billion average estimate of 10 analysts compiled by Bloomberg. It was Alcoa’s best quarter since it was spun off from its jet and auto parts business in 2016.
Post time: Apr-22-2022