Alcoa seems to be calling the shots now. The world leader in the production and management of primary aluminum, fabricated aluminum and alumina raised the prices of some of its products in March. [1] The stock market clearly likes this news, with the company’s stock rising by more than 8% since then. Alcoa competes with other international metals and mining giants like Rusal, Rio Tinto, BHP Billiton and Chalco.
Our price estimate for Alcoa, at $17.68, is roughly in line with the stock’s market price.
Alcoa Has a Lot Going in its Favor
Recent developments have been rather favorable for aluminum manufacturing companies, with Alcoa clearly out in front in this race. We previously took a look at the growing adoption of aluminum in the packaging industry in our article titled ‘Good Things Come in Aluminum Packages for Alcoa.’ More recently, we examined the rise in copper prices and the subsequent effect of manufacturing companies switching to cheaper substitutes like aluminum in our note titled ‘Rising Copper Prices are Good News for Aluminum Producer Alcoa.’
Stock Price Justified
Alcoa raised prices for several of its industrial products sold to customers across North America. The increase in price of 10 cents per pound for select plate products will affect all agreements signed on or before March 14, 2011. [1] On top of this, the company removed two 5% discounts it provided on products sold for aerospace and defense purposes.
Alcoa’s Stock Price Could Head North on this News
The price hike will affect the average price per metric ton of engineered products, as well as Alcoa’s flat-rolled products. The 10 cents per pound price rise translates to an increase in revenue of about $220 per metric ton.
Assuming that the price increase applies to all engineered products by the end of the year, this would still only mean a relatively small 1% increase in our $17.68 price estimate for Alcoa. Similarly, the $220 price increase in flat-rolled products would add another 1% to our price estimate. Combined, these two $220 increases in average price per ton would push our price estimate for Alcoa just over $18.
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