The shares of Alcoa (NYSE: AA) have observed a 28% contraction in value since early April after observing a rally in early 2022, primarily due to renewed restriction measures in China – raising concerns of a broad-based demand crunch in the coming years. However, EIA’s lower benchmark oil projections for 2023 and prospects of leniency in China’s Zero-Covid policy after Shanghai’s announcement to end lockdowns, may help demand in the longer term. Thus, improvement in China’s industrial output is likely to assist beaten commodity prices as durable goods production rates rise. Moreover, investments in the renewable energy sector including electric vehicles, charging infrastructure, and solar & wind power plants, are key markers supporting long-term demand for aluminum and other commodities. Trefis highlights the historical revenue trends in Alcoa’s revenues across key operating segments in an interactive dashboard analysis.
Aluminum demand to grow in 2022 and 2023
In 2021, Alcoa reported 13.9 million metric tons of alumina and 3 million metric tons of aluminum production capacity. Moreover, the company reported 48.1 million dry metric tons of Bauxite production last year. Despite multiple waves of the pandemic, the company’s total sales have been continuously rising – assisted by strong demand. Given aluminum’s diverse utility across multiple industries and an upward commodity price cycle, the company is likely to observe sizable cash flow growth in 2022. Per IMF, the global output is likely to increase by 3.6% in 2022 and 2023 with China & India as focal points. Thus, aluminum, iron, copper, and other commodities are likely to observe growing demand despite the concerns of high inflation in developed and developing economies. Geographically, China, United States, Asia, Japan, Europe, and other regions contribute 57%, 13%, 9%, 8%, 5%, and 8% of total revenues, respectively.
Prices to retain strength
Per the World Bank’s commodity market outlook, aluminum prices are expected to be more than $3000/mt until 2024. Currently, the aluminum futures price is around $2,871/mt – comparable to Alcoa’s average realized price in 2021. Low inventories, strong durable goods demand, and high energy prices are key factors assisting the commodity price cycle in recent times.
|S&P 500 Return||1%||-13%||86%|
|Trefis Multi-Strategy Portfolio||1%||-16%||228%|
 Month-to-date and year-to-date as of 5/31/2022
 Cumulative total returns since the end of 2016