Alcoa (NYSE:AA) posted a weaker-than-expected set of Q4 2022 results, weighed down by higher costs for energy and raw materials as well as sequentially lower pricing for both aluminum and alumina. While revenues fell 20% year-over-year to $2.66 billion, adjusted net loss came in at $123 million, or $0.70 per share. The company’s guidance for 2023 was also weaker than anticipated, with alumina shipments projected to stand at between 12.7 million to 12.9 million metric tons, marking a decline of about 0.5 million versus the last year partly due to curtailment at the company’s San Ciprián refinery in Spain. Shipments for the aluminum segment are projected at between of 2.5 to 2.6 million tons, as lower anticipated trading volumes are offset by higher volumes from the restart of the Alumar and Portland smelters.
Now Aluminum prices have recovered a bit in recent weeks, rising from $2,300 per ton in early January to over $2,500 amid prospects of stronger demand from China, which is reopening after over two years of stringent Covid-19 restrictions. However, we see a few potential headwinds for the aluminum market in the near term. Aluminum output from China has been expanding, driven by relaxed power restrictions and new capacity coming online and this could put a lid on price appreciation. Moreover, the Federal Reserve remains hawkish, despite the cooling pace of inflation, and this is widely expected to push the U.S. into a recession in the near term. This could weigh on the demand for industrial commodities such as aluminum. Commodity stocks typically react more strongly during a downturn and this could present a meaningful downside to Alcoa stock. We are maintaining our $47 price estimate for Alcoa, which is roughly about 5% below the current market price (based on pre-market prices on Thursday). See our analysis of Alcoa valuation for a closer look at what’s driving our price estimate for Alcoa and how Alcoa’s valuation compares with peers. Also, see our analysis of Alcoa Revenue for more details on how Alcoa’s revenues are expected to trend.
|S&P 500 Return||2%||2%||75%|
|Trefis Multi-Strategy Portfolio||7%||7%||237%|
 Month-to-date and year-to-date as of 1/19/2023
 Cumulative total returns since the end of 2016