With aluminum prices falling over the past year, stock prices for companies that smelt the metal such as Alcoa, Inc. (N:AA) and Rio Tinto Group (L:RIO) are suffering as a result, but more action will have to be taken on their part if they’d like to return to profitability.
According to a recent article from US News & World Report, aluminum smelters have already started to reduce production of the metal, but they may have to further cut back on output if they want to return to the black as aluminum demand is not expected to rise any time soon.
“The price in general has gone lower even though we’ve seen industrial demand and some production cuts,” Michael Turek, a senior trader at BGC Partners, a New York-based global financial services firm, told the news source. “The fact that prices continue to go lower suggests the market feels that thus far, it’s been a cosmetic surgery rather than mainstream surgery.”
On the London Metal Exchange, aluminum prices have dropped about 20% over the past year with global demand slowing. China’s economic issues have spearheaded the decline, as has been the case with many commodities.
“In terms of pure fundamentals, (the aluminum industry) doesn’t appear to have a lot going for it,” Turek added. “I don’t have any major grand upside aspirations for the market. We’re going to need more production cuts, and they’re going to have to be sustainable.”
We here at MetalMiner™ agree with this sentiment.
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