Alcoa (AA) (BHP) (RIO) (ACH) to Gain from High Copper Prices

Companies with significant exposure to aluminum, like Alcoa (NYSE:AA), Rio Tinto (NYSE:RIO), BHP Billiton (NYSE:BHP) and Chalco (NYSE:ACH) and Rusal, should enjoy support as producers look for alternatives for certain products which can substitute aluminum for copper.

Aluminum is in general accepted as a cheaper substitute to copper in many applications, and many manufacturers are seriously considering switching to aluminum with copper reaching all-time high prices early this year.

Alcoa's products are used in a wide variety of products from aircrafts and automobiles to commercial transportation and packaging. The company also sells non-aluminum products like aerospace and industrial fasteners.

Copper is primarily used in electrical appliances and construction. About 65 percent of copper usage is attributable to electrical appliances because it is an excellent conductor of electricity. Construction applications make up the bulk of the remaining share of copper usage in which the metal is often used for roofing and plumbing as well as in automobile and ship manufacturing.

Copper prices are currently at an all-time high, above $4.5 a pound. In comparison, aluminum is priced at about $1.1 a pound. Given the costs of retooling manufacturing processes and the extra aluminum it takes to conduct the same amount of electricity as copper, it often becomes more economical to use aluminum instead of copper if copper prices rise above $3.50 a pound.

Alcoa closed Tuesday at $17.49, gaining $0.25, or 1.45 percent.




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RUSAL (PA:RUSAL) Earnings Plummet on FOREX Costs

Earnings for RUSAL (PA:RUSAL) dropped 55 percent on foreign exchange losses during the latest quarter.

Net profit for the quarter ending September 30 was $29 million, down from the $64 million in earnings last year in the same quarter.

Taking away the foreign exchange costs, net profit for the quarter would have come in at $419 million, according to RUSAL.

Expenses in the quarter increased to $699 million, far above the $276 million in costs last year.

Going forward, RUSAL said this about the aluminum market: "Several factors point to encouraging prospects for the aluminium market: the revival of the domestic market, increased economic activity in Germany, South America and Asia, spot premiums reaching an all-time high, partly due to China becoming a net importer of aluminium."

RUSAL dropped to $18.50, losing $0.70, or 3.65 percent.

Has Alcoa (NYSE:AA) Climbed As High As it Can Go?

Making a big move from August by rising almost 40 percent, questions are arising concerning Alcoa (NYSE:AA) and whether or not they have peaked in light of the demand for aluminum.

Consequently, BMO Capital has downgraded Alcoa from "Outperform" to "Market Perform," with analyst Tony Robson saying they're approaching his target price of $14 a share.

Robson also rightly noted that aluminum is probably the least enticing of commodity metals, saying they're the "least preferred commodity."

Contradicting assertions on supply and demand balance from Alcoa, Robson added that the believes there will be a surplus of aluminum, and the increasing size of inventories could drive aluminum prices down.

He also noted that Alcoa's nod toward Asian markets and China driving aluminum demand isn't convincing as it relates to them, as their smelters are a long way away, implying higher costs.

Alcoa also recently talked about eventual emergence of aluminum ETFs, but they haven't been part of negotiations yet, and haven't been invited to be. Rusal has been the major point of contact and beneficiary of that new aluminum market, not Alcoa.

So while there are some positive things to look for concerning aluminum in the long term, Alcoa will struggle to make them generate revenue and profits in the near term, and possibly for several years out.

If someone wants to stay in the aluminum play, Robson recommended moving to Rio Tinto (NYSE:RIO).

Alcoa closed Thursday at $13.81, down by $0.07, or 0.50 percent.

Alcoa (NYSE:AA) CEO Kleinfeld Interested in Aluminum ETFs

Unsurprisingly, Alcoa (NYSE:AA) CEO Klaus Kleinfeld expressed his support of the emergence of ETFs backed by aluminum, and said he would like to be a supplier of aluminum for a financial product like that.

So far, major competitor Rusal from Russia has been the major beneficiary of the move to create several aluminum ETFs.

This would be a major coup, not only for Alcoa, but the overall aluminum sector, as it would create an entirely new demand vehicle to feed at a time when aluminum demand continues to be slow.

Aluminum exchange-traded funds could also remove at least a part of the cyclical nature of aluminum, generating demand more consistently, and maybe offering the metal support while shrinking price swings.

Like other ETFs, aluminum exchange-traded funds would be backed by the metal, giving investors another option to hold the metal without storage costs and capital requirements.

Alcoa has made a nice move over the last several months after falling to about $10 a share in the latter part of August.

They closed Wednesday at $13.88, gaining $0.13, or 0.95 percent.