Alumina is a stock we own in our direct equity portfolios.
It owns a good chunk of Alcoa, and Aloca hosted an investor strategy day, of which a few key slides are worth noting.
Firstly, pricing. Alumina (the raw material) and Aluminium (the finished product) are seeing very favourable prices.
This is driven by a) the COVID related effects that have seen many commodities surge and b) relatedly, the high natural gas / oil prices that have downstream effects on the production cost of such commodities (e.g. you need lots of electricity to make Aluminium, that has to reflect the cost of higher natural gas pricing) c) China’s emissions, and desire for “blue skies” ahead of their hosting of the winter Olympics.
Secondly, the renewable energy trends. Whilst a little less exciting than say Lithium, Aluminium is a core staple of the sorts of technologies and products needed to ensure the energy transition.
Thirdly, they are towards the bottom of the cost curve ($/mt). Often, it is not the price of the commodity that matters, but rather your cost in producing it. You always want to be able to survive the cycle, which is not guaranteed if you are in the 2H of the curve.
Fourthly, relating to the graph above, AWC’s assets are right at the bottom of the emissions intensity curve. If you redraw the cost curve, imposing a fixed dollar cost (e.g. $50) per tonne of emissions, AWC continue to sit at the bottom of the cost curve. Less efficient, more emission intensive manufactures will either a) push up the curve or b) exit, which equates to a similar outcome for AWC.
Fifthly, and the knockout graph for us, and for AWC in particular, is the alumina cost curve. That’s where you want to be positioned.
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