The Alumina Limited (ASX: AWC) share price is edging lower today. The negative price movement comes after the aluminium supplier provided an update on the FY21 Q3 of its Alcoa World Alumina & Chemicals (AWAC) business partner, Alcoa Corp (NYSE: AA).
At the time of writing, Alumina shares are trading for $1.76 – down 1.12%. By comparison, the S&P/ASX 200 Index (ASX: XJO) is currently 0.26% lower.
Let’s take a closer look at today’s news and why it could be affecting the Alumina share price.
What’s going on with the Alumina share price?
In a statement to the ASX, Alumina advised shareholders of the Alcoa earnings report. As well, it provided “select information” on the Alcoa Bauxite and Alumina Segments, AWAC joint venture and other market data.
As stated, AWAC is a joint venture between Alumina and Alcoa. Alumina is a minority shareholder in the company, with a 40% stake. Alcoa owns the remaining portion. AWAC is the largest alumina business in the western world with a production capacity of 14.1 million tonnes of alumina per year.
From the Alumina update, Alcoa’s earnings before interest, tax, depreciation, and amortisation (EBITDA) in its alumina segment increased 134% to $227 million between Q2 to Q3. Its bauxite segment, however, fell 50.8% to $59 million during the same period. The EBITDA margin in the alumina segment increased from 10.4% to 20.2% while in bauxite it decreased from 39.5% to 24.3%. These figures are not overly impressing investors, judging by today’s Alumina share price slump.
Bauxite is an ore that contains aluminium oxides. It is then refined into alumina, which is then itself refined into aluminium.
Alumina also revealed its cost of production in AWAC increased by $23 to $229 per tonne while its realised price of AWAC product also appreciated – up by $26 to $298 per tonne. The net margin, therefore, increasing by $3 per tonne. The business claims the increase in production costs are attributable to “the higher Australian dollar, impacts from the Western Australian crusher move and seasonal maintenance.”
Alumina received $62 million from AWAC during the quarter. This is up by $7.4 million from the previous quarter.
Its net debt position increased from the last quarter from $49.6 million to $77.6 million.
Management commentary
Alumina CEO Mike Ferraro said:
With a slightly higher margin than Q4 2020, AWAC continued to generate significant cash flow for the quarter, distributing a net $62m to Alumina Limited.
An abnormal spike in Handysize freight costs in February 2021 had a negative impact on the Chinese alumina import parity price, which has caused a decline in API in recent weeks. Since late March, the Handysize freight cost has begun to fall and we expect it to continue to decline over the course of 2021, which is likely to put upward pressure on the API. Freight costs of Capesize vessels, which are used to transport bauxite from Guinea to China, have been relatively stable over the same period.
Aluminium commodity price
Aluminium futures are currently trading on the commodities market for US$2,336.50 per tonne. It’s at its highest price since June 2018. Over the past year, the Aluminium price has increased by 57.13%. The website Trading Economics is attributing the rise to increasing global demand and decreasing supply out of China due to emission regulations. In economics, this is known as the law of supply and demand.
Trading Economics is also forecasting the price of aluminium to decrease over the next 12 months. It expects its price to sit around US$2,144 by then.
Alumina share price snapshot
Over the past year, the Alumina share price has increased by around 16%. It is, however, down by around 6% since the beginning of this year. Based on the current price, Alumina shares are paying a dividend yield of 4.29%.
Alumina has a market capitalisation of $5.1 billion.
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Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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