Saturday, May 22, 2010

Will Alcoa (NYSE:AA) Be Saved by Aluminum ETFs?

As the recession continues on, contrary to mainstream media reports to the contrary, Alcoa (NYSE:AA) continues to be challenged by the relatively low number of cars and planes being bought, and consequently, built.

That has of course caused aluminum demand to fall, and the price of aluminum with it, resulting in the inevitable fall in the share price of Alcoa as well.

One thing that could help them a lot in the near term, is the planned introduction of several aluminum ETFs in the latter part of the year, which they're expected to have a part in supplying the aluminum for, which is physically held by the ETFs, similar to gold being held by gold ETFs.

The question is how big of a role will Alcoa play in these new investment vehicles, as Rusal is already working on supplying aluminum for them, and they're the primary supplier. Alcoa's role at this time seems to be supplementary to what Rusal can't supply, so it's unclear at this time how much revenue and profits they'll generate as a result.

It is something everyone interested in Alcoa needs to carefully watch as the year goes on, as it may end up being a key factor in their short- and mid-term performance, as the conditions in Europe and China will probably result in aluminum demand being subdued for possibly a very long time, i.e. a couple of years or more.

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