Thursday, July 22, 2010

Will Floating Yuan Help Alcoa's (NYSE:AA) Performance?

Alcoa (NYSE:AA) has probably done about as much as they can in cutting costs and preparing for a turnaround when it comes.

Over the last couple of years, aluminum prices have plunged by about 60 percent, and the shares have dropped to just below $11 a share, from the $30 range.

For better cost controls to compete in that regard, Alcoa is developing a bauxite mine in Brazil. They're spending about $1.5 billion on that project. Some of Alcoa's smaller competitors have been nipping away at their business with better prices, contributing to the overall poor performance of the company, the reason for the bauxite strategy.

Other projects are a large aluminum mining project in Saudi Arabia, and a effort to modernize Russian plants to better serve the domestic market there.

Recently they acquired window and door manufacturer Traco, to diversify their product line.

What could help them the most, is the recent decision by China to allow the yuan or renminbi float more against the U.S. dollar. That could generate more demand from China, although they've been cutting back in some areas to battle rising property prices in urban areas and a possible bubble.

The other problem with the renminbi is it is a potential double-edge sword, which could perform reverse and cause more challenges for Alcoa if that is the case.

If it performs as expected, it could be a good boost for Alcoa in the short term.

The bottom line though is still demand and aluminum prices. Until those elements in the equation change, Alcoa is going to continue struggle, along with its shareholders.

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